Geopolitical tensions often impact global supply chains

Supply chain disruption can often boost air freight. Its ability to respond rapidly is key for effective disruption management, says Glyn Hughes, Director General, TIACA. In an interview with CARGOTALK, he offers a comprehensive insight into the ripple effect of pricing in the air cargo sector.

CT Bureau

What are the ways in which geopolitical tensions impact cargo pricing?

Geopolitical tensions lead to volatility and uncertainty and that can disrupt production, consumption and crucially for this industry, transport and distribution.  As tensions rise, the associated costs of transport increase as does the need for enhanced risk management and contingency planning. As other supply chain transport modes get disrupted, the ingredients are there for cost increases. With maritime avoiding the Red Sea routings, this adds up to 14 days and up to US$2 million in additional costs for sailings from Asia to Europe. This may also lead to short-term peak increases for air cargo demand.

How can air cargo combat these (conflicts) to ensure ferrying cargo is not impacted by them?

As we discovered during COVID, those who plan for the unforeseen are those who can weather the storm.  The ability to respond rapidly and efficiently is the key driver for effective disruption management and can keep costs under control, while keeping supply chains flowing. We are seeing the expansion of sea-air solutions as an example of short-term responses to keep shipments moving that may otherwise be delayed as maritime operations continue to face challenges.  Air cargo’s ability to adapt is one of this industry’s greatest strengths.   Let us also hope that tensions in the Middle East region come down and the conflict between Russia-Ukraine resolves peacefully. These two events, which took place during the past year, have caused significant geo-political unrest and contributed to a depressed economic environment.

What are the potential risks of an escalation to the Middle East tensions?

As with any geopolitical situation, tensions between countries have the inherent risk of escalation as they seek allies and other tensions, perhaps suppressed for some time, tend to re-arise. Sadly, we are seeing that in the Middle East as Houthis, a political and religious group based in Yemen sought to support the Palestinians by targeting shipping associated with Israel, but has declared a broader threat to shipping associated with countries, who are supporting Israel in the war in Gaza. These attacks on shipping, which started in November 2023, has now exceeded over two dozen separate incidents.  As a result of this escalation, tensions between Iran and the USA are rising, which brings Kingdom of Saudi Arabia into the equation. There have been threats made to other crucial shipping channels, such as the strait of Gibraltar and Hormuz, through which 30 per cent of the world’s seaborne traded crude oil passes.

How will Red Sea shipping channels attacks affect air cargo capacity and pricing?

The effect of the extended sailings around Africa will not just impact the cost of each journey as described previously but also has the effect of taking out a portion of maritime capacity, estimated to be around

6 per cent. This removal of capacity will place pressure on maritime with price rise as expected. Also, as ships spend more time sailing, we are hearing about potential container shortages in Asia and with the build up towards the Chinese New Year factory closures in early to mid-February could increase air cargo demand as ships and containers may be difficult to secure space on.

How can the industry prepare for the next quarter?

The most important aspect of preparation for the upcoming challenges to global supply chains in Q1/Q2 is communication. Freight forwarders and shippers need to be as precise as they can be with regards to what their transport needs will be. That precision will enable the freight forwarders to look at contingency plans involving air, rail, or sea. The earlier a shipper can identify movement of shipments the earlier the prioritization process can begin. For example, we are reading certain medicines, which move via sea through the Suez Canal are now in short supply as stocks in certain European nations are reliant upon regular supply chains. So, we may find another consequence of supply chain disruption is renewed focus on near shore production of pharma.