
Demand for medical equipment is making air cargo fees ‘crazy’ - hhs
https://www.bloomberg.com/news/articles/2020-03-30/-absolutely-crazy-air-cargo-fees-highlight-supply-chain-squeeze
======
Frost1x
I'm a bit confused. Shouldn't chartered flights go down in cost now that there
are lots of airlines with planes, costs, competition, and virtually no
passenger demand?

I realize passenger and cargo planes are different, but probably don't
understand just how different in terms of effort/cost of adapting passenger
planes to haul cargo primarily vs passengers and what the typical revenue is
for a given flight (total revenue for passenger tickets). Even if it makes any
economical sense to repurpose existing passenger jets for supplies unless of
in dire need (which this may be the case for).

~~~
jldugger
There was a discussion on the economist podcast about this.

1\. Passenger jets often take a bit of cargo, but even if they rejiggered,
it'd only be half full of cargo.

2\. Many companies already hedged the price of fuel so the oil glut isn't
really helping them any.

3\. Demand is unidirectional: medical supplies are made in a handful of
countries (ie China) but there isn't a huge demand for air freight the other
direction. See also the container problem.

4\. The airline network is a complex emergent system. Passengers from one
international flight often connect into another domestic one. Cancelling an
international flight has unpredictable knock-on effects for downstream
flights.

5\. Cancelling a flight can lead to losing your 'slot'. Similar to how google
will kill non performing ads, airports have a system to allocate arrivals /
departures to airlines that factors in usage. If you shift a passenger jet
flying EU to US into doing cargo hauls, that slot is jeopardized.

~~~
r00fus
> 3\. Demand is unidirectional: medical supplies are made in a handful of
> countries (ie China) but there isn't a huge demand for air freight the other
> direction. See also the container problem.

This has got to change. Why is everything made in China? Anyone not coming to
grips with the national security implications of not creating critical
equipment in your own country (or region) is praying for doom.

~~~
dylan604
> Why is everything made in China?

Part of me wonders how serious a question this is. The ridiculously cheap
manufacturing costs is why anything is made in China. When the Chinese get
unions to negotiate $45/hour salaries, require fair working conditions, time
off, medical/dental, and on and on things might be different.

You can take advantage of the situation and develop a 100% robotic assembly
line that does not require $45/hour workers so that you can manufacture
critical equipment in your own country. Be the hero the world needs, not the
one it deserves.

~~~
jsdwarf
Proximity to the raw materials is another important factor. Latex gloves are
mainly made in Asia, because that's where most of the rubber trees are.

~~~
econcon
I tried getting into 3D printing filament business in India and result? I
couldn't find raw pellet providers which are manufactured locally and had to
import the pellets, after paying duties even cheap labor couldn't make me
competitive as prices as some American or European or Chinese brands.

------
binarysolo
For people wondering why we can't just convert spare passenger capacity to air
cargo easily:

I do supply chain: everything is handled in pallets. If we filled all
passneger space up with individual small boxes that's a lot of extra
"touches/unit" which equals labor cost and quickly drives price of delivery
up.

Instead of 1. load pallet at warehouse -> 2\. transport to airport -> 3\.
plane flies pallet -> 4\. unload pallet -> 5\. move to warehouse -> 6\.
unpack/distribute, we have:

1\. load pallet -> 2\. transport to airport -> 3\. unpack pallet -> 4\. load
into system that's compatible with passenger seat constraints -> 5\. plane
flies stuff -> 6\. repack individual boxes into pallet, 7. move to warehouse
-> 8\. unpack/distribute

Right now pallets are the "unified language" of shipping; so once you break
things down the units are super variable and not meant or resistant to non-
pallet circumstances.

------
robecommerce
According to the Loadstar [1], this may be true for medical supplies, but
demand for airfreight on a macro-level into Europe/US is dropping - a complete
reversal from 3 weeks ago. The bullwhip effect [2] in action?

"The Loadstar warns air freight demand is expected to plummet as consumers in
Europe and the US are forced to stop buying by shops closing. The automotive
industry has already stopped requesting components as plants have closed;
retail has cancelled significant volumes of orders - “Shopping is just not a
priority,” said one forwarder. “The only real air freight demand now is
medical equipment and some urgent products. “Just-in-time may be changed for
ever. “There is also no cashflow.” He said air freight demand was now “the
absolute reverse of two to three weeks ago; the dynamic has changed”. Another
forwarder noted that while demand was, perhaps 15% of what it was three or
four weeks ago, supply is at about 10%. “So there is still high demand in a
relative sense.” [3]

1 [https://theloadstar.com/change-of-dynamic-air-freight-
demand...](https://theloadstar.com/change-of-dynamic-air-freight-demand-now-
the-reverse-of-three-weeks-ago/)

2
[https://en.wikipedia.org/wiki/Bullwhip_effect](https://en.wikipedia.org/wiki/Bullwhip_effect)

3 via reddit r/SupplyChain daily update -- highly recommended:
[https://www.reddit.com/r/supplychain/comments/fqlh9a/covid19...](https://www.reddit.com/r/supplychain/comments/fqlh9a/covid19_update_saturday_28th_march/)

------
leoc
Ireland has started sending its flag-carrier passenger airline to China for
PPE. [https://www.rte.ie/news/2020/0329/1127076-ppe-equipment-
chin...](https://www.rte.ie/news/2020/0329/1127076-ppe-equipment-china/)

