New covid-19 variant set to keep cargo rates at elevated level

Published: Thursday, December 16, 2021

The Omicron variant is set to keep air cargo capacity tight and as a result air cargo rates will remain at an elevated level.

In the latest Baltic Exchange market update, investment bank Stifel senior analyst Bruce Chan said that the new variant will restrict network capacity due to safety protocols, episodic infection and national response.
He added, “This and other new variants are likely going to delay a return to pre-pandemic international business travel (or international travel in general), which means that the complete return of belly capacity on those core lanes will also get pushed out.”

Chan said that there was also at least some risk that belly capacity may never fully recover if there is a permanent switch to hybrid in-person/virtual business.

“With renewed lockdowns in some countries and geographies, and with continued and not unreasonable public concern about viral spread, we believe the eventual transition of discretionary dollar spend away from goods and back to services may be elongated as well,” he said.

“These factors should support persistently elevated airfreight rates, in our view, and any shippers that were looking for relief in the seasonal first quarter freight lull may not find it – at least to the extent that they expect.”
Last week, IATA’s director general Willie Walsh also warned that a knee-jerk reaction to the Omicron variant from governments could have an impact on cargo capacity if restrictions dampen passenger demand.
Walsh said that after almost two years of Covid-19, governments have the experience and tools to make better data-driven decisions than the “mostly knee-jerk reactions to restrict travel that we have seen to date”.
“Restrictions will not stop the spread of Omicron,” he said. “Along with urgently reversing these policy mistakes, the focus of governments should be squarely on ensuring the integrity of supply chains and increasing the distribution of vaccines.”

The warnings come as airfreight rates continued to increase recently.

The latest figures from the Baltic Exchange Airfreight Index (BAI) show that prices from Hong Kong to North America reached a new index record of $12.41 per kg, compared with $6.77 per kg in the same week last year and $3.66 per kg in 2019.

There was also a new index record on services from Hong Kong to Europe, which reached $8.46 per kg compared with $5.61 per kg in the same week last year and $3.27 per kg in 2019.