Suez bypass: Good luck finding an air cargo alternative

The airfreight market is saturated; businesses looking to avoid ocean gridlock have few options.

When supply chains break down, one of the first options for time-critical shipments is airfreight. But businesses hunting for air transport to avoid the giant ocean bottleneck in the Suez Canal are in for a rude awakening: There are no spare aircraft.

“Much of the available capacity has already been committed as we are seeing a huge spike in volume for the end of the first quarter,” Shawn Richard, vice president of global air freight at SEKO Logistics, said in an email. The increase coincides with China’s Qing Mei holiday in early April when factories ship more products before and after they close to keep up with orders.

Producers and retailers are still facing huge shipping delays and stockouts caused by supply constraints in ocean shipping, regional imbalances of shipping containers, port congestion, the Texas winter storms and the global shortage of semiconductors that has forced automakers to scale back production — a situation made worse by the recent fire at Renesas Electronics Corp.’s chip plant in Japan.

The Suez Canal closure is one of the biggest disruptions to global trade since the collapse of South Korean carrier Hanjin Shipping in 2016, which led to a 60% spike in container freight rates and pushed airfreight volumes up seven points, Jefferies equity analyst David Kersten said in a research note.

International air cargo capacity remains critically low because the pandemic has forced airlines to ground vast parts of their fleets, which provide more than 50% of the space used to move goods globally. Researchers say available aircraft space is still 15% below normal, despite a 26% influx of freighter capacity, as interest from businesses for cross-border transport continues to reach record levels.

The weeklong closure of the Suez Canal is expected to further increase competition for scarce aircraft cargo slots. Demand for ocean-to-air conversion has skyrocketed this month as shippers, such as retailers with high-value goods and automakers, try to circumvent port congestion. Logistics providers say they are shipping products, such as hot tubs and exercise bikes, that never moved by air before. Import demand for personal protective equipment and COVID test kits made in Asia is rising again around the world, and researchers are forecasting double-digit growth in smartphone and computer sales.

Ocean shipping line CMA CGM notified customers that for cargo yet to be loaded on vessels, it is considering airfreight and rail service to prevent getting caught in the Suez gridlock.

Most of the anticipated growth is within North America and the Caribbean, with international routes that support large cargo volumes expected to take longer to resume — unless there is enough high-yield cargo to offset limited passenger revenue. But United Airlines (NASDAQ: UAL) recently announced it will fly more than 100% of its pre-pandemic schedule to Latin America and resume flights between Chicago and Tokyo as well as New York/Newark and Milan and Rome, and restart service between Chicago and Amsterdam. In total, United plans to operate 52% of its overall schedule compared to May 2019.

If the Biden administration relaxes more international travel restrictions, it would be a signal to airlines that they could start adding some widebody flights for summer travel