The broad impact of COVID-19 on the global air cargo industry is well covered. However, it's important to consider how these events are likely to impact upon air cargo space for various classes of Australian user - and in particular, Australia's primary produce exporters.
Globally, capacity fell by 45%, uplift fell by 11%, and of course this caused an increase in the utilisation factor of available capacity, driving up yield by 30%.
Australia’s air cargo market is typically asymmetrical. Australia, under normal circumstances, imports manufactured products and exports raw products. This means that the value of imports per kg normally far outweighs that of exports. In response, yield on inbound air cargoes is normally greater than that on outbound air cargoes.
However, 2020 figures look different.
Perhaps, at least partly, in response to increased cost of air freight space, a significant reduction in lower yield air cargo types like meat, horticultural products and other foods is evident. As much as we like to think of Australia’s excellent food production as high value, the reality, from an air cargo perspective, is that it simply isn’t. High value in terms of air cargo is the urgently needed machinery part where down time on a mine site is costing $1M a day. It is pharmaceutical products worth hundreds or thousands of dollars a kg. It’s the latest release of an iPhone, or a replacement jet engine for a stranded $100M aircraft. These are the things that have the buying power and yield opportunity to drive airline decisions. At least cumulatively.
While nationally, air cargo imports had basically recovered to pre COVID-19 levels by December last year, exports were still a long way behind. Nearly all of our top ten air freight exports by weight experienced a significant drop, year on year. This is possibly also partly due to reduced availability of labour for the harvest of some horticultural exports.
The average value per kg of both imports and exports travelling to and from Australia by air have both risen dramatically, likely a result of lower value products no longer travelling by air.
What happens next will be of great interest - or at least it should be if Australia wishes to preserve hard won markets and customers. The rising Australian dollar, curious geopolitical environment and rising price of fuel are all likely to continue to compound the challenges facing Australia's high value agricultural exports. This will likely continue the trend of reduced volumes on air transport.
If Australia wishes to protect and retain its trade relationships and market presence, these exporters are going to continue to need support to get their product to market, and to continue to occupy market share. Australia has many competitors who will be happy to move in and supply where we don’t.
Schemes like the International Freight Assistance Mechanism are going to continue to be important in making available and preserving important capacity to market. Given the long term planning nature of Australia’s primary industry exports, advice around the future of this scheme is urgently needed. One thing we can be certain of is that capacity is not going to return to normal between now and the end of June. In the absence of a strong passenger network in and out of Australia, capacity for products like Australia’s excellent primary produce exports will continue to be problematic if left to be determined purely on commercial grounds.
Avistra Aviation Consulting provides strategic and commercial advice to airports and government seeking to grow sustainable aviation capacity and infrastructure.