This is a continuation of our Covid-19 series where we discuss the impacts of the pandemic on different areas of the supply chain.
In this fourth post of the series, we will explore the impact on international shipments–in particular the changes to capacity and costs for getting goods from China to the US via ocean and air shipments.
Other posts in the series:
TNBT – How Flair, a $100k / month e-Commerce company is adapting to Covid-19
Covid-19: China’s manufacturing capacity back to normal
Covid-19: International logistics status – this post
Covid-19: Domestic logistics status – upcoming
Covid-19: Demand trends – upcoming
It is worth highlighting that around 50% of cargo shipments actually travel by passenger planes, in the hold with luggage. These are known as ‘bellyhold’ operations.
The International Air Transport Association (IATA) expects 1 million passenger flights worldwide to be cancelled by the end of June. Flights are already down 80% at the beginning of April.
Due to the shortage of passengers, some carriers have taken to converting their passenger planes to cargo planes by removing the seating.
The IATA recently released data from February showing air cargo capacity, measured in Available Cargo Tonne Kilometers, dropped by 17.7% among Asia-Pacific airlines. This is the largest fall since 2013, largely due to the decrease in bellyhold capacity.
Global shipping capacity has been reduced by roughly 3 million containers to conserve capital and maintain shipping rates, equating to a ⅓ reduction of capacity on some trade routes.
This has led to a large reduction of imports from China arriving at US ports. Down 44.9% in the first two weeks of March compared to 2019.
With capacity down greatly, you’d be correct in thinking costs have skyrocketed for air cargo.
Some reports are stating that costs have risen 75% since February, jumping from $3.19/kg to $5.54/kg at time of writing.
However, this seemed low compared to what we are hearing from customers. We decided to make a booking ourselves and saw prices ranging from $16/kg to $22/kg for a Hong Kong to LA route. This is a 5-7x increase which is more inline with what we are hearing in the market.
According to a recent Wall Street Journal article, pricing for ocean cargo was holding steady compared to the start of the year due to carriers reducing capacity so aggressively.
This doesn’t necessarily paint a rosy picture for ocean carriers since even the current pricing is 20% below their break-even pricing.
If you are looking to bring inventory into the US and want to see if financing it makes sense, touch base with our team here (just add your email to the bottom of the page). A team member will reach out to set up a discussion to see how best we can help.