EXTRANS GLOBAL - Air Freight News - Week 02 2024

Air Cargo General

1. Special year-end air cargo continues to rise for the 5th consecutive month.

• Despite industry concerns that the cargo business, which played a crucial role in cash flow for airlines during the COVID-19 pandemic, would decline after the pandemic, it has shown resilience.

• According to industry sources on the 7th, the average cargo fare on the Hong Kong to North America route, measured by the TAC index, recorded $7.10 per kg.

• This marks a significant increase from the record low of $4.69 per kg in July, with five consecutive months of rising fares since August.

• While not reaching the peak recorded in 2021, the fares are maintaining levels formed during the COVID-19 period.

• The record-high fare for the Hong Kong to North America route in December 2021 was $12.72 per kg, and prices have decreased by nearly 44% in December of the following year.

• However, compared to the average fare of $7.5 per kg in December 2020, there is a minimal difference, and it has even increased compared to the year-end of 2022 ($6.5 per kg).

• The industry remains concerned about a potential decline to pre-pandemic levels, and executives in the airline industry express worries about the deteriorating profitability of the cargo business.

2. 'Supply Chain Crisis' Global Logistics Map - Shifting from China to Vietnam, India, and Mexico.

• The global supply chain crisis, triggered by the COVID-19 pandemic, continues into the new year, leading to a major overhaul of supply chain and logistics networks.

• The closure of vital logistics routes like the Suez Canal and Panama Canal adds to the global supply chain's complexity.

• Many import companies are shifting their trade flows from China to countries like Vietnam, India, and Mexico.

• Factors such as rising production costs in China, political risks due to U.S.-China tensions, increased corporate regulations, and strict COVID-19 lockdown policies have contributed to China losing its central position in the global supply chain.

• Concerns about the global supply chain crisis persist, leading to a potential reshaping of trade maps by nations and companies over several decades.

3. 'Up to 700 billion won lucrative business' - Who will be the new owner of Asiana Airlines' cargo business?

• In February of this year, once the European Commission (EC) concludes its decision on the KE & OZ M&A, momentum is expected to pick up for the Asiana Airlines cargo business M&A. While specific selling points have not been finalized, there is active interest from Low-Cost Carriers (LCCs) and private equity funds.

• The estimated selling price for Asiana Airlines' cargo business is between 500 billion to 700 billion won. There is a possibility that the selling price could be higher than the current speculated amount. However, potential buyers, especially LCCs, seem to find the mentioned price somewhat burdensome.

• The EC is set to announce interim results for the KE & OZ M&A by February 14th. Korean Air submitted a remedial plan to the EC in November last year, which included the separation and sale of Asiana Airlines' cargo business.

• Prospective buyers who have submitted Letters of Intent (LOIs) include Eastar Jet, Air Premia, and asset management companies and private equity funds, showing their intention to explore acquisition opportunities.

4. Honghae Crisis 'Naktin' Threatens Global Supply Chains - Impact on Air Cargo Market due to Sharp Rise in Pacific Route Freight Rates

• With ongoing attacks on ships passing through the Honghae region, most vessels are abandoning the Suez Canal passage, causing global supply chain disruptions.

• Freight rates on the Pacific transoceanic route connecting Asia to North America are increasing, unrelated to demand. The Pacific route's container freight rates are rising, coinciding with factors such as restrictions on Panama Canal passage and resulting delays and congestion in intermodal transportation, directly affecting the air cargo market.

• Concerns are rising about the possible reproduction of the global supply chain disruption experienced during the pandemic, as vessels unable to pass through the Suez Canal opt for the Cape of Good Hope route to Africa.

• Market volatility is expected to increase, impacting air freight rates in the Asia-North America segment if the current trend of rising container freight rates continues.

5. Airline/GSA Event Update

• Alaska Airlines (AS) & United Airlines (UA) are expected to experience cargo delays due to the temporary suspension of Boeing 737 model operations.

• HNA Group, including Hainan Airlines, Sichuan Airlines, Tianjin Cargo, and Hong Kong Cargo, has entered into a partnership with the online reservation platform 'Cargo One.'

• T'way Air (TW) plans to operate flights to Zagreb starting from June 18.

• Aeroflot (SU) resumed flights to Qingdao from April 1.

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