More supply chain pain as airspace closures hit air cargo

An AirBridgeCargo Airlines Boeing 747-87U arrives at Paris Charles de Gaulle airport in Roissy-en-France carrying 21 million face masks during the coronavirus disease (COVID-19) outbreak in France May 25, 2020. REUTERS /Charles Platiau

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  • Flights between Europe and North Asia are the most affected
  • European airlines cancel cargo flights
  • Air freight rates were already high due to the pandemic

March 1 (Reuters) – Global supply chains, already hard hit by the pandemic, face further disruption and cost pressures as airspace bans following the invasion of Ukraine by Russia raise concerns about a fifth of air freight.

Transport between Europe and North Asian destinations like Japan, South Korea and China is at the forefront of disruption after reciprocal bans barred European carriers from flying over Siberia and prevented Russian airlines from fly to Europe.

Airlines responsible for transporting around 20% of global air cargo are affected by the bans, Frederic Horst, managing director of Cargo Facts Consulting, told Reuters on Tuesday.

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German carriers Lufthansa (LHAG.DE), Air France KLM (AIRF.PA), Finnair and Virgin Atlantic have already canceled North Asian cargo flights due to closed access to airspace.

However, major Asian carriers like Korean Air Lines (003490.KS) and Japan’s ANA Holdings (9202.T) still use Russian airspace, as do Middle Eastern airlines.

Shares of German logistics company Deutsche Post fell nearly 3% on Tuesday. Shares of major airlines fell about 1%.

Pure cargo carriers like AirBridgeCargo Airlines in Russia and Cargolux in Luxembourg are subject to the bans in a move that could drive up air cargo fares – already high due to a lack of passenger capacity during the pandemic – even further.

“Flights are getting more expensive due to longer journeys,” said Stefan Maichl, an analyst at Landesbank Baden-Wuerttemberg in Germany.

“With more kerosene on board, cargo capacity decreases. Freight rates could still increase accordingly. “

In December, air freight rates were 150% higher than 2019 levels, according to the International Air Transport Association, spurring inflation that has rocked economies around the world.

Sanctions imposed on Russia following its invasion of Ukraine are expected to further disrupt global supply chains.

Russia’s AirBridgeCargo alone carries just under 4% of the world’s international air cargo, most of it between Europe and Asia, Horst said.

“In total, you could be looking at a quarter of air cargo between Asia and Europe needing to find other means of transportation,” Horst said.

“The yields are high enough that flying a longer route via Southeast Asia, South Asia or the Middle East is an option, but it will still take capacity out of the market.”

E-commerce has exploded during the pandemic. Shipping container shortages and bottlenecks at ports have led to more products being transported by air. Last year, air cargo demand was 6.9% above 2019 levels, according to IATA.

Taiwan’s EVA Airways (2618.TW) said on Tuesday its cargo flights to and from Europe were operating normally and it would consider adding more services to meet market demand.

China Airlines, also based in Taiwan, said it will continue to pay attention to the global economic and political situation and flexibly adjust cargo capacity.

Asia-North America cargo routes are expected to be less affected than European routes, analysts say, as many carriers already use Anchorage, Alaska, as a cargo hub and stopover point.

Japanese automakers Toyota Motor Corp (7203.T) and Nissan Motor Co said on Tuesday they were monitoring any disruptions to supply chains following what Russia calls its “special operation” in Ukraine.

US-based United Parcel Service Inc (UPS.N) and FedEx Corp, two of the world’s largest logistics companies, have halted deliveries to Russia. Deutsche Post said its DHL unit was halting inbound shipments to Russia.

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Reporting by Jamie Freed in Sydney, Matthias Inverardi and Ilona Wissenbach in Berlin; Additional reporting by Satoshi Sugiyama in Tokyo and Ben Blanchard in Taipei; Editing by Stephen Coates, Michael Perry and Jane Merriman

Our standards: The Thomson Reuters Trust Principles.

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