Tight Airfreight Capacity Will Hamper Post-Coronavirus Recovery, DHL Chief Says
April 26 2020 - 7:29AM
Dow Jones News
By Jennifer Smith
Companies trying to recover from coronavirus-driven lockdowns
will face hurdles in shipping markets roiled by deep capacity cuts
and weeks of disruptions in global trade, the chief executive of
the world's largest logistics company said.
Frank Appel, chief of DHL parent Deutsche Post AG, said in an
interview last week that freight volumes would increase
significantly as Europe and the U.S. begin to ramp up factory
production and reopen stores.
But "the shortfall of every capacity will last longer," Mr.
Appel said, especially for the high-value goods such as industrial
parts and electronics often transported in the bellies of passenger
planes. Airlines have canceled thousands of flights as the pandemic
spread, and airfreight capacity could be constrained for months as
the travelers airlines need for those flights might not return
immediately, he said. That could force businesses to switch some
shipments to ocean or rail transport for some time.
"There will be a lag between the lift of lockdowns and the full
capacity for passenger airplanes," Mr. Appel said. "As long as
people are not allowed to travel again, who will fly passenger
airplanes around? Nobody, and that limits the capacity."
Flight restrictions and rock-bottom travel demand have reshaped
the airfreight market, sending prices skyrocketing as shippers hunt
for space on freighters and charter flights to deliver critical
supplies such as medical equipment. Several commercial airlines are
now repurposing passenger planes as cargo-only flights.
But even after infection rates ebb, travelers might still be
reluctant to fly. The number of domestic flights in China, for
example, remains just over 40% of pre-Covid-19 levels, according to
the International Air Transport Association.
Like other logistics providers, DHL has been hurt by the
disruptions to global supply chains as demand to transport goods
tanked amid crashing world trade and steep declines in business.
Earlier this month, Deutsche Post, which is based in Bonn, Germany,
withdrew its 2020 guidance and said it had taken a 200 million euro
($216 million) hit to earnings before interest and tax in February
and March, due to coronavirus.
"While we see an encouraging development in our Chinese business
in recent weeks, Europe and North America are still at an earlier
stage of the pandemic," the company said.
DHL's Express division has a dedicated fleet of more than 250
freighter aircraft, which Mr. Appel said have been in high demand.
The company's freight-forwarding arm also moved quickly in the
early weeks of the pandemic to secure freighters through deals with
cargo airlines.
But DHL is also a major buyer of cargo space on commercial
passenger flights and the steps it has taken aren't enough to
replace the lost belly space, especially as manufacturers and
retailers come back to life, Mr. Appel said.
Customers will have to "think about their supply chain and they
will take more lead times for the inventory, if they have enough in
stock, and put it on shipping lines, even for higher-value
products," he said. "The capacity on the sea vessels is
significantly larger than the airfreight."
Despite the shutdowns and shortages coronavirus has caused
around the world, Mr. Appel said he doesn't expect any turn away
from globalization, or that Western businesses will move production
back home.
Instead, businesses will likely make their supply chains more
resilient, he said, say, by spreading factories across several
regions instead of having just one factory in China.
"They might put them in other places as well, but it will not be
all near-shore because that's not affordable," Mr. Appel said,
adding that anyone who thinks "the game is over with globalization
doesn't understand what drives consumers or what drives business
decisions."
Write to Jennifer Smith at jennifer.smith@wsj.com
(END) Dow Jones Newswires
April 26, 2020 07:14 ET (11:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
Deutsche Post (PK) (USOTC:DPSGY)
Historical Stock Chart
From Mar 2024 to Apr 2024
Deutsche Post (PK) (USOTC:DPSGY)
Historical Stock Chart
From Apr 2023 to Apr 2024