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The impacts of the COVID-19 pandemic are well documented – particularly the catastrophic loss of passenger business and, along with that, a large proportion of all scheduled belly-hold capacity.
But as capacity loss, unprecedented demand, successive lockdowns and perpetually-changing antiCOVID regulations all brought daily new challenges to global trade, how did the forwarders and logistics service providers keep their clients’ supply chains running? And what’s their view of the altered future in which we all now exist? Hactlink asked three of Hacis’ forwarder customers:
The pandemic has demonstrated how important our industry is, how critical to keeping the world moving. There are winners and losers, but logistics and supply chain is more important than ever.
Mark Slade, Managing Director Hong Kong and Macau at DHL Global Forwarding, says he was surprised by how quickly things bounced back in airfreight. “In February 2020 we went into total lockdown in Hong Kong and China. Then things came roaring back.”
Billy Ho, Manager – Air Export at Expeditors says: “The biggest surprise has been the strong demand recovery – mostly on transpacific lanes. Despite continued outbreaks and COVID19-related restrictions and challenges, global trade has rebounded and is exceeding pre-pandemic levels.
Leo Huang, President of YTO Express (International) Holdings Limited concurs: “The speed and scope of the spread of the epidemic are shocking and beyond everyone's expectations. At the beginning, the shortage of airfreight capacity was serious due to the shutdown of international travel.” But YTO Group has since been enjoying historic cargo volumes and revenue, by utilising the resources of parent company, YTO Airlines, to conduct charter flights during the pandemic.
Of the capacity crunch, DHL’s Mark says: “What really moved the needle for us was putting up a very significant amount of passenger planes for pure cargo ops. At the beginning, we were cabin loading but it ends up being more trouble than it’s worth. PPE is one of the very few things you can put in a passenger cabin.”
Billy says he sees a renewed focus on cargo by airlines: “This pandemic has created an unusual circumstance in which cargo has become the primary source of revenue for airlines. Passenger airlines, which typically generate over 70% of their revenues from the movement of people, have been significantly disrupted. Many airlines took the unprecedented step of converting passenger aircraft into freighters. The remainder of their fleets have largely been grounded and flight scheduling has been significantly reduced, servicing only those lanes for which there is consistent demand for cargo.
“The pandemic experience has been radically different for freighter - and charter operators who offer the specialised craft, equipment and crews currently in high demand. These continue to perform well in the current market.”
At YTO, adds Leo, much of the solution has been provided in-house with its own charter programme: “To date, we have operated China-Japan, China-Korea, and ChinaMalaysia.” And, he adds at the time of writing, “The Group is planning several China-EU charter flights later in 2021.”
Recent events have once again thrown the spotlight on airfreight capacity, continues DHL’s Mark: “The capacity situation was getting better, but the Delta variant outbreak caused a lot of lockdowns and flight cancellations in and out of China. That has pushed a tremendous volume towards Hong Kong, because it was not impacted. The peak season in 2021 is going to be historic!”
Billy adds: “As long as this pandemic persists, cargo capacity may remain constrained. Recovery will ultimately be dependent upon the return of international passenger travel. Quarantine-free travel bubbles will be very important: as passengers start to return to the skies, flights and capacity would be expected to stabilise."
Leo says the shortage of capacity is easing, but “rates are still high, especially from China to the EU and North America. The biggest challenge has been the shortage of ocean freight capacity during 2021 H1; this situation will not get better in the short term.”
Certainly, the overall supply:demand picture has not been helped by the woes of the ocean sector. Explains Mark: “The ocean situation didn’t drive the airfreight situation in 2020 as much as in 2021. 2020 was more of an air problem because the passenger planes just stopped flying. Ocean is driving the narrative much more in 2021.”
That has pushed a tremendous volume towards hong kong, because it was not impacted. The peak season in 2021 is going to be historic!
Too much cargo chasing too little space is keeping rates high, and that’s not always good news, adds Leo: “High freight rates have had a huge negative impact on some low value-added Chinese products, leading developed countries to transfer part of their production to Southeast Asia, Latin America, and other regions."
Notwithstanding, he says customers understand the market situation caused by COVID-19, and that rates are based on supply: “At the very beginning of the pandemic, we established a communication mechanism with our agents and clients, which shared information regarding COVID-19. This enabled our clients and agents to fully understand what challenges we faced.”
Billy adds: “Many supply chain managers are having to satisfy unprecedented customer demand whilst navigating ongoing pandemic restrictions on production and movement of products. Companies have begun to reevaluate supply chains, considering ways they could become more resilient and less exposed to risk in the case of future disruptive global events.”
While we have all had to endure a level of hardship (and, some of us, personal tragedy) there have also been silver linings.
Revisiting old ideas
Is any relief to the capacity crisis likely? Mark doesn’t think so, in the short term: “The ocean situation is going to continue well into 2022 for sure; the air situation will as well. Investment cycles for converting passenger planes into freighters, building more freighters, bringing planes back out of the desert and building new warehouses and terminals are very long.” He adds: “There’s also a long-term labour challenge in truck-drivers and workers in warehouses and terminals across the world, that’s particularly hitting logistics and supply chains.”
