Cathay Pacific has completely revamped its freighter schedule in preparation for peak shipping season, but executives indicated Thursday that demand will be lower this year due to inflation and continued supply chain issues.
The forecast came as a record-breaking hot wave and another round of COVID lockdowns in a major metropolis slowed productivity at Chinese manufacturers.
The peak season for air shipments is generally from late September to early December, when stores place their holiday orders. Cathay Pacific’s freight unit expects less growth than in 2021 when it established a record. And organizations that manage airfreight shipments for clients agree that supply outnumbers demand in China, despite bookings increasing in places like Korea, Taiwan, India, and Indonesia.
There are so many economic crosswinds that predicting the market’s direction is impossible. However, there are signs that air cargo shipments are beginning to increase.
Frosti Lau, general manager for cargo service delivery, stated in a monthly email to customers that inflation looks to be depressing consumer spending while supply chain issues are limiting manufacturing output.
He could not provide particular examples, but China’s zero-tolerance attitude toward COVID prompted enterprises to close or reduce production months ago. Even when allowed, many workers have not returned to work, and the country has yet to fully reopen. Several typhoons hit China and Hong Kong this summer, disrupting Cathay Pacific Cargo’s perfectly timed staff rotations for China flights. This setback came after months of drastically restricted freighter operations due to tough Hong Kong restrictions requiring returning pilots to stay in a seven-day quarantine.
“While high-tech is one of the industries that may be negatively impacted,” Lau wrote, “there are also whispers of consumer product launches later this year that may yet increase demand.”
Cathay Pacific’s freight volume fell 17.2% year on year in July and 41% year on year. Cargo capacity was down 16.4%, or nearly half, compared to the pre-pandemic period.
Because of COVID constraints, the airline has been unable to add passenger capacity for far longer than other airlines, and several passenger aircraft continue to operate as auxiliary freighters on intra-Asian routes. According to officials, passenger capacity could reach a fourth of what it was in 2019 by the end of the year.
“This added capacity will help as we prepare for a busy peak, though we expect it to be less prolonged and pronounced than last year’s,” Lau said.
In August, Hong Kong’s export and import volumes fell by 7.5% and 6.8%, respectively, hurting space and rate, according to a client update from Taiwan-based freight forwarder Dimerco Express. Aside from the epidemic, several factors influenced air cargo operations, including persistent COVID limitations on cross-border trucking between mainland China, decreased global demand, and the Russia-Ukraine war.
One impediment to Cathay’s business that Lau did not mention was widespread flight cancellations in August by mostly Chinese and Hong Kong airlines in response to China’s military exercises around Taiwan in protest of U.S. House Speaker Nancy Pelosi’s visit to the island nation, which China claims as its own. Because of the reduction of passenger and freighter flights, there was a brief capacity deficit.
The Baltic Air Freight Index fell 1.1% in the week ending Wednesday, capping off a persistent decrease in air cargo prices that has average global spot rates lower than a year ago for the first time in many months. According to the TAC Index, which determines the Baltic index, prices do not appear to be firming up as the peak season approaches.
Air logistics companies report that demand is weak in several parts of the world, including Europe and South China.
Manufacturing snags in China
Meanwhile, Cathay’s opinion is influenced by happenings in China.
Following a resurgence of infections, the city of Chengdu, which has a population of over 20 million people, declared a COVID lockdown beginning Thursday evening and widespread testing until at least Sunday.
The city, which is located in Sichuan province, has recently recovered from a power outage caused by a record heat wave, which forced officials to ration power, forcing hundreds of factories to close in order to prioritize energy supply for households. At the same time as demand increased, a historic drought restricted electricity supply at power facilities.
Since Shanghai in early April, Chengdu has been the largest Chinese metropolis to be locked down. COVID limitations have lately been increased in other manufacturing hubs such as Shenzhen and Guangzhou.
Everstream Analytics claimed in a briefing note given with American Shipper that the excessive heat likely made it easier to spread the infection since individuals gathered indoors in air-conditioned surroundings.
According to the cloud-based supply chain risk management organization, the COVID sequester during a two-week stoppage due to a power outage may hinder efforts to restore full production capacity. Larger enterprises may be able to continue operating under closed-loop systems, with personnel residing on-site 24 hours a day, seven days a week, or moved to a specialized dormitory. Midsized and smaller businesses will be forced to reopen, “which will further deplete inventory and potentially lead to supply delays if the lockout is prolonged.”
According to Everstream Analytics, multinational firms having factories in Chengdu include Toyota, Volkswagen, and automotive supplier Bosch.
Everstream’s worldwide head of intelligence, Mirko Woitzik, stated in an email that Foxconn’s Hon Hai Precision Industry began closed-loop production on Thursday and is expected to continue normal operations. Chengdu Yaguang Electronics and Chengdu Shizheng Technology both closed their doors.
According to Reuters, Volvo Cars, located in Sweden, also paused operations at its Chengdu plant owing to the lockdown measures.
Other locations, notably Chongqing, a significant city in southwest China, were also without electricity in late August. Manufacturing plants in the provinces of Zhejiang, Jiangsu, and Anhui have also been instructed to temporarily close or curtail operations.
Steel and copper facilities, which consume a lot of energy, bore the brunt of the cuts, according to Everstream. It started as a supplier of packaging for Apple computer processors, as well as Sichuan Yahua Industrial Group, a leading producer of lithium used in electric vehicle batteries, had stopped down for several days.
According to the National Bureau of Statistics, China’s industrial output fell for the second straight month in August as a result of the power crisis, COVID outbreaks, and other issues.
Despite the challenges, air freight demand and sales are likely to be higher than in a typical pre-pandemic year. Few expected the business to maintain its high volumes in 2021. And there are indicators that volumes are increasing as the normally slow summer season winds down.
Export volumes from China continue to fall, but with heat waves in China diminishing and new tech items like the iPhone set to be released in the coming weeks, the peak season should begin around the third week of September, according to Dimerco Express. As manufacturing resumes, capacity is projected to tighten and rates to rise, according to the report.
Global airfreight tonnage grew in the last week of August, following reductions in the previous three weeks, according to data service World ACD. According to the report, a similar pattern occurred in August of the previous year, however the drop this year was deeper.
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