Air cargo's perfect storm

Is Australia facing a perfect storm regarding air cargo capacity?

Australia holds its head up high at its response to the COVID-19 pandemic. Tough, staunch and unapologetic measures designed to protect our people, and our economy from the present day viral threat wreaking havoc around the world.

Ensconced safely upon our walled island, we live our lives in relative normal. No morgues in the park for us, we bemoan a series of knee jerk lockdowns imposed by flinchy and electorate-aware governments, wishing we could make our weekly weekend pilgrimage to the local bicycle encrusted, beard growing coffee shop. Looking wistfully out of our windows at the spanking blue sky that we are so famous for, and more wistfully again at pictures of overseas places not even half as nice, we argue about the merits, risks and costs of a vaccination program, and wonder why it hasn’t all happened yet.

Meanwhile, around the world, having trudged doggedly through the mire of COVID, cities, and people, are emerging once again. Whether they achieved a sense of safety though panic driven mass vaccination, through herd immunity because so many people have contracted and recovered from COVID, or from just having come to terms that living with COVID-19 IS the new normal, people, industries and businesses are getting back to work, leading the post-pandemic boom that some economists have promised us all.

They are buying, hiring, building, and importantly for our battle-weary aviation industry, travelling. Global industrial production and trade was 2% above pre COVID levels in February, and in many markets, consumers have hoarded excess savings exceeding 10% of the local GDP (source: IATA). There is now strong evidence that markets able to travel will bounce back to recovery surprisingly quickly, as travellers spend pent up cash, reconnect with loved ones, escape their locked down lives and rekindle valuable business relationships.

Protecting Australia from COVID-19 seemed like the best thing to do. And perhaps it was. The human cost borne by countries where COVID-19 ran rampant was and is enormous and heartbreaking. In terms of the aviation recovery though, the markets that fell first and hard are expected to the be the first to recover. Those hit later, and those with low-risk appetite and controlling policy approaches, are expected to take longer. Sounds like us.

And so for Australia, this is just one of the factors which may contribute to something of a perfect storm for Australia’s air cargo exporters. Global airlines operating to Australia are going to be increasingly attracted to re-tasking fleet to other, more lucrative, faster recovering markets across North America, Asia and Europe (subject of course to their operating rights). Australia faces losing more capacity as better opportunities emerge for under performing fleet.

Realistically, there is no end in immediate sight for this situation in Australia. Vaccination is taking longer than anticipated, a looming federal election serves to exacerbate the incumbent government’s risk aversion and its tactical need to remain, in the electorate’s eyes, “safe hands”. It is difficult to predict when our sunburnt country will once again open her borders, but you can bet it won’t be before the federal election, unless something dramatic happens to make it a safe bet. And so, the gap between Australia’s aviation recovery, and that of the rest of the world, will widen.

Of course, Australia’s IFAM program has done much to ameliorate the impacts of COVID-19 driven aviation downturn on Australia’s exporters, with significant federal funding up until September helping to ease the cost of air transport for Australia’s exporters. The hope being that, in the long term, and at the macro level which concerns federal policy and budget, this will assist with protecting Australia’s markets by allowing our exporters to continue to service their customers. However, no announcement has yet been made about the continuation of this funding beyond September. Surely, there is no choice but to extend this investment.

Capping off these factors, to create a worrying mix for anyone whose business relies upon affordable air freight capacity out of Australia, is the shipping crisis. Shipping is a bit of a mystery to me, but there seem to be some serious problems, of various origins, and the industry seems to feel it is going to take a few years to fix. In the meantime, more products will turn to air transport to get to their market on time. Lucky that consumers are cashed up because things might get a little more expensive.

One benefit is that where we aren’t spending money on overseas travel, we are on internet shopping, and domestic travel, fuelling both domestic aviation recovery and inbound express and general air freight demand.

So, bringing these issues together, we face a worrying mix of impacts, both threatening current air cargo capacity availability and proposing greater demand on what capacity does exist. We should anticipate that already heightened air cargo rates will possibly climb higher again, and that this will have serious consequences for lower yield air freight export products, which face dim prospects of turning to sea transport, or expecting markets will be sympathetic to Australia’s self-imposed exile.

Australia should think about how we can both manipulate the levers which lead to the provision of air freight capacity, and position Australian industry well for the coming global recovery as Australia catches up on the recovery curve. We need to think seriously about which of these structural changes are permanent, and to what degree, and how the policy position can be adjusted to support the cultivation of commercial relationships and business models which are fit for the new normal.

For the businesses dependent upon air cargo capacity out of Australia, things are likely to get tougher before they get easier. The cost of getting product to market is really going to test how well we have differentiated Australia as a premium provider.

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