Moving cargo in and out of countries by air has been impacted by the conflict in the Middle East, even as flights in and out of the region have started to return to normal.
Speaking at a Coface media event, titled “From Disruption to Decision: What the Middle East Conflict Means for the Agrifood Sector in Australia and New Zealand”, ICAL International Customs and Logistics Director, Mr Mark Coleman, noted that while airlines are becoming more comfortable operating in the region, flight volumes remain significantly below pre-war levels. This has created a cascading effect for Australian and New Zealand exporters.
Passengers and cargo
In the past, on the way to and from Australia, a large majority of air freight went through the Middle Eastern region, explained Mr Coleman. But the conflict now means that passengers are avoiding the region.
“People who would normally go via the Middle East started looking for flights via the US and Asia,” he said, indicating fully booked flights from the said countries, as well as passengers trying to travel to and from Europe.
“But from a cargo freight point of view, that caused huge restrictions. Passengers’ luggage will always get priority, and as a result, getting space on these flights became a bit of an issue, and they were leaving cargo behind,” he continued.
“People may not realise it, but to and from Australia, 90% of air freight cargo moves on passenger flights.”
This, said Mr Coleman, caused a new issue, as airlines have also started cutting back on passenger flights, due to the high price of fuel. “That means less belly space to put cargo in,” he added.
“Air freight prices will also continue to rise because of fuel cost, and there are going to be fewer aircraft to choose from with airlines pulling back on services.”
According to Mr Coleman, even if the Strait of Hormuz opens soon, “it is going to take months to get back to normal”.
“Once this is all over, air freight will take about a week or two to get back to normal,” he added.
“From a freight point of view, it is going to be two or three months before it goes back to normal, where vessels are regularly spaced apart.”
This leads to the risk of the closure of the Red Sea at any time due to Houthi rebel actions, as the faction is known to back Iran, Mr Coleman pointed out.
“If it does turn messy again, we may see the Red Sea close again,” he said, citing an example of a six-week transit turning into a three-month transit.
Credit risks
Mr Coleman highlighted concerns about client payment risk, especially if the clients were not well known.
“We are also in a period where potentially getting insurance on some of these customers may be challenging,” he added.
Separately, Coface’s Head of Sales, Business Information, Australia and New Zealand, Mr David Jovanov, suggested that a forward-looking view of risk may help organisations mitigate some challenges, such as proactively conducting research on clients.
“Look for coverage concerning non-payment, because it is going to become an issue this year for a lot of companies,” Mr Jovanov added.