Pandemic to transform logistics strategies

5/3/2020

COVID-19 will not result in the end of globalisation, but it could lead to some industrial production being decentralised and thereby trigger shifts in supply chains, according to a senior airline industry executive.

“I think globalisation is here to stay because manufacturers need to look at quality, cost and what consumers are willing to pay,” said Glyn Hughes, global head of Cargo, at the International Air Transport Association (IATA).

“So there will always be a need to find the most advantageous production around the world. But what we might find [as a result of the current pandemic] is that people will not perhaps centre all of their production in a single place.”

Speaking at a webcast entitled Air & Ocean Freight - Mastering Pandemic Challenges organised by cloud-based logistics software provider Transporeon and its subsidiary Tim Consult, Hughes underlined how international trade and air transport, as its facilitator, can be ground to a halt as a result of natural disasters and pandemics.

“A volcanic eruption in Iceland 10 years ago basically led to the closing off of North Atlantic airspace and this meant that the automotive industry in the US, the supply chains, for example, which were relying on components coming from Germany, had to stop,” he said. “And, you know, sadly, supply chains are only visible when they're not there anymore.”

The fragility of supply chains has become even more apparent during the current shutdowns of air cargo networks due to coronavirus.

“We did have a particular concern just in the last few weeks with paracetamol, for example, where I think India and China account for the vast majority of global paracetamol manufacturing,” said Hughes. “Paracetamol is one of the leading home remedies to deal with bringing fever under control, yet both of those markets were actually closed.

“So like most crises, the agility and the flexibility and the innovation of manufacturers will lead to some changes and ocean and air and all freight transport modes will then need to be adaptive to those new requirements from the manufacturing sector.”

Hughes also emphasised the key role passenger 'freighter' aircraft were playing in response to the severe cargo capacity crunch affecting markets. He noted that that an A350 passenger aircraft reportedly carried about 55 tonnes of cargo on a single flight, while Air Canada had removed the seats from three of its B777 pax planes.

He said there were currently close to 50 airlines now operating around 300 pax aircraft in this manner. “I'm talking about carriers who in particular don't have freighters and are burning through cash and have very little revenue coming in,” he said.

“The majority of [the aircraft] are operating without modification. So it's really a case of cargo in the belly, under the seats and in the overhead bins.”

With little prospect of a significant return in passenger traffic in the foreseeable future, pax aircraft are likely to continue operating in cargo-only mode for some time yet, according to Hughes.

“There is demand for cargo space around the world and a need for more capacity,” he added.

Asked about the squeeze on space driving up rates, Hughes replied that IATA was encouraging governments to facilitate requests from airlines to operate pax aircraft as freighters to help re-establish price stability and increase capacity for the transport of urgent medical supplies as part of the COVID-19 relief effort.

“A number of countries have refused applications from carriers to operate passenger aircraft in cargo configuration,” he said. “They said, ‘No, no, no, we don't we don't want to have those here.’

“Then the national carrier of one country said, 'Actually, we would like to do that' and the state authorities relaxed their position.

“Now we think that's unacceptable. The state in question is actually applying a protectionism approach to what are the considerations of a global society in terms of human and patient safety.

“So we're advocating very strongly that all states be very sympathetic when carriers want to put cargo out there because it'll help bring back an equilibrium between supply and demand.”

He added that current pricing trends were “indicative of the fact that there needs to be more capacity out there. And the [airline] industry is working to get that capacity flying.”