Retailers seek air cargo services as Red Sea shipping disruptions continue

A temporary diversion from sea could cause a spike in air freight rates, analysts say

Manufacturers and retailers are seeking to fly their products as attacks on Red Sea vessels raise shipping costs and prolong delivery delays. Sammy Dallal / The National

Retailers and manufacturers are increasingly seeking to fly their goods as attacks on vessels in the Red Sea raise ocean freight costs, prolong transport delays and force companies to find alternative routes.

Air cargo volumes from Vietnam to Europe – a major trade route for clothing exports – rose 62 per cent in the week ending January 14 and air freight rates increased by 10 per cent compared to the previous week, freight platform Xeneta said in its latest report.

“This is the first signal in Xeneta data that the Red Sea crisis is impacting air freight,” Niall van de Wouw, Xeneta's chief air freight officer, said.

“This is typically a quieter time of year for air freight so to see increases of this magnitude with higher volumes than at any point in 2023, is significant.”

The air freight volume on the route was 6 per cent higher than last year's peak week in October and a 16 per cent increase on the volumes recorded in the same week 12 months ago.

“In the next two weeks, we should know for sure if this represents a genuine and significant shift from ocean to air freight due to the Red Sea crisis,” Mr Wouw said.

The Red Sea is linked to the Mediterranean by the Suez Canal, making it the shortest shipping route between Europe and Asia.

The canal is a major artery for the flow of goods, with about 12 per cent of the world's shipping traffic passing through it.

Shipping routes in the Red Sea were disrupted after missile attacks by Houthi rebels, who say they are acting in solidarity with Palestinians, hampering global trade as Israel's war in Gaza continues.

US and UK military forces have launched a series of strikes against rebel sites in Yemen, with the Red Sea attacks prompting many companies to take a long and expensive detour around the Cape of Good Hope instead.

Companies are increasingly making inquiries to take their business to the skies to protect supply chains and keep their products on shelves, amid the Red Sea shipping crisis that has lasted more than two months, analysts say.

“There are currently many discussions between exporters and importers and providers of air freight services, but a switch has not happened yet,” Philip Damas, managing director and head of Drewry supply chain advisers, told The National.

“Some companies are already running out of inventory usually carried by ships and will switch volumes to air freight in the next two to three weeks.”

Global air cargo is the usual “plan B” for companies experiencing extensive delays in ocean freight, he added.

Higher air cargo rates

While air freight rates have remained relatively stable during the off-peak season that has coincided with the shipping crisis, air rates on a route between China and Northern Europe increased 91 per cent week-on-week to $3.55 per kilogram, according to data from freight booker Freightos on January 16.

Some shipments will shift from ocean to air as demand is increasing with the Chinese lunar new year under three weeks away on February 10 and shippers have started to face some shortages in empty containers, it said.

Analysts warn that the diversion of container vessels away from the risk of attacks in the Red Sea could push up air freight costs.

“When it happens, a diversion from ocean freight to air freight could cause a large increase in air freight rates,” Mr Damas said.

'Limited scope' of air cargo

Still, air freight remains more expensive than sea freight when transporting certain types of products and opting for air freight instead of shipping would be feasible only in some cases, Christian Roeloffs, co-founder and chief executive of Container xChange, told The National.

“While air freight is an option, it typically makes sense in very rare circumstances for sea-bound freight. For instance, when critical parts are urgently required for just-in-time production and any delay would halt the manufacturing process,” he said.

“In most cases, containerised cargo tends to have a less favourable value-to-weight/volume ratio, rendering air freight economically impractical due to its higher cost.”

A company's decision to opt for air freight will be determined by the urgency of the situation, where time is crucial and the value of the cargo justifies the higher cost, Mr Roeloffs added.

Transporting goods by air also comes with a high environmental cost, Daniel Harlid, vice president and senior credit officer at Moody’s, told The National.

“Generally, air freight is a lot more expensive and has limited carrying capacity versus container shipping,” he said.

A typical container vessel carries between 14,000 to 24,000 containers.

“So even though some companies may temporarily shift some of their shipments to air, this will still be very limited in scope.

“Not to be forgotten is also the carbon footprint which increases quite significantly if using air freight instead of sea freight.’’

A sharp rise in air cargo demand could be a boost for the aviation industry, which is experiencing normalising growth in cargo volumes and rates following the peaks recorded during the Covid-19 pandemic.

Etihad Airways' cargo arm has recorded an increase in inquiries from freight forwarders, manufacturers and retailers, mainly for routes out of Asia, including China and India, to destinations across its global network, Leonard Rodrigues, acting managing director of Etihad Cargo, told The National.

“Where we are seeing increased demand for goods that are usually associated with ocean shipping is in the e-commerce sector, where faster transit times than sea freight are required,” he said citing goods such as garments and consumer electronics.

“Therefore, the increase in demand for air cargo is more about e-commerce buying patterns and less about rising shipping rates and disruptions in the supply chain.”

Etihad Cargo is monitoring the relationship between sea and air freight costs, finding that the influence of ocean shipping rates on air cargo has been relatively small so far, Mr Rodrigues added.