Although the air freight industry was hit hard by the Covid-19 pandemic, the sector proved essential for the continuity of global value chains, ensuring the survival of businesses and playing a pivotal role in the transport of essential goods. Yet regulations and rules affect every movement in the air cargo system, from handling to packaging to transporting. What are the logistics implications of this highly regulated environment? How can stakeholders remain agile? And to what extent can air freight continue to be used as a strategy for diversification and speed while complying with these numerous regulations?
Peter Penseel, Chief Operating Officer for Airfreight at CEVA Logistics, answered these questions and more in the exclusive interview below.
Can you describe the regulation process for air freight and the implications in terms of logistics?
Peter: “In air transport, everything is regulated via the IATA [International Air Transport Association]. When it comes to air freight, you must comply with all the regulations published relating to the products that you are transporting. For every product there is a regulation or an execution model that exists saying how to handle the good from manufacturing to destination, how it must be packaged, how it must be screened, and this depending on whether it will be shipped on a passenger aircraft or on a full freighter aircraft. All these things determine what type of execution model the shipper or freight forwarder will need to take to get the shipments flown by air.
In the case of dangerous goods, there are regulations on how big the shipment can be, how many liters, how many kilos, the type of packaging… There must be a dangerous goods certificate attached to the shipment and it must be examined by a third party who is approved to make those verifications. It’s a question of legal standards, and these are set forth in the regulations from the IATA on how to handle different products.”
How can the air freight industry and regulators/government work together to ensure financial resilience?
Peter: “The notion of ‘finance’ is not applicable here. Resilience is based on safety, the safety of everyone within the supply chain who handles these kinds of products, and that is decided by a corporate community in dialogue with the IATA and all stakeholders involved. That is the rule, and it has to be followed.
Ensuring safety in air freight transportation, specifically for dangerous goods, is done through training programs. IATA arranges these trainings so that everyone—from those handling products at the stations in the warehouses to those executing the paperwork—has the certification and is aware of all the dos and don’ts. This certification is valid for a few years and then there are refreshers so that everyone is always up to date with the latest developments when it comes to shipping dangerous goods by air.”
What was the impact of Covid-19 on air freight logistics and how is the industry recovering?
Peter: “The impact of Covid-19 was in terms of capacity because 90% of passenger aircrafts were grounded at the beginning of the pandemic and 60% of global air freight volumes are lifted on passenger aircrafts. A lot more freighter capacity was utilized, but airlines also saw the opportunity to use their aircraft, not to fly passengers, but to fly cargo. And that is still happening today. That’s why there was a huge increase in air freight prices – 40, 50%, sometimes more. Airlines were operating passenger aircraft as freighters, which means less tonnage on board but with a much higher operating cost. Consequently, the entire industry saw a huge increase in spending even if the tonnage was less than in previous years.
Although people are starting to book airline tickets again, this has a negative ‘side effect’: because these aircrafts will no longer just deploy cargo, there will be a decline in the air cargo capacity available within the global network. And that will probably continue for the next one and a half years. The volume lifted by full freighters will be higher than ever. On the other hand, however, the cargo volume transported by passenger aircraft will decrease because the availability of cargo destinations will decline with the expanding passenger network.”
What are some of the logistics solutions to the decline in the availability of air cargo capacity, and how do they function from a regulatory perspective?
Peter: “When there was a decline in the availability of air freight capacity, stakeholders searched for different modes of transport. For example, trucking from China to Europe, or rail transport, or what we call sea-air solutions. In the latter, the first part of shipping, say from Shanghai to Dubai, will be by sea; the shipment will then be offloaded and flown from Dubai into Europe. This solution is cheaper than air, slightly more expensive than ocean, and takes less time than shipping entirely by sea.
In terms of regulations, these are again tied to the type of commodity. If you choose a sea-air solution for instance, then you must make sure that the commodity that you put in a container in China is also allowed to fly out of Dubai into Europe. The shift of modality in transport still means you need to know exactly what kind of commodity you are transporting to be able to design a solution for your customer.”