Managing Cost and Capacity in Air Freight

Air freight is having a tough time of late. This is a section of the supply chain industry which has had the spotlight shone on it for some time due to its proportionally greater impact on the environment compared to sea freight, and things have only got more challenging from there.

While we would like to reduce air freight reliance as much as possible in the pharma industry, the fact remains it is still necessary for at least a small proportion of supply chain logistics. However, a perfect storm of global factors has conspired to make cost and capacity harder to manage than ever before.

Cost and Capacity

The first data to become available since the Russian invasion of Ukraine reveals that air freight capacity has shrunk significantly.

Global trade restrictions on Russian and other airlines has caused capacity North East Asia – Europe to shrink by up to 22% in just a single week. Load factors have jumped up by 1.5% to hit a staggering 84% according to the data gathered by Clive Data Services. And it’s not just capacity which is feeling the pinch.

Rates have also skyrocketed. Rates to Europe from Japan, where carriers are pulling capacity from Europe, have risen nearly 15%, to $9.40, while ex-Korea has seen rates rise 13% to $8.60. Even Europe-Asia Pacific, the unfilled backhaul, has seen a 5% hike in rates, with rates from Europe to Japan up 11% and to east China up 6%.

This means it’s becoming harder than ever to find space on air shipments for pharmaceutical products and the capacity which is available is more expensive than ever before.

Further compounding the issue is the fact several airlines are completely banned from using Russian airspace. This is forcing air freight carriers to divert from China via Kuala Lumpur, Dubai before heading on to Europe – adding 1.5 and 2.5 hours to flight times and reducing payload capacity by approximately 10%.

Managing Change

As we have become used to in so many parts of the post-pandemic world, we in the pharma business find ourselves having to achieve more with less.

The conflict in Ukraine is likely to continue for months, if not years to come, meaning these disruptions are going to be part of our lives for the foreseeable future. In order to ensure life-saving medicines and other essential pharmaceutical products get to where they need to be, logistics professionals are going to have to find alternative ways of managing costs and capacity.

Seeking alternative trade routes and partners is one possible answer but will require concentrated cooperation between all stakeholders in the supply chain to achieve. With COVID-19 still an ongoing concern, the war in Ukraine raging on, and whatever the seeming perma-crisis has in store for us next, supply chains are going to need to find new levels of resilience to survive.

“Passenger loads on flights are increasing, this allows less space for cargo on passenger flights, and airlines are reluctant to increase the number of flights till there are more stable passenger loads,” said Chief Executive of Lufthansa Cargo, Dorothea von Boxberg.

“The war in Ukraine is another example of an external event of which the air cargo industry has no control over, but which is having a profound impact, as happened with COVID,” added Managing Director of Clive Data Services, Niall van de Wouw.