John Whelan: Plummeting air- freight costs deliver opportunity for Irish firms

Night-time flying is an integral part of the  mission-critical export service. Picture: PA

Demand and the costs of global air cargo shot-up dramatically during the pandemic and the closure of Russian airspace. Prices have now plummeted to offer respite and opportunities to Irish exporters.

The International Air Transport Association, the industry group for big airlines, has said global air cargo yields have fallen by over a third this year, and figures from Xeneta Air, the global data consultancy, have shown a 41% fall in air freight rates this summer from last year.

Ireland’s pharma exporters, who mainly export by air to the US, will hail the huge fall in US spot rates, down by two thirds from their peak at the end of 2021.

Crucially, for many Irish exporters, the maritime shipping industry has recovered: Flows at key ports no longer suffer the covid-era challenges that created the cargo capacity problems that led to the boom in air transport. Maritime shipping rates have been falling even faster than air cargo and have slumped 82% from last August, according to Drewry, the international freight consultancy.

The fall in air-cargo costs will encourage many Irish exporters to reconsider selling into distant markets. Many in the fishing industry, who were heavily reliant on airfreight and had in many cases abandoned Chinese and Japanese markets, will again be able to supply high demand and lucrative fish markets.

Glenmar in Union Hall, Co Cork is one such a supplier of high-quality crab, lobster, and prawns to European and Asian markets. Brown crab, which is much in demand in China and is abundant on the west coast of Ireland, must arrive alive, which necessitates the use of airfreight.

Many freight forwarders, who at the peak of the pandemic chose multi-year contracts to secure airline capacity, are now reportedly hurting financially, and are under significant pressure to renegotiate rates.

Many in the industry believe this is the start of a downward cycle and that the current market conditions could extend for the foreseeable future.

The weakening market is increasingly being reflected in the performance of key players in the air-freight sector.

The Big Three air-freight forwarders in Ireland are Kuehne and Nagel, DHL Global Forwarding, and DSV.

Some have reported falls in quarterly air revenues compared with last year, as dedicated cargo airlines whether big or small, including market leader Fedex, have grounded aircraft and reduced operations in their in-service fleets, as rates and demand fall.

Air cargo is a vital part of Ireland’s trading economy, moving around a third of Ireland’s export trade in goods.

And night-time flying is an integral part of this mission-critical export service. Night-time is used to move items whose value is significantly determined by the speed and certainty of delivery.

For many, international delivery is measured in hours rather than days, and guaranteed delivery times and next-day delivery are key offerings for Irish exporters selling consumer products abroad.

The multinationals also need speedy delivery for legal and business documents that are critical to manufacturing components and medical or pharmaceutical products.

Night-time provides vital time between business days when goods or packages can be moved with minimal loss of productivity. The freight industry and the broader economy are closely intertwined.

Freight volumes and transportation often reflect changes in consumer demand and manufacturing output, evident in the periods either side of the recessions in 1975, 1982, 1991, and 2008.

That’s when capacity shrank and created the conditions for rapidly rising freight rates. Lower freight rates are good news for exporters, but availability of airline and sea freight capacity is also essential.

Exporters and the air and sea freight industry, including airport operators, need to collaborate more than ever.

• John Whelan is an expert in national and international trade.