Bruce Barnard | Apr 19, 2010 3:12PM GMT
The Journal of Commerce Online – News Story

• Parcel & Package |
• Postal Services |
• Cargo Airlines |
• Freight Forwarders |
• International Air |
• Air + Expedited |
• Europe

When European air space re-opens, capacity will be scarce, expensive

Shippers face steep hikes in air cargo freight rates and long delays when European air space re-opens, freight forwarders warned as airports across a large swath of the continent remained closed for a fifth day.

Air cargo rates were already rising, particularly for export shipments out of Asia, when ash from the still erupting Iceland volcano Eyjafjallajokull drifted southward, creating a no fly zone across northern Europe.

“The likely consequence could be a further increase in freight costs in a market already short on capacity,” according to Swiss global freight forwarder Kuehne + Nagel.

“As soon as flight operations are back to normal, additional capacity at higher cost will be required to clear a backlog (of cargo),” its Swiss rival Panalpina said.

“Consequently airlines are implementing a rate increase with immediate effect and until further notice,” Panalpina told shippers.

Higher rates will immediately impact just-in-time manufacturers who have been replenishing inventories run down during the recession since the beginning of the year.

There is a growing backlog of freight building up across Europe as the top three cargo hubs — Frankfurt, Paris Charles de Gaulle and Amsterdam Schiphol remained closed.

Luxembourg airport, the global hub of Europe’s biggest all-cargo carrier Cargolux, is also shut.

Air freight rates have been rising steadily since December, driven by an unexpectedly strong rebound in volume from Asia to Europe and North America that caught out airlines that had slashed capacity, particularly freighters, during the 2009 recession.

A parallel shortage of ocean container capacity also has forced shippers to turn to air freight, putting further upward pressure on rates.

Kuehne + Nagel attributed a 31 percent surge in its first quarter air cargo volume mainly to “capacity-induced shifts from sea to air freight.”

Airlines, express carriers and freight forwarders seeking alternative overland transport to move inter-continental cargo to still open southern European airports are facing a potential shortage of suitable trucks.

Trucking capacity has shrunk during the recession as hundreds of small companies that dominate the business have gone bust just as cargo demand is rising.

The volume of idled trucks has fallen to 5 percent from 20 percent at the trough of the recession, according JP Morgan.” Trucks are back at close to full utilization rates,” the bank said in a research note last week.

The big express carriers and cargo airlines have their own truck fleets and/or contracts with major trucking companies but there is limited capacity at Spanish and Italian airports that remain open.

Cargolux says it is using trucks to bring as much cargo as possible to its Luxembourg hub from alternative airport gateways. Deutsche Post DHL, Europe’s biggest express company, also has switched to truck and rail transport for European deliveries while trucking some international shipments to Bergamo airport in northern Italy.

While the focus is mainly on intercontinental shipments, intra-European traffic is a major business for many airlines. Lufthansa, Europe’s second largest scheduled air cargo operator, carried 55,000 metric tons of freight and mail in Europe in March, ahead of the 51,000 metric tons it transported on its Americas network and a similar tonnage on its Asia/Pacific routes.

French shippers face difficulty transferring cargo from air to rail as cross border traffic to and from Spain, Germany, Italy, Switzerland, Belgium and Luxembourg has been severely disrupted by a two week long strike by rail workers that has halved freight capacity at SNCF, the state-owned railway company