~~~
imeron
Same in Hungary with Wizz Air.

------
eliaspro
Well, now finally all those military cargo planes could be put to good use...

------
Skunkleton
Does that mean there is a market where if I paid enough, it would bump a cargo
flight of medical supplies? That is a bit disturbing IMO.

~~~
arpowers
Although it's disturbing, economics shows that this is the best way to
optimize a complex system.

People with more needs are willing to pay more, generally.

There are caveats, but these are generally built into economics models. Best
to let the experts in government decide on how capitalism should play out. A
lot of arm-chair socialists around here demonstrating their lack of education.

~~~
gwright
> Best to let the experts in government decide on how capitalism should play
> out

I'm having a hard time parsing that thought. It seems self contradictory, at
least if you view capitalism as primarily defined as voluntary trades free
from government interference.

------
arketyp
Below triple the price? Relatively non-crazy.

------
hef19898
Last week I got rates of roughly 0.06 € pet mask from Shanghai to Frankfurt.
Equals somewhere just shy of 8 € per kg, all handling charges included. Rates
were valid until last Sunday, bo idea where they are now.

But even double that would still be on the cheap side of things compared to
the price increase for masks. Offer doubled within three days last week, and
the 4 € per mask from Saturday aren't valid anymore.

That the German government basically put out calls for offers under conditions
that don't involve price negotiation certainly didn't help.

Good thing, so, as long as money isn't the driving factor, air cargo capacity
is available. What hurt a lot as well, was the shutdown of passenger flights.
These covered a considerable share of air freight.

------
thedance
Imagine if there was a country with an "Air Mobility Command" having 50000
airmen and fifty gigantic aircraft (among hundreds of smaller aircraft), each
of which can carry 40 pallets. Wouldn't that seem useful at this moment?

~~~
WillPostForFood
It is happening.

 _But this week, the White House did get into the shipping business, when the
Defense Department sent a C-17 cargo aircraft to an air base in Italy to
procure 800,000 swabs from Copan, a medical device manufacturer, and take them
to Memphis._

[https://www.nytimes.com/2020/03/20/us/politics/swabs-for-
cor...](https://www.nytimes.com/2020/03/20/us/politics/swabs-for-coronavirus-
testing.html)

~~~
m4rtink
Czech Republic has been doing something similar since about March 19. to get
emergency medical supplies (mostly personal protective equipment for medical
personel) quickly from China:

[https://news.expats.cz/weekly-czech-news/ukrainian-plane-
to-...](https://news.expats.cz/weekly-czech-news/ukrainian-plane-to-bring-
five-million-face-masks-two-million-respirators-from-china-to-czech-republic/)

[https://www.nspa.nato.int/en/news/news-20200319-7.htm](https://www.nspa.nato.int/en/news/news-20200319-7.htm)

[https://www.nytimes.com/reuters/2020/03/20/world/europe/20re...](https://www.nytimes.com/reuters/2020/03/20/world/europe/20reuters-
health-coronavirus-czech-masks.html)

It's using the An-124 cargo planes (100+ ton capacity) via the NATO SALIS
partnership (2 planes on long term lease from Ukraine stationed in Leipzig) as
well as regular cargo flights, comandeared airliners with boxes on seats an
even the few (2?) small airliners owned by the state/army, normally used for
officially duties. Apparently even some of the repatriation flights have been
used to bring back supplies when possible.

