Lack of options has low-value air cargo moving at high-value rates

Lack of options has low-value air cargo moving at high-value rates

Passenger planes have been drafted in to carry cargo as airlines search for ways to keep revenue ticking over while travel bans ground fleets. Photo credit: Shutterstock.com.

Heavy and sustained demand for personal protective equipment (PPE) from Europe and North America and a lack of viable alternatives has turned air shipment of the low-value cargo into a money’s-no-object market with rates at record levels.

Air cargo is the only mode capable of providing the rapid replenishment required to satisfy the enormous daily demand for PPE, a commodity that would not typically be shipped by air. Yet all available air cargo capacity on the east-west trades has now been thrown into transporting PPE from China to countries fighting the coronavirus disease 2019 (COVID-19). 

The PPE is manufactured in China in millions of units that before the coronavirus ranged in cost from a fraction of a cent in the case of latex gloves and masks, to a few cents for face shields and protective gowns, according to an April study by the non-profit Society for Healthcare Organization Procurement Professionals (SHOPP). By mid-April, global demand had pushed up the cost of gloves, aprons, surgical masks, eye protection, and protective gowns by more than 1,000 percent for some items, but the cost per item still remains low, the SHOPP study shows. 

Air freight prices began to rise sharply in early March when travel bans grounded most passenger flights on the Asia-Europe, Asia-North America, and Europe-US trades, effectively withdrawing half the available capacity. As demand for PPE began to intensify, air cargo rates quickly reflected the space constraints, with the price-per-kilogram on Shanghai-Europe rising from $2.71/kg on March 9 to its current level of $10.45/kg, and from $4.02 on March 9 to $10.55 on Shanghai-North America, TAC Index data show. 

The Germany-based director for a global forwarder told JOC.com that because of such extreme demand, cargo owners had no time to wait for a cheaper mode of transport such as sea freight. 

“Nobody cares about the price, and PPE for private use is like gold these days,” he said. “If you can sell a mask for EUR 2.50 ($2.69) and can buy it for EUR 0.05 in China, then what do you care about air freight rates? The market for PPE for private use is so profitable these days that it makes sense to pay such high air freight charges.”

Brian Bourke, SEKO Logistics chief strategy officer, agreed that the high prices for air freight were purely a supply-demand issue. “We could literally lose a charter in five minutes if we do not sign a contract,” he said. “That’s how fast the market is moving, so pricing needs to be higher to ensure priority and to keep the market going during this time.”

Understanding PPE demand

But why is PPE demand still so urgent many weeks after countries shut down to limit the spread of the pandemic? Why can’t countries build up stocks of PPE and replenish by ocean transport that can ship greater volume at a fraction of the price? And who are the cargo owners of all these medical supplies being flown around the world at eye-watering prices?

Heavy and sustained demand is the main issue. Public and private procurement systems have largely been unable to meet the unprecedented levels of demand for PPE. Guidance from most governments is that all health and social care workers treating coronavirus patients must wear gloves, aprons, surgical masks, eye protection, and protective gowns. But these five different pieces of PPE must be changed up to four times a shift, with one hospital trust in the UK estimating that it goes through 72,000 pieces a day. UK Health Secretary Matt Hancock recently put demand for PPE across the UK at “billions per month.”

The daily demand for PPE is so heavy that healthcare systems are unable to build up inventory buffers while facing heavy competition from around the world in securing replenishment stocks. 

Much of the demand is from governments, such as the US’ Federal Emergency Management Agency (FEMA), the UK’s National Health Service (NHS), or the German ministry of health. However, many shipments are for the private sector, according to forwarders contacted by JOC.com. 

Bourke said SEKO in early April had arranged the shipment of 2.6 million masks, 170,000 goggles, and 2,000 ventilators from China to New York that was a charitable donation by Alibaba co-founder Joe Tsai. Other SEKO customers that have imported PPE include Case-Mate, an online seller of mobile phone accessories, and Alexandra Workwear in the UK that was donating PPE to retirement homes.

“There are also commercial PPE needs to provide safe work environments in factories and warehouses, and we have clients like Inspire Marketing Services that have shifted their focus away from traditional wearables and promotional items to focus on commercial PPE,” Bourke said.

The Germany-based forwarder said his company had carried out numerous shipments of PPE for both the federal government of Germany and state governments, as well as for pharmaceutical manufacturers, pharmacy retailers, and auto manufacturers such as Volkswagen.

Forwarders believe the demand for PPE will start to ease through May as the rate of coronavirus infections slow and countries start building up stocks. But until then, they expect heavy demand from around the world will continue to elevate rate levels amid fierce competition for limited air freight capacity.

Contact Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.