Monday, March 2, 2020

How is the Coronavirus Affecting Ocean Cargo, International Road Transport and Airfreight So Far?

Concerns for Supplies and Wages as Sickness and Restrictions Spread
Shipping News Feature

WORLDWIDE – As the threat of a global pandemic spreads so new words and phrases slip almost unnoticed into the vernacular, 'self-isolation', 'SARS' and 'MERS' being freely bandied about. What is certain is that there is a very real threat to world trade, and ocean container shipping, international road haulage and airfreight, the main arteries for essential supplies and pharmaceuticals, are already being adversely affected.

Anyone following the news will be aware of the drastic effect the essential precautions against the threat of Covid-19 has already had on the air industry. With many passenger services cancelled there is an inevitable knock on effect to belly hold carried cargoes, and a rising fear that some airlines will not survive the financial repercussions.

Now the International Air Transport Association (IATA) is contacting aviation regulators worldwide to request that the rules governing use of airport slots be suspended immediately and for the 2020 season, due to the impact of the disease.

Around 43% of all passenger flights depart from over 200 slot coordinated airports worldwide. At present, the rules for slot allocation mean that airlines must operate at least 80% of their allocated slots under normal circumstances. Failure to comply with this means the airline loses its right to the slot the next equivalent season. In exceptional circumstances, regulators can relax this requirement.

IATA points to several cases so far which foresee impending more serious problems, for example: one carrier experiencing a 26% reduction across their entire operation in comparison to last year; a hub carrier reporting bookings to Italy down 108% as bookings collapse to zero and refunds grow; Many carriers reporting 50% no-shows across several markets and a softening of future bookings with crew being given unpaid leave, pay freezes and plans to ground aircraft until the situation improves.

Given these extraordinary circumstances as a result of the public health emergency, IATA says the collective view of the airline industry is that the application the 80% rule during the upcoming season inappropriate. Flexibility is needed for airlines to adjust their schedules according to extraordinary demand developments.

Regulators have already been waiving the slot rules on a rolling basis during the Covid-19 crisis primarily for operations to China and Hong Kong SAR. However, given the recent further outbreaks this is no longer contained to the Asian markets. Without certainty that these waivers will continue for the summer season (or winter season in the Southern hemisphere), airlines are unable to plan ahead sufficiently to ensure efficient rostering of crew or deployment of aircraft.

Suspending the requirement for the entire season (to October 2020) will mean that airlines can respond to market conditions with appropriate capacity levels, avoiding any need to run empty services in order to maintain slots. Aircraft can be reallocated to other routes or parked, crew can have certainty on their schedules. Alexandre de Juniac, IATA’s Director General and CEO, commented:

“IATA research has shown that traffic has collapsed on key Asian routes and that this is rippling throughout the air transport network globally, even between countries without major outbreaks of Covid-19. There are precedents for previous suspension of the slot use rules and we believe the circumstances again calls for a suspension to be granted. We are calling for regulators worldwide to help the industry plan for today’s emergency, and the future recovery of the network, by suspending the slot use rules on a temporary basis.

“The world is facing a huge challenge to prevent the spread of Covid-19 while enabling the global economy to continue functioning. Airlines are on the front line of that challenge and it’s essential that the regulatory community work with us to ensure airlines are able to operate in the most sustainable manner, both economically and environmentally, to alleviate the worst impacts of the crisis.”

On the ground things are no better as authorities impose restrictions to try and control the disease. Speaking to the BBC an official from one of the state run Iranian news agencies confirmed the accusation that the official death toll in the country of some 58, was indeed well below the actual number. He explained this was the situation a week ago but no official count can be made until each cause of death is determined, and freely admitted the actual number is now far higher, saying how shocked he was that last Friday prayers were suspended, the first time that has occurred in 41 years.

Move One tells us that authorities in Iraq have begun to close the borders in an effort to slow the spread of the disease with all border crossings with Iran shut and no review expected for a fortnight, whilst the Ibrahim Khalil Border crossing with Turkey is closed until further notice for both passengers and cargo, as is the Safwan border crossing, shut on the Kuwaiti side a week ago and the Trebil border with Jordan likely to close today.

So far the Port of Umm Qasr is still functioning but elsewhere the container industry is finding life increasingly difficult. The Container Availability Index (CAx) is showing that equipment imbalances and empty container repositioning, something which it is estimated already costs the shipping industry around $20 billion annually, are getting worse.

Especially in the US or Europe, companies are starting to experience frequent equipment shortages in several areas. This is a direct result of the ocean carriers' blank sailing strategy which is triggered by the low/ no volumes on the major shipping routes. The CAx forecasts supply and demand in container logistics for most of the biggest port locations and takes into account millions of containers tracked through the Container xChange online platform which shows that compared to 2019, containers are piling up in China.

Across the main container types there were 47% more in Shanghai in week 10 compared to the same period last year. Usually, it's the other way around, but now their is a deficit of containers in North America and Europe, CAx values for Hamburg, Germany dropped by 33% and the US figures are even worse with a suspicion that this is just the beginning.

As a result of the blank sailings, it forces mainly NVOs to hold empty equipment longer than usual, incurring more demurrage and detention charges as well as chassis fees or repositioning equipment costs, where available, in addition to possible interchange fees. Additional surcharges and costs include Peak Season Surcharges (PSS), Container Imbalance Surcharge (CIS), Congestion Surcharges (CNS) and General Rate Increase (GRI).

Online platform Container xChange makes a case for using its services to reposition or find boxes to help avoid extra charges by advising where the shippers owned containers are which have just to be returned at the partner's depot.

In the UK worries regarding workers’ rights are raised by the GMB Union which says Britain’s ‘gig’ economy, often with staff having zero hours contracts, may have a devastating effect on individuals left with no wages. It quotes a case of a delivery driver suspected of possibly having contracted the disease from a customer, who was told to go on unpaid leave until given the all clear. The company relented after the union stepped in but Mick Rix, GMB National Officer, said:

“The threat of Coronavirus is a huge problem for employers and workers across the UK, but workers in the so-called gig economy, or on zero hours contracts, are left abandoned and penniless if they have to self-isolate. Once again the bogus self-employment model is screwing over the disadvantaged. GMB is calling on all employers, regardless of the contract, to do the right thing and pay their workers if they have to take time off due to the global health crisis.”

Photo: Image courtesy of the South Australian Department of Health.