The International Air Transport Association called for a common set of rules to help facilitate the restart of global air travel. Reuters
The International Air Transport Association called for a common set of rules to help facilitate the restart of global air travel. Reuters
The International Air Transport Association called for a common set of rules to help facilitate the restart of global air travel. Reuters
The International Air Transport Association called for a common set of rules to help facilitate the restart of global air travel. Reuters

Global air cargo industry facing 'immediate and severe' capacity crunch, Iata says


Deena Kamel
  • English
  • Arabic

The International Air Transport Association (Iata) warned of an "immediate and severe" shortage in global air cargo capacity due to the Covid-19 pandemic.

Global air cargo demand fell 15.2 per cent in March, compared to the same month last year, while capacity shrank by nearly a quarter, Iata said in a statement on Wednesday. The coronavirus crisis has idled passenger planes, leading to a nearly 44 per cent cut in the belly hold capacity that carried air cargo.

"At present, we don’t have enough capacity to meet the remaining demand for air cargo," Alexandre de Juniac, Iata's director general, said. "The gap must be addressed quickly because vital supplies must get to where they are needed most."

Airlines have been hit hard by the coronavirus crisis. The pandemic has decimated air travel demand, leading to suspension of passenger flights, grounding more than half the world's fleet and is set to plunge the global economy into its deepest recession since the Great Depression of the 1930s.

The air cargo capacity shortage was only partially offset by a 6.2 per cent increase in capacity through expanded use of freighters, including the use of idle passenger aircraft for all-cargo operations, Iata said.

"With most of the passenger fleet sitting idle, airlines are doing their best to meet demand by adding freighter services, including adapting passenger aircraft to all-cargo activity," Mr de Juniac said. "But mounting these special operations continues to face bureaucratic hurdles."

Iata called on governments to cut the red tape needed to approve special flights and ensure safe and efficient facilitation of crew.

Problems include delays in getting charter permits issued, a lack of exemptions on Covid-19 testing for air cargo crew, and inadequate ground infrastructure to/from and within airports.

Iata urged government to cut the paperwork for charter operations, exempt cargo crew from quarantine rules that apply to the general population and ensure there is adequate staff and facilities to process cargo efficiently.

Looking ahead, the industry body said "while there is an immediate capacity shortage, the collapsing economy is expected to further depress overall cargo volumes."

Air cargo volumes could be impacted by the forecast fall in global trade this year between 13 per cent--in an optimistic scenario--to 31 per cent.

"The recession will likely hit air cargo at least as severely as it does the rest of the economy," Mr de Juniac said.

Iata's chief also called for a uniform set of measures to help the industry restart global air travel, which must also be economically feasible for airlines, once the coronavirus restrictions ease.

The association is working on these rules with the International Civil Aviation Organisation, the World Health Organisation and Airports Council International. Once agreed, Iata will submit the proposal to governments around the world.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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