Air freight costs are enjoying a Christmas reprieve, but New Zealand exporters fear it will be short-lived.
A number of airlines have recently confirmed restarted and new routes to New Zealand, a large portion committing just to the summer months to make the most of tourist demand.
China Southern Airlines routes starting this month were announced in June, reinstating the line between Guangzhou and Christchurch, and the introduction of three additional services between Guangzhou and Auckland.
Cathay Pacific announced the resumption of its seasonal Christchurch to Hong Kong service with three flights a week from December 16 to the end of February.
Hainan Airlines and Air China started flying to Auckland again earlier this year and American Airlines, Air Canada, United Airlines and Delta Airlines will also scale up over the summer.
That’s welcome news for Kuehne + Nagel managing director Simon Dedman, who this time last year was preparing to have Central Otago cherries trucked to Auckland to be exported because there were limited air freight options from Christchurch.
The freight-forwarding business has been kept on its toes, to say the least, since the pandemic and although it’s not smooth sailing yet, the more airlines coming into the country, the better.
This cherry season looks promising, but Dedman is still cautious.
“There is potential capacity shortage because previously China Airlines, which was one of the airlines that was that supplemented… we’re not 100 percent sure yet whether or not China Airlines will be able to support and supplement additional flights without the support from the government.”
Most air cargo is carried in the belly of passenger aircrafts and though compared with sea cargo it’s a small volume of total freight, it’s high value product.
When airlines stopped coming to the country because of border closures, a number of them were kept on via a $1 billion Maintaining International Air Connectivity government subsidy scheme, primarily so the transfer of these goods could still happen.
“The challenge is that when our summer finishes, these carriers then make the decision to pull out of New Zealand and take their aircraft into higher yielding trade lanes.”– Simon Dedman
Overall global demand remains low. Dedman says this has somewhat mitigated the lack of options for air freight since the air connectivity subsidy scheme finished in March.
“If you look at global trade, it’s down about 8 percent within air logistics, which is not terrible, but we’re still seeing that demand is not recovering.
“We haven’t had our traditional peak globally and in New Zealand. So generally speaking, you would have a peak around July and August, all of the orders would start being placed or coming in for the Christmas rush. But a lot of the importers and a lot of the large retailers that have still got high inventory positions are still running down that inventory.
“So we should look for volumes to start to normalise, probably in the second half of next year.”
However, that is when air freight options may be limited again.
“A lot of these additional carriers are coming in for a summer season. So they’re bringing in summer passenger revenue, which is great. The challenge is that when our summer finishes, these carriers then make the decision to pull out of New Zealand and take their aircraft into higher yielding trade lanes, because they just don’t have the passenger revenue to counter the cargo revenue. So that’s a challenge.”
He says air freight rates are still higher than they were pre-Covid, although they have come down from their 2020 to 2022 peaks.
Sea freight slows
Sea freight is being used where possible but the slump in demand had taken its toll on companies that offer this.
This week, Mainfreight reported that revenue from its air and ocean division was down 43 percent from the same time last year, in its half-year results.
Globally, Mainfreight remarked that the decline in global trading had seen less transported internationally and at rates lower than the past couple of years.
Global transport firm Maersk has also cut thousands of jobs this year, with more to come. At the start of 2023 the company had a headcount of 110,000; this is now down to 103,500.
In an update to shareholders last week it confirmed more cuts would be made. “Given the worsening price outlook in Ocean, Maersk is intensifying those measures and today introduce plans to further decrease the workforce by 3,500 positions, with up to 2,500 to be carried out in the coming months and the remaining to extend into 2024.
“This will reduce the global workforce to below 100,000 positions.”
“The Maintaining International Air Connectivity Scheme was always a temporary fix, one that was certainly needed at the time and relieved some of the pressure on exporters’ supply chains, but we always needed to see the return of commercial flights.”– Joshua Tan, Export NZ
Dedman says exporters and importers are a lot more cost-conscious, post-pandemic.
“If we look at inflation, CPI, resource availability, salaries, everybody’s operating costs have come up. So there is a heightened awareness of cost that we see right now, particularly with exporters.”
Export NZ executive director Joshua Tan says freight remains the top concern for exporters. “However, with slower economic growth and demand for New Zealand commodity products in key markets, pressure on supply chains is easing.”
He says a return of more airlines is cause for cautious optimism.
“The number of new connections into the US will be key for some exporters getting more product into the States via the bellies of passenger aircraft. Equally important are the links into China and the rest of East Asia, and we’ve seen a return of regular connections into these key markets.
“The Maintaining International Air Connectivity Scheme was always a temporary fix, one that was certainly needed at the time and relieved some of the pressure on exporters’ supply chains, but we always needed to see the return of commercial flights.”