Cargo: the new passengers on planes

Hello from Hong Kong, where this month the unthinkable finally happened and the bars closed their doors (though you can still get a beer in the restaurants). The city is yet to reach the levels of crisis that once gripped Wuhan and have now seized New York and London, but the proportion of people wearing masks in public is closing in on 100 per cent — even among the previously recalcitrant expat community.

Our main piece today is about the role passenger flights play in trade, and how that role has come under pressure as jets have been grounded around the world. Our policy watch looks at the next step in the delayed EU-UK trade talks, while our chart of the day looks at aluminium imports to the US.

Passenger planes are the new ships

The day before Hong Kong introduced strict new quarantine measures on people arriving from abroad last month, the departures section of the airport was almost deserted. But many of the passenger flights coming into the city were full. Demand to return east, and avoid rapidly worsening outbreaks in Europe and the US, was so strong that private jet activity reached its highest level on record.

In general, though, passenger traffic through the airport — and around the world — has fallen dramatically this year as travel restrictions and quarantine measures have taken hold. Even in mainland China, where signs of recovery are now emerging, domestic flights are flying at capacity far below their levels in January.

Rules against movement are taking their toll on airlines, which are, after all, in the business of moving people around. Cathay Pacific, the city’s biggest flagship carrier, announced in March that it expected to reduce its passenger capacity by 96 per cent in April and May. Recently, it carried just 582 passengers in one day, compared with normal daily levels of 100,000.

But Cathay moves more than just people around. Ronald Lam, chief customer and commercial officer, said in the same announcement that it would ramp up its cargo capacity and operate some suspended passenger services “purely for air freight to meet cargo customer demand”. Similarly, Auckland Airport said this week that 80 flights of freight-only passenger planes were scheduled to land over the next four weeks.

The image of fleets of mostly empty planes flying cargo across the skies reflects the realities of our post-outbreak world: one where people remain grounded to a single location but continue to rely on goods that are flown in from elsewhere.

The so-called “belly” of a passenger jet is often filled with cargo, making up a small but important portion of cross-border trade around the world. In 2018, more international air cargo passed through Hong Kong’s airport than any other in the world.

As passenger traffic has collapsed around the world, air freight followed suit. Data from Seabury, a consulting firm, show that global air cargo capacity in the first week of April was 35 per cent below its levels the same time last year. The fall was initially more pronounced in Hong Kong and China, as restrictions from China emerged in late January and early February, but other countries quickly caught up. While capacity increased slightly on airline freighters specifically for cargo, the daily international capacity available from the bellies of passenger planes was 80 per cent lower globally in the final week of March, according to Seabury.

At the same time, demand remains strong. Air freight reaches its destination much more quickly than shipping, where there is already talk of widespread cancellations of orders in the west for consumer goods exported from China via Hong Kong. As supply chains around ports continue to come under pressure, air transport remains a viable alternative for importers and exporters.

As a result, prices for air freight, usually measured per kilogramme or tonne, have risen. Luya You, an analyst at Bocom International, estimates prices are up 20 per cent to 30 per cent across Asia-Pacific, and that for some routes, such as Hong Kong to Beijing, they may have jumped by about 50 per cent.

Items such as fresh food can reach their destination more quickly through air freight © Anthony Wallace/AFP/Getty 

Because of constraints on space, the kinds of cargo transported on planes differ to those on ships. They often include small, expensive goods — precisely the kind of non-essential products that you might expect consumers to go without during a global recession (hence concerns over collapsing demand in the west for products manufactured in China).

On the other hand, planes, because of their speed compared to ships, also move around other, rather more essential products: fresh food. In Hong Kong, there are already signs of pressures emerging: late in March, importers told the South China Morning Post that prices were rising precisely because of limited capacity for air freight.

Many foodstuffs can, of course, be transported through shipping routes, but pressures on air routes could have further impact on food prices. Other sectors are also vulnerable; in Europe, a loss of air cargo capacity is constraining access to hospital drugs.

So, as planes sit idly around the world, it is worth remembering that it is not just people that they are failing to move around. If governments do step in, it may have more to do with the cargo than the passengers.

Charted waters

US aluminium producers have been struggling with lower demand, with some plants shutting down temporarily. That reverses a trend since President Donald Trump imposed aluminium tariffs on imports in 2018, which had led to a revival of domestic production. In the chart below, only Canada, whose tariffs were removed in May 2019, increased its aluminium exports to the US in the year to February.

Policy watch

Wednesday’s phone call will focus on fixing the dates for rounds of virtual negotiations on the future EU-UK partnership © Olivier Hoslet/AFP/Getty 

The EU and UK will return to the Brexit fray tomorrow to figure out how to salvage negotiations on London’s future relationship with Brussels in the face of disruption caused by the coronavirus pandemic, writes Jim Brunsden in Brussels.

Michel Barnier and David Frost, the two chief negotiators, will have their first official contact since Barnier, leading the EU team, announced on March 19 that he had tested positive for Covid-19. Frost, his UK counterpart, went into self-isolation a short time later after displaying symptoms.

The goal of the call will be to fix dates for rounds of virtual negotiations on the future partnership. By this stage, three full negotiating rounds were supposed to have been completed. Instead, with much of Europe in lockdown to slow the spread of the deadly virus, contact between the two sides has been limited to seeking clarifications about each other’s proposals.

Wednesday’s phone call will not address the elephant in the room: the possibility of extending Britain’s post-Brexit transition period beyond the end of this year. Despite growing pressure on the UK government to request an extension, ministers insist Britain will not countenance a further delay to the Brexit process.

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