‘Belly’ Aches: Capacity Constraints Lead to Higher Airfreight Rates

The year began with air-cargo demand returning to levels last reached before the coronavirus (COVID-19) pandemic, according to data from the International Air Transport Association (IATA), but a continuing lack of availability of valuable space — below-deck, or “belly,” capacity on passenger flights — remains a challenge.

Global demand, measured in cargo ton-kilometers (CTKs), was up 3 percent month-over-month and 1.1. percent compared to January 2019. However, capacity shrunk nearly one-fifth (19.5 percent) compared to January 2019, and the monthly availability dropped 5 percent, the first such decrease since April 2020.

Much belly space has been grounded since the start of the pandemic, as quarantines and travel restrictions have limited passenger air travel. According to IATA data, passenger air traffic was down 72 percent in January compared to the same month in 2019.

“Air cargo traffic is back to pre-crisis levels, and that is some much-needed good news for the global economy. But while there is a strong demand to ship goods, our ability is capped by the shortage of belly capacity normally provided by passenger aircraft,” Alexandre de Juniac, IATA director general and CEO, said in a press release. “That should be a sign to governments that they need to share their plans for restart, so the industry has clarity in terms of how soon more capacity can be brought online.”

With a lack of belly capacity, shippers have been forced to rely on airfreighters — and are paying for it. In a March earnings call, executives at Memphis, Tennessee-based shipping giant FedEx indicated that rates could remain elevated for the next 12 months, and Glyn Hughes, director general of The International Air Cargo Association, told a JOC.com virtual conference in March that he does not expect relief for at least three years.

Logistics grade: Panama ranked No. 38 in the 2018 Logistics Perfor-
mance Index by The World Bank, but the Central American country sits in a location favorable to trade. Also, it will always be indispensable in global transportation since it has one of the world’s most vital and iconic waterways, the Panama Canal.

Infrastructure: Continuing trade turbulence and the coronavirus (COVID-19) pandemic has led to mixed results for the canal, with fiscal year 2020 transits (13,369) and volumes (474.5 million Panama Canal Universal Measurement System tons) a slight increase compared to the previous year but below projections.

The customs house: Panama hopes to leverage its geography and ports infrastructure by establishing a hydrogen distribution center, Jorge Rivera Staff, the country’s ministry of energy, announced in March. Rivera Staff indicated that global maritime decarbonization standards will require refueling without carbon emissions, and Panamanian ports have that capability.

3,935

Scrubber-fitted ships in the world’s fleet in March, nearly double the figure at the start of 2020, when the International Maritime Organization’s IMO 2020 low-sulfur fuel regulations went into effect, according to research by the Baltic and International Maritime Council (BIMCO), a Bagsvaerd, Denmark-based shipping association. To comply, carriers can continue to use high-sulfur fuel and install a scrubber or purchase higher-priced low-sulfur fuel.

There is a clear tendency that it is the large ships that burn most bunkers which have been preferred for scrubber installations. But it goes for all: As voyage costs are lowered, earnings are higher.” 

— Peter Sand, BIMCO chief shipping analyst