Manufacturers are increasingly opting for air transportation in the coming weeks due to heightened attacks on Red Sea shipping, necessitating the exploration of alternative routes, according to logistics firms. This shift presents a potential advantage for a sector grappling with subdued post-pandemic demand and excess capacity.
The Red Sea, a crucial link to the Suez Canal, forms a vital east-west trade route from Asia’s manufacturing centers to Europe and the east coast of the Americas. Approximately 12% of global shipping traffic accesses the Suez Canal through these waters.
Over the past two months, attacks by Yemen’s Houthi militia on ships in the region have impacted companies and raised concerns among major powers, escalating tensions in Israel’s conflict with Palestinian Hamas militants in Gaza.
Although air freight prices have remained relatively stable amid the shipping crisis coinciding with a seasonal demand lull, data from Freightos indicates a substantial 91% week-on-week surge on the China-to-Europe route. TAC Index also reports signs of an increase in China-to-Europe air freight rates.
Yngve Ruud, head of Air Logistics at Kühne+Nagel, notes a notable rise in discussions and proposals, with many customers expressing interest in increased air capacity. While air freight is costlier than sea freight and less competitive for bulky, low-margin items, the attacks have made air transportation more appealing as shippers navigate costlier routes, resulting in extended delivery times.
Korean Air Cargo, among the world’s largest carriers by volume, reports a rise in demand and increased customer inquiries. Logistics firms such as Schenker, Bollore Logistics, and C.H. Robinson are securing additional air freight space. Stellantis, the parent company of Chrysler, has also turned to air freight to manage temporary disruptions.
As ocean prices rise, transit times increase, and backlogs build up, shippers are becoming increasingly concerned about maintaining spring inventory. The shift is evident in shippers diversifying from their usual air-ocean ratio, with a potential move towards a 50:50 distribution.
Amid a global economic slowdown, the impact on trade flows from Houthi attacks has been mitigated. The Baltic Air Freight Index, reflecting weekly transactional rates for general cargo, has declined, down 34% from a year ago. While global cargo demand was down 2.5% in November compared to pre-pandemic levels, capacity increased by 4.1%, according to IATA.
Logistics sources indicate a growing interest in multi-modal routes, where goods are shipped by sea into the Middle East and then transported to Europe by air. Some customers are now sending containers to Dubai and Los Angeles before flying the goods to their final destinations.
Asia-focused freight forwarder Dimerco notes that customers are evaluating costs for sea-air combinations via Dubai and direct air freight services. While air remains an option, it’s not the default choice, as customers wait to commit amid sluggish demand and factory closures in China for the Lunar New Year holiday in February.
However, if the Red Sea crisis persists, manufacturers are expected to increasingly turn to air freight, approaching the tipping point for a greater need for air transportation conversion in supply chains, warns Jack Liu, Senior Vice President of Air Logistics at Kühne+Nagel Asia Pacific.