Overwhelming Volumes of Inbound Cargo Congest Critical U.S. Air Hubs

Overwhelming Volumes of Inbound Cargo Congest Critical U.S. Air Hubs

As some parts of the world make incremental progress in controlling the COVID-19 pandemic, there has been a resurging global demand for air freight reaching pre-pandemic levels. U.S. air freight capacity, much like in the rest of the world, decreased during the pandemic. This was due to a variety of factors; most notably, the grounding of passenger flights and uncertain border restrictions and regulatory measures. Passenger flights between the U.S. and Europe carry roughly 80 percent of total transatlantic cargo in the belly of the planes. On a global scale, belly capacity dropped 57 percent from 2019 to 2020. 

A robust vaccination campaign in the U.S. has started to turn the tide of the economic stagnation experienced during the pandemic. An improved economic situation is driving the demand for imports of consumer goods on both an individual and corporate scale. Americans have more money to spend, and U.S. companies have an interest in stockpiling inventory to avoid future shortages. 

Congestion and delays impact operations at critical U.S. air hubs 

Some U.S. cargo gateways, such as Chicago O’Hare, JFK, Detroit, and LAX, are becoming overwhelmed by the surges in inbound cargo volumes. The unprecedented volumes are met with inadequate warehouse facilities and limited handling capacity, both of which are critical components in processing cargo quickly and efficiently. 

At Chicago O’Hare, cargo volume by weight grew 14.8 percent in 2020 to more than 2 million metric tons. This trend has continued increasing in 2021, prompting efforts by some freight forwarders to supplement their capacity by renting additional warehouse space in airport-adjacent areas, limiting the acceptance of new bookings into the region, and in some cases, relocating operations to alternative, less congested airports. U.S. air hubs have historically lacked the space needed for the expansion of on-site industrial facilities. Because of this, existing warehouse space at or near these hubs is priced at a premium. Industrial facilities near Chicago ORD have the highest rental price relative to the average cost for industrial space in the city. Facilities at or near this hub cost 47 percent more than the average warehouse in Chicago. As a result, seeking alternate arrangements with second-tier airports has proven more lucrative for companies dependent on streamlined operations. 

This was the decision made by German logistics company, DB Schenker, and Miami-based freight forwarding service, Senator International LLC. Both companies partially relocated their operations from Chicago O’Hare to Rockford International Airport (RFD) to minimize the impact from congestion and delays. With Amazon Air now its primary customer, Rockford International Airport processed 2.8 billion pounds of cargo in 2020, up 18.5 percent from 2019. It is now Amazon’s third-largest e-commerce hub in the U.S. Others are turning to cargo-dedicated Rickenbacker International Airport (LCK) near Columbus, Ohio, joining the ranks of established tenants, Cargolux, Cathay Pacific Cargo, Emirates SkyCargo, and Korean Air Cargo. Wilmington Air Park (ILN) in Wilmington, Ohio grew a record 289 percent from 2019 to 2020. As congestion worsens and delays lengthen at Chicago ORD, these alternative airports are likely to continue growing in appeal. On April 27, Finnair Cargo landed at Pittsburgh International Airport (PIT) for the first time. Airline officials cited the agility and flexibility of the smaller airport as the decisive factor in utilizing PIT to transport automotive parts from Asia to North America. Like RFD, Pittsburgh has seen its inbound cargo increase this year. In March 2021, inbound cargo volumes at PIT were 29 percent higher than in March 2020.

Sources of congestion at U.S. air hubs

The COVID-19 pandemic brought on a shift in consumer behavior from in-person to online shopping. In Q4 of 2020 alone, Americans bought USD 33.31 billion (EUR 27.31 billion) of online merchandise. Sources report that U.S. e-commerce grew 44 percent in 2020, representing 21.3 percent of total retail sales. This year, industry experts predict that the global e-commerce sector will grow by 10 percent, reaching 3.8 billion users worldwide. This is likely due to a variety of factors beyond the parameters of the pandemic restrictions. This includes the ease of transaction, the increase in global internet accessibility, and the convenience of merchandise consolidation in one central location. Though 2.5 times lower than China, the U.S. generates USD 469.3 billion (EUR 384.7 billion) in e-commerce sales revenue. As this trend continues, the pressure will mount on freight forwarders and ground handlers to increase productivity, speed, and efficiency.

