Caught between soaring jet fuel prices and congestion in the Middle East’s vital waterways, some shippers are now looking for shipping routes in unexpected places, and the recent cease-fire between Iran and the United States is unlikely to bring any immediate relief.
Customers who once shipped electronics and other hot-selling consumer products from Asia to Europe through hubs in the Middle East are now moving their goods through Los Angeles by ship or plane to secure lower rates, one U.S. shipping company said.
“It’s much faster than going around[the southern tip of Africa]by sea, but it’s also much, much cheaper than flying directly,” said Flexport CEO Ryan Petersen.
Strong demand and soaring jet fuel prices are driving up air cargo shipping costs following Iran’s continued blockade of the vital Strait of Hormuz shipping corridor.
Air cargo capacity to the Middle East has fallen by more than 50% on an annual basis in the past two weeks, according to WorldACD Market Data.
Meanwhile, air freight rates for long-term contracts from Vietnam to Europe have nearly doubled to $6.27 per kilogram compared to pre-war levels, Flexport said.
In contrast, air freight rates from Los Angeles to Paris rose only 8% as airlines added passenger flights and freed up cargo capacity due to strong demand.
“If trade disruptions continue in the Middle East, we could be hit hard,” said Noel Hasegaba, CEO of the Port of Long Beach, part of the nation’s busiest port complex in Los Angeles.
lost air volume
Global air cargo traffic was once expected to grow by 5.5% this year, but has so far fallen by 1% due to the Iranian conflict that began in late February, said Marco Blumen, managing director at consulting firm Aveen.
How this year plays out will depend in part on the recovery of the wide-body airliners of the major Gulf carriers, which account for about half of the region’s air cargo capacity, he said.
Niall van de Wouw, chief air cargo officer at transport pricing platform Xeneta, said the slow return of tourism to the Gulf region after the end of hostilities could lead to airlines reducing passenger carrying capacity, which could impact air cargo.
“Gulf airlines such as Emirates and Qatar Airways operate some of the world’s most important air cargo networks,” he said.
British Airways said on Thursday it would reduce its flights to the Middle East as it resumes flights, a sign that rising tensions in the region are weighing on demand.
Specialized cargo companies like UPS are using “contingency plans” to continue operating in the region, as pilots are not currently flying to hub airports like Dubai.
Third-party chartered planes have arrived to pick up some of the planes, but jet fuel supplies are expected to remain tight and costly for months.
Dan Morgan-Evans, group cargo director at Air Charter Services, said: “The big issue for everyone is the huge increase in fuel prices.”
AIT Worldwide Logistics customers spent at least five to six times more to ship oil rigs by plane and truck to Saudi Arabia after a planned deep-sea voyage from Houston was canceled due to the war, said Ryan Carter, the freight forwarder’s vice president for the Americas.
Still, many companies feel they have no choice but to pay extra for air transportation.
“Sometimes you have to move cargo,” Morgan Evans said.
(Reporting by Lisa Bertline in Los Angeles and Alison Lampert in Montreal; Editing by Jamie Freed)
