Companies worldwide are scrambling to find alternative shipping methods as ongoing Middle East tensions drive air cargo costs through the roof and create major bottlenecks in crucial shipping lanes.
Businesses that traditionally transported electronics and other high-demand consumer goods from Asia to Europe through Middle Eastern hubs are now taking their shipments on detours through Los Angeles to cut costs, according to industry experts.
“It’s a lot faster than going by ocean around (the southern tip of Africa), but much, much cheaper than doing air direct,” said Ryan Petersen, CEO of Flexport.
The price surge in air freight stems from increased demand combined with expensive jet fuel costs, all while Iran continues blocking the critical Strait of Hormuz shipping passage.
Data from WorldACD Market Data shows air cargo capacity heading to the Middle East has dropped by more than half compared to the same period last year over the past two weeks.
Long-term air freight contracts from Vietnam to Europe have seen costs nearly double to $6.27 per kilogram since before the conflict began, Flexport reports.
However, shipping rates from Los Angeles to Paris have only increased by 8% as airlines expand passenger service due to high travel demand, creating additional cargo space in aircraft holds.
“We could see a bump if trade disruptions persist in the Middle East,” commented Noel Hacegaba, CEO of the Port of Long Beach, which forms part of the nation’s largest seaport complex in Los Angeles.
The global air cargo industry, which analysts predicted would expand by 5.5% this year, has instead contracted by 1% due to the Iranian conflict that began in late February, according to Marco Bloemen, managing director at consulting firm Aevean.
Future recovery depends largely on major Gulf airlines restoring their wide-body passenger fleets, which provide approximately half the region’s air cargo capacity, Bloemen explained.
Niall van de Wouw, chief air freight officer at transportation pricing platform Xeneta, warned that slow tourism recovery in the Gulf region after hostilities end could force airlines to reduce passenger service, further affecting cargo operations.
“Gulf carriers such as Emirates and Qatar Airways operate some of the world’s most important air freight networks,” van de Wouw noted.
British Airways announced Thursday it would reduce Middle East flights when operations restart, signaling that regional tensions continue affecting travel demand.
Major shipping companies like UPS maintain regional operations through “contingency plans” while avoiding key hubs like Dubai with their pilot crews.
Charter aircraft companies have stepped in to handle some routes, but aviation fuel supplies are expected to stay limited and expensive for several months ahead.
“The major issue for everyone is the massive hike in fuel prices,” explained Dan Morgan-Evans, group cargo director at Air Charter Service.
One client of AIT Worldwide Logistics paid five to six times normal rates to transport oil drilling equipment to Saudi Arabia by air and truck after canceling planned ocean shipping from Houston due to the conflict, said Ryan Carter, the company’s Americas executive vice president.
Despite the steep costs, many businesses feel they have little choice but to pay premium air shipping rates.
“Sometimes the cargo just has to move,” Morgan-Evans said.
