Air cargo has been severely hit by the spread of COVID-19 as is evidenced by the fact that major air cargo carriers have no immediate plans to add China flights to replace the capacity lost amid steep cuts to passenger travel due to the coronavirus, as many factories have remained shut down after the Lunar New Year.
by Dr. Ruwantissa Abeyratne
Writing from Montreal
The latest issue of The Economist says: “Connectivity is what the world’s agro-industrial complex is all about. Four-fifths of the planet’s 8bn mouths are fed in part by imports; the $1.5trn that was paid for them last year was three times 2000’s bill. Battalions of lorries and fleets of ships connect tens of millions of farms to hundreds of millions of shops and kitchens. The newspaper starts by saying: “ in late January China banned package tours from heading overseas for the lunar new-year holiday. This gave cold sweats to David Parker, New Zealand’s trade minister. Fewer tourists were a disappointment, but planes that did not bring tourists in one direction would not take agricultural produce back in the other—significantly more worrying, given that China is New Zealand’s biggest customer for the food which is its biggest export”.
According to estimates by the United Nations the current crisis will result in an economic fallout of 265m people suffering from acute hunger in 2020 with no exception ascribed to developed countries. There is palpable evidence of the long stretched “kilometer long” food queues in the United States at food banks in some cities. As the Economist goes on: “ in these circumstances even quite small dislocations in the food system could, by increasing prices further, lead to great suffering”.
In February 2020 ING stated that “the coronavirus could potentially impact the annual level of world trade in 2020, as it's not certain that factories and logistics will be able to catch up and fully compensate for earlier delays, given the limited capacity. If they cannot fully recuperate, global trade growth in 2020 will suffer” . The World Economic Forum has reported (in an update on 2 March 2020) that China’s economic growth was expected to slow to 4.5% in the first quarter of 2020 – the slowest pace since the financial crisis. The International Energy Agency has stated that global oil demand has been hit hard by the effects of the coronavirus and the WEF concludes that factory shutdowns are slowing the flow of products and parts from China, affecting companies around the world, including Apple and Nissan .
The Organization for Economic Cooperation and Development (OECD) has stated that “even in the best-case scenario of limited outbreaks in countries outside China, a sharp slowdown in world growth is expected in the first half of 2020 as supply chains and commodities are hit, tourism drops and confidence falters. Global economic growth is seen falling to 2.4% for the whole year, compared to an already weak 2.9 % in 2019. It is then expected to rise to a modest 3.3% in 2021” . OECD has added that “international merchandise trade (in current US dollars, seasonally adjusted) in the G20 continued its downward path in the fourth quarter of 2019. Compared with the third quarter of 2019, exports contracted by 0.1% and imports by 1.3%, and now stand at their lowest levels in two years. Evidence of significant disruption to Asian (in particular) supply chains related to the Covid-19 outbreak suggests that this downward trend is likely to continue into the first quarter of 2020” .
These facts have a direct impact on air transport and the trade implications it brings as it provides the only worldwide network of connectivity. The industry is known to be responsible for at least 40% of international tourists travelling by air generating a total of 29 million jobs globally (through direct, indirect, induced and catalytic impacts).
The Air Transport Action Group (ATAG) has recorded in an early estimate way prior to the pandemic spread of the virus that aviation’s global economic impact (direct, indirect, induced and catalytic) is estimated at US$ 2,960 billion, equivalent to 8% of world Gross Domestic Product (GDP) . Aviation continued to expand until the Covid-19 crisis brought the lockdown into place.
Air cargo, which is a substantial part of the overall air transport product, effectively connects markets distant from each other creating global supply chains with speed and efficiency. The International Air Transport Association (IATA) has stated that air cargo represents more than 35% of global trade by value. This makes businesses deal easily with inventory management and built-to-order production . The speed and efficiency inherent in air transport that makes transport of cargo by air more efficient is dependant on various factors including market access and liberalization as well as fair competition rules.
Air cargo carriage often results in the cargo being trucked to its ultimate destination. This creates a complex supply chain across customs borders that call for multiple parties to be involved. In addition, various documents of carriage are used in the composite carriage and liabilities of various parties may ensued for loss or damage to cargo . The process involves (in that order) the consignor, origin freight forwarder, ground handler, carrier, ground handler, destination freight forwarder, and finally the consignee. The processes these players in the multimodal carriage go through (in that order) are, pick up, consolidation, acceptance of cargo and documentation, departure, arrival and delivery, deconsolidation, and final delivery.
Air cargo has been severely hit by the spread of COVID-19 as is evidenced by the fact that major air cargo carriers have no immediate plans to add China flights to replace the capacity lost amid steep cuts to passenger travel due to the coronavirus, as many factories have remained shut down after the Lunar New Year. Aviation data firm OAG has said:” there would be more than 25,000 fewer flights operated to, from and within China this week compared with two weeks ago, with 30 airlines halting services. About half of the air cargo carried globally is on passenger jets rather than in dedicated freighters, and the flight cuts have made the Chinese market more dependent on freight haulers ”.
There must be strong international accord to keep the transport supply chain going both nationally and internationally even if passenger air transport takes a long time to be revived. The United Nations Office of Supply Chain Management should take the lead and face the crisis head on so that there is an assurance of continuity in the global supply chain. The first step would be to establish a global crisis coordination team and ensure all parties are engaged, possibly comprising an executive team of IT management, a communications team, and management team from operations, safety and, security. The second would be to task this team to come up with a list of what might be needed for the transport chain to be strongly linked continuously and what the impacts might be from possible culture changes to cope with the financial sustenance of the providers of services and finally to plan ahead according to what the recovery from the crisis might look like.
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