Logisticians are nothing if not problemsolvers, and working around this ongoing capacity nightmare has inspired ingenuity, and (in some cases) re-visiting ideas that were abandoned years ago. For example, says Mark: “We did a lot of multi-modal: like airfreight from Amsterdam or Frankfurt into Hong Kong, then converting it to ocean and shipping to Australia. Hong Kong maintained a higher frequency of flights than most of the major Chinese airports, so we would get the freight to Hong Kong, and then do long distance trucking using the Chinese domestic highway system, which is a lot better than people realise. We’re seeing growth in longhaul trucking from Chengdu, Shanghai and Vietnam – particularly Hanoi and the north.”
Hong Kong has always been a top 3 station for DHL, but what Mark describes as its “relative utility” has increased: “The whole SAR is essentially a free trade zone; everything is near everything else and it’s relatively easy to do transhipments here.”
Although predicted levels of vaccine air transport have never materialised, considerable quantities have shipped - along with other associated supplies for the war against COVID-19. Says Leo: “Since the beginning of the epidemic, YTO Group has assisted governments, institutions, and enterprises to transport medical and personal protective materials all over the world, especially Europe.
“We maintain close cooperation with our partners to transport testing reagents of COVID-19 and medical supplies. Especially in Southeast Asia, we have teamed up with YTO Airlines to transport vaccines to Southeast Asian countries. The epidemic is a global disaster, and we are keen to do our best to help the world recover as soon as possible.”
Meanwhile, DHL has also played a big part in the transport of vaccines, reports Mark: “DHL has handled almost all the vaccines coming to Hong Kong, including the first shipments for the health departments in Hong Kong and Macau. We still have shipments coming weekly from Germany, and Hong Kong has worked extremely well.” For minus 70 degrees Celsius vaccines DHL uses special boxes packed with dry ice, with Smart Sensors transmitting data from every package. Its partners in Hong Kong take care of the final mile to vaccination centres. For standard vaccines shipped at 8 degrees Celsius, DHL uses Envirotainers.
Recovery will ultimately be dependent upon the return of international passenger travel. Quarantine-free travel bubbles will be very important.
What lessons have been learned from COVID-19? While Leo believes governments, NGOs, international logistics companies and airlines have collectively done an excellent job in responding to the epidemic, he also cautions that the industry should put in place a cooperation mechanism to better cope with this type of emergency in future - with further strengthening of the disinfection and sterilisation of air transportation materials, and better risk prevention and control.
“We need a global standard SOP to meet similar challenges in the future,” he continues. “While airlines have converted passenger planes into cargo planes to provide charter services, airports have lacked standard operating procedures and manpower arrangements for this type of aircraft, which caused a degree of inefficiency. Communication between airlines and airports needs to be strengthened.”
Mark says Airfreight’s strength has also proved to be a weakness: “Freight forwarding is an asset-light business model that enables us to dynamically adjust flight plans, routes, charters, BSA’s and subcontractors. But one of the weaknesses of that model is difficulty coordinating across Customs, ground handlers, truckers, warehouses etcetera.”
The solution, he says, is digitisation. “This has been a huge point of leverage for us: we made investments in digitisation and automation of our documentation flows, our external touch points with vendors and subcontractors, and automated milestone management years ago.
In both the short- and long term, cross-border e-commerce will be yto’s business focus, and the company will continue to invest in relevant businesses and infrastructure.
E-commerce is now a major driver of the march away from old, paper-based processes, he continues: “In forwarding we’re in the information business. We’re moving from HAWB or MAWB level to piece level to create real time visibility for customers, and that means RFID for active tracking and block chain for keeping a ledger of transactions. Digitisation and automation are 150% the way forward.
“COVID-19 has really driven our digitisation and automation agenda to fruition; it’s enabled us to find new ways of working such as online meetings and training. We no longer look at these tools as frills, but as missioncritical business enablers.”
Leo agrees: “Cross-border e-commerce has developed rapidly during the epidemic, and raised higher requirements for the flexibility of the supply chain and logistics. E-commerce and digital payment will continue to surge after the pandemic, and this will further change the requirement of logistics and affect the overall industry in the future.”
Forward vision
Looking to the future, what are the prospects for our industry? One threat – the impact of the China-US trade tensions – has seemingly disappeared, at least for the time being, says Mark: “The trade war has not been having a negative effect on volumes coming to Hong Kong, which is a pleasant surprise.”
Leo adopts a positive outlook: “We believe the recovery of global production and manufacturing, the rebound of consumption, and steady release of demands for international commodity and service trade will continue to support growth.”
He describes the next two years as a critical period in which YTO must seize opportunities to grow, and is hopeful that positive development of China’s macro-economy will be favourable to this: “In both the short- and long term, cross-border e-commerce will be YTO’s business focus, and the company will continue to invest in relevant businesses and infrastructure."
Aside from the business boom that COVID-19 has delivered to logistics in general, and Airfreight in particular, what do our forwarder friends see as the other positives? Says Mark: “Because we can’t travel it’s forced us to look at things differently and in a positive way – you can spend more time with family, we’re eating healthier, exercising more, we have a better quality of life, but we’re still getting stuff done.
“The pandemic has demonstrated how important our industry is, how critical to keeping the world moving. There are winners and losers, but logistics and supply chain is more important than ever.”
And Billy declares: “While we have all had to endure a level of hardship (and, some of us, personal tragedy) there have also been silver linings. Staff have seized the opportunity to engage in deep personal reflection and be directly involved in community service and charitable giving. We have also been able to bond with customers in a new way, as Zoom meetings provided the opportunity to better get to know their families, pets, personal hobbies and other aspects of their lives.
E-commerce and digital payment will continue to surge after the pandemic, and this will further change the requirement of logistics and affect the overall industry in the future.
