Airlines’ China Cutbacks Amid Coronavirus Outbreak Squeeze Freight Capacity

Date: Tuesday, February 11, 2020
Source: The Wall Street Journal

Cargo companies fear bottlenecks for expedited shipments once factories resume production

A steep reduction in airline services to China in response to the coronavirus outbreak is slashing trans-Pacific capacity for high-value, expedited goods that move as airfreight, and setting the stage for potential outbound cargo bottlenecks once Chinese factories resume production.

Dozens of U.S., European and Asian airlines have suspended service to mainland China, reducing capacity for goods such as electronics that often travel in the bellies of passenger planes and triggering a jump in freight shipping rates. Some airlines have also halted flights into Hong Kong, the world’s busiest international air cargo hub.

Freighter operators such as United Parcel Service Inc. and Cargolux Airlines International SA are scaling back scheduled flights to China, as production shutdowns stretch past the Lunar New Year holiday that ended last week.

“We are continuing to fly into and out of China, supporting demand where it exists from our customers,” said Jim Mayer, a spokesman for UPS’s airline unit. “We are prepared to resume normal operations as soon as regular commercial demand returns.”

Cargo volumes are likely to pick up once factories reopen, which some are set to do next week. But several passenger airlines don’t plan to resume service to China until the end of March or later. And it isn't clear how many workers may report for duty or whether local officials could extend closures depending on the course of the outbreak.

“The variables continue to change by the hour,” said Neel Jones Shah, global head of airfreight for Flexport Inc., a technology-focused international freight forwarder. “Passenger bellies represent about 45% of all the capacity in and out of China…we know that capacity is going to be gone.”

Mr. Jones Shah said Flexport isn’t scrambling for capacity right now because the production shutdown means there isn’t much cargo to be shipped. But routing airfreight shipments into China, such as medical equipment and industrial goods, is “getting a little tricky,” he said, with rates up three or four times the usual price.

More than 25,000 flights to, from or within China have been canceled because of the coronavirus, according to Resilience360, which monitors risk and disruptions across supply chains.

“The biggest risk is likely to come from congestion at air cargo terminals and warehouses due to inbound shipments for which delivery and pick-up services cannot currently be arranged. This is likely to cause increased storage costs,” Resilience 360 wrote in a Feb. 5 report. “Capacity shortages are most likely to occur for outbound shipments from Chengdu and Chongqing, which rely more heavily on passenger flights than hubs such as Shanghai.”

Freighter operations at Hong Kong Air Cargo Terminals Ltd. are continuing as normal “save for temporary minor adjustments in schedule,” Chief Executive WIlson Kwong said.

He said Hong Kong International Airport could become an alternative route for China shipments if “the problems on the mainland lead to serious airfreight disruption.”

Once production in China resumes, companies that usually transport goods by container ship may seek to move inventory to distribution centers by air to make up for lost time, said Mike Short, president of global forwarding, at C.H. Robinson Worldwide Inc.

Read from the original source.