The resurgence in air freight demand amid a rebounded U.S. economy is set against the backdrop of nine months of port terminal congestion in the key U.S. Ports of Los Angeles, Long Beach, New York, and New Jersey. As the largest container port in North America, the Port of Los Angeles processed 799,315 containers in the month of February alone, a 47 percent increase from February 2020. Import volumes are continuing to increase at unprecedented rates, causing a current waiting time of 5-11 days at the Ports of Los Angeles and Long Beach. 

As import volumes of cargo containers continue to reach record highs in the U.S. ports with the highest processing capacities, many shipping companies have sought a ocean to air conversion. However, cargo capacity on passenger planes has not yet rebounded to pre-pandemic levels. This is compounded by the realities of a national labor shortage that has also not yet normalized. While there now exists an increased demand for air freight volumes, the limited capacity of passenger planes, ground handlers, and carriers remains problematic. 

Normalization of passenger travel will determine capacity availability

Air freight rates have skyrocketed since the gradual economic revitalization that followed the launch of the U.S. vaccine distribution plan. Industry experts predict that consumer demand for commodities will continue to influence air freight rates. Sources also believe that e-commerce as a share of total retail spending will continue an upward trajectory through 2021. This will likely add to the already unmanageable import volumes at ports and airports in the U.S.

Cargo transport and logistics companies will continue to experience delays so long as air freight handling and forwarding capacity continues to decline. As of March, air freight capacity continued to decline, on average, by 5 percent each month. While COVID-19 outbreaks and associated flight restrictions ease in some parts of the world, they continue to intensify in others. As of reporting, at least 14 countries have banned inbound passenger flights from India entirely, as the country deals with an outbreak of new COVID-19 variants. While the air freight industry has recovered somewhat since the start of the pandemic, the normalization of passenger air travel will likely determine whether capacity can catch up to demand in 2021. Though many are optimistic for the future of travel for fully vaccinated passengers, airline industry sources report that forward bookings for the summer are down 78 percent. Disproportionate access to the COVID-19 vaccine is also likely to deter the normalization of global travel trends in 2021. 

For those with interests in the continuity of operations at any of the major U.S. air cargo hubs, Everstream Analytics recommends the following:

Monitor regulatory changes impacting passenger flights. Everstream Analytics continues to monitor changes that can disrupt or enable air freight capacity on passenger planes as such changes are likely to influence inbound cargo volumes at major U.S. air hubs. Through our COVID-19 Intelligence Center, we continue to log weekly updates of national regulations and restrictions such as flight bans from certain countries that may indicate a disruption to the commercial aviation sector. This is complemented by our near-real time reporting of high-impact incidents of the same nature. 

Stay abreast of current waiting times at critical U.S. ports. Everstream Analytics continues to monitor and report on sustained port congestion and delays at the Ports of Los Angeles/Long Beach and New York/New Jersey. Increases in vessel waiting or container offloading and processing times at these critical, high-capacity ports are likely to lead to a subsequent spike in ocean to air conversion rates which is indicative of increased inbound air cargo. 

Maintain updated knowledge of U.S. COVID-19-related labor regulations. A key contributor to the congestion at ports and air hubs is limited staff capacity due to regulations established during the COVID-19 pandemic. Everstream Analytics will continue to monitor and issue near-real reports on government announcements regarding capacity limits that may influence either a shortage or increase in ground handling cargo capacities. As important as is a return to normalcy for passenger air freight travel, so too is securing full ground hauling operational capacity. Sources indicate that passenger freighters contribute most to air hub congestion, as they take longest to load and offload.

Monitor consumer spending trends in the e-commerce sector. A consumer behavioral shift to online shopping is not likely to be reversed in 2021. Online retail giants like Amazon show no signs of reversal or stagnation; rather, all signs indicate that such companies will continue expanding their U.S. presence. So long as ports remain congested, an increase in the demand for retail merchandise by American consumers will impact air hub operations. Everstream Analytics will draw on industry expertise of the retail sector to look beyond the pandemic in determining the future of consumer spending trends and the potential impacts to freight logistics.  

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