Also some of this material (I suspect where there is sufficient stock for
local use available) is now being sent to Spain and Itally, where it is sorely
needed:

[https://www.radio.cz/en/section/news/coronavirus-czech-
state...](https://www.radio.cz/en/section/news/coronavirus-czech-state-to-
offer-italy-and-spain-10000-protective-suits)

[https://www.nato.int/cps/en/natohq/news_174623.htm](https://www.nato.int/cps/en/natohq/news_174623.htm)

In any case, USA using airlift to get critical supplies is certainly a good
sign! But I'm confused why only now ? It has been clear for at least a month
bad things might happen, so why not stock up at least a bit beforehand ?

------
stateofnounion
This article's title seems to imply global shipping and logistics
infrastructure can't keep up with the incremental demand for PPE, but doesn't
provide any further arguments or evidence to establish that.

~~~
mokash
It also goes on to say:

"An unprecedented collapse in passenger demand is prompting airlines to use
their fleets to transport more cargo, including medicines"

shouldn't this, if anything, bring down the cost of chatering a plane?

~~~
ldoughty
I imagine the cost of using passenger planes as cargo planes is at least 4x
more than dedicated cargo plane.

Probably at least 70% less storage capacity. Probably can only handle smaller
packages, probably not as easy to load/unload, and weight distribution without
passengers might even make it so the full (available) space cannot be used.

However, it probably has similar fuel requirements (slightly reduced from less
load), and still requires a pilot to transport a much less valuable trip..
making the fixed costs still very high

Just my simple guesses. I'm no expert.

~~~
anarazel
Most passenger airplanes also takes cargo containers (of a size specific to a
group of plane types) below the passengers. Not that many of course, compared
to a cargo plane. E.g. even a A321 takes 10 LD3-45 containers.

Depending on the density of what's being transported the lower volume might or
might not matter. E.g. the a321, according to Wikipedia, has a max payload 25t
(I assume with reduced range). That's not that hard to fill with 10 containers
of 3.7m3 each.

I'd assume that one significant reason the flights are that cheap is that they
have contractual cargo obligations requiring them to fly some flights anyway.
A handful of additional passengers won't reduce the payload capacity
meaningfully, but will still bring in more than the increased fuel/service
costs.

------
mhb
Fly from Florida to California for $13:

[https://news.ycombinator.com/item?id=22731785](https://news.ycombinator.com/item?id=22731785)

------
fithisux
Crisis is opportunity. Welcome to an antisocial brave new world where death is
profitable.

BTW we have 20% off in coffins.

------
mjthrowaway1
There’sa lot of demand and also reduced supply from what I understand.

------
angel_j
What about all those grounded commercial flights?

~~~
roywiggins
Yup, commercial airlines have started running cargo flights:
[https://www.forbes.com/sites/jamesasquith/2020/03/28/commerc...](https://www.forbes.com/sites/jamesasquith/2020/03/28/commercial-
airlines-are-now-operating-cargo-only-flights/#772ff98b6f0e)

------
omgJustTest
The image from the article, is from a UA flight (passenger craft).

I would imagine that the airlines come out of this shining through. They just
got 'grants' to pay their employees not to show up to work, they are in
discussion with the US DOT to merge low volume flights across competing
airlines and they are picking up cargo flights. The cost of jet fuel is likely
just icing on the cake.

There will be reorg costs, but they will be offset by not having to pay
workers for 2-3months and the extra work to support the supply problems.

Unidirectional flights problem will get solved through [1] reconfiguration of
flight hubs and [2] aggregation of passengers across airlines. These will
shore up enough margin to make this sustaining or profitable.

Airlines are logisticians!

------
chadlavi
So, price gouging?

Pretty shameful in a time like this (unless shipments of medical supplies are
getting the normal rate from a few weeks ago).

~~~
mullen
Cargo transportation is probably one of few true free market sectors in the
world economy. The Cargo hauls can't all get together and fix prices. There
are just too many players and they all rely on Governments not getting angry
that bunch of companies are artificially driving up prices during a pandemic.

------
cs702
The Law of Supply and Demand, as always and as ever, is working exactly as
expected.[a]

And that's not necessarily a good thing right now.

It sure doesn't feel "right" :-(

\--

[a] [https://www.investopedia.com/terms/l/law-of-supply-
demand.as...](https://www.investopedia.com/terms/l/law-of-supply-demand.asp)

