JULIANA AJAYI writes about the continuing effect of the Russia-Ukraine war on the air cargo industry
Some countries’ economies, particularly in Africa, have been significantly impacted since Russia invaded Ukraine in February 2022. From trying to salvage what is left of the economy following the outbreak of the Coronavirus Disease, Africa continues to feel the heat of wars and chaos among other nations of the world.
As a result, the cost of energy, including Jet A1 fuel, has risen, coupled with inflation and escalated supply chain disruption.
Noticeably, some sectors of the economy grapple with making profits while maintaining stability. However, some others, particularly the air cargo industry, continue to feel the impact of the war on the aviation sector.
According to a recent report by the International Air Transport Authority, the global demand for air cargo, measured in tonne-kilometre, fell by 11.2 per cent when compared to 2021. Meanwhile, the capacity was considered to be two per cent below.
Asia–Pacific airlines were the region with the weakest performance after recording 15.8 per cent in April 2022. Airlines in the region have reportedly been impacted by lower trade and manufacturing activity due to Omicron-related lockdowns in China. As a result, the available capacity in the region fell by 19.4 per cent compared to April 2021, the largest drop of all regions.
For African airlines, cargo volumes decreased by 6.3 per cent in April 2022 compared to April 2021, even lower than the growth recorded in the previous month. The Middle Eastern carriers experienced 11.9 per cent year-on-year decrease in cargo volumes in April. Significant benefits from traffic being redirected to avoid flying over Russia failed to materialise. This is likely due to persisting supply chain issues in Asia. Capacity was up six per cent compared to April 2021.
Latin American carriers reported a 40.9 per cent dip in cargo volumes in April 2022 compared to the 2021 period. This was the strongest performance of all regions. Airlines in this region have shown optimism by introducing new services and capacity, and, in some cases, investing in additional aircraft for air cargo in the coming months. Capacity in April was up by 67.8 per cent compared to the same month in 2021.
European carriers saw 14.4 per cent decrease in cargo volumes in April 2022 compared to the same month in 2021. However, within Europe, market fell significantly, down 24.6 per cent month-on-month.
North American carriers posted 6.6 per cent decrease in cargo volumes in April 2022 compared to April 2021. Demand in the Asia–North America market declined significantly. However, other key routes such as Europe–North America remain strong. Capacity was up 5.2 per cent compared to April 2021. Several carriers in the region are set to receive delivery of freighters in 2022, which should help address pent-up demand on routes where they are needed.
World share year-on-year performance for Africa was 1.9 per cent, Europe 22.9 per cent, North America 27.2, Latin America 2.2, while the cargo tonne-kilometre for each region include: Africa -6.3 per cent, Europe -14.4 per cent, North America -6.6 per cent and Latin America 40.9 per cent. Available cargo tonne-kilometres for Africa: 1.5 per cent, Europe -0.2, North America; 5.2 and Latin America; 67.8 per cent.
Overall, the total market performance for the regions, including Asia Pacific, for World Share YoY was 100 per cent, CTK was -11.2 per cent and ACTK was -2.0 per cent.
IATA stated, “The war in Ukraine led to a fall in cargo capacity used to serve Europe, as several airlines based in Russia and Ukraine were key cargo players. Also, the zero-COVID policy in China led to capacity challenges due to flight cancellations because of labour shortages.
“New export orders, a leading indicator of cargo demand and world trade, are now shrinking in all markets except the United States. Global goods trade has continued to decline in 2022, with China’s economy growing more slowly because of COVID-19-related lockdowns (among other factors). The lockdowns have brought much of the world’s largest port, Shanghai, to a standstill. Supply chain disruptions due to the Russia-Ukraine conflict are also adding to the downward pressure on trade.”
Significance of air cargo industry
The air cargo industry plays an important role in the global economy. Apart from its significance in the aviation industry, it is considered a trade facilitator that contributes to economic development, creating millions of jobs, thereby facilitating integration into the global economy, and providing connectivity on a national and international scale.
Air cargo carries over $6tn worth of goods, which accounts for about 35 per cent of world trade by value. It is an industry that is used in well over four sectors, including pharmaceuticals, healthcare and products.
Contributing to the well-being of nations, air cargo plays a critical role in flying temperature-sensitive pharmaceuticals like vaccines in the best conditions possible by using cutting-edge technology.
Nigeria’s facilitation of air cargo through its Customs and borders regulations ranks 68th out of 124 countries in terms of the Air Trade Facilitation Index, and 36th out of 135 countries in terms of the eFreight Friendliness Index globally. The Enabling Trade Index 9 ranks Nigeria 127th out of 136 countries globally for the facilitation of the free flow of goods over borders and to their destination.
In a chat with Financial Street, the Managing Director/Chief Executive Officer, Mainstream Cargo Limited, Seyi Adewale, explained some of the challenges the industry has encountered following the Russia-Ukraine war, which has led to increase in the cost of energy and Jet A1 fuel.
His words, “Surely, there is a significant, negative impact of the Jet A1 fuel on the air cargo industry. First, the airlines have hedged themselves by adding a high fuel surcharge to mitigate against the high cost of aviation fuel. To date, there has been, at least, one-third increment in air cargo rates compared to January 2022. This is even more significant because the airline pricing regime is always U.S. dollar-denominated. So, airline freight costs are high.”
He also explained that the cost of acquiring the dollar has surged within a few months. According to him, both local and international carriers are affected, which in turn affects the charges paid for cargoes.
“US dollar acquisition is also now high when compared to only January 2022. The impact of these is affecting the performance of both domestic and international carriers. For example, airline pilots are going on strike, and a half or even more of the fleets are grounded, especially domestic airlines, because of higher maintenance costs that cannot be easily passed on to the shipper or passenger.
“Many airlines are operating half of their fleet or lower due to high-cost maintenance and reorder costs. Further, this has caused many airlines to reduce their flight schedules to optimise returns per flight/route. Many of our customers that previously shipped food items, including perishables, to loved ones or family members, have since stopped these generous offers due to high freight costs since the commodities are non-commercial exports,” he said.
Adewale also revealed that other than the airline charges, the ground handling companies have increased their charges up to 70 per cent to make air freight more expensive/difficult for both the shipper and the airlines, noting that the increment was inevitable for their survival and growing operating costs.
The air transport market in Nigeria is forecast under the current trends scenario to grow by 174 per cent in the next 15 years. This would result in an additional 9.4 billion passenger journeys by 2037. If met, this increased demand would support approximately $4.7bn of Gross Domestic Product and almost 555,700 jobs.
A study by the World Bank reveals that higher fuel prices are expected to result in slower growth of air cargo traffic or even a possible downturn. Over the longer run, air traffic should continue to grow, but air freight will increasingly be integrated into multimodal supply chains that provide a better balance between cost and time.
Air cargo will also open new markets by providing fast and reliable service for initial deliveries of products. Air cargo will continue to support production activities, especially exchanging samples and delivering critical spare parts and high-value inputs. It will increase in importance in supporting reverse logistics, including repair and warranty work for electronics and other high-end consumer goods.
Nevertheless, air cargo is expected to decline as a mechanism for minimising inventories and supporting just-in-time production. For these activities, the higher cost of transport offsets the benefits of minimising inventories in the supply chain. While it is important for potential exporters to have access to air freight services, they also must manage their supply chains to offer a competitive balance in terms of shipping costs, timeliness and dependability.
“It is hoped that the war in Ukraine will be resolved at the earliest to reduce the rising fuel costs and allow its free flow or distribution and tame the high foreign exchange obtainable in the parallel market since Small and Medium Entreprises do not have easy access to the official FX channels,” Adewale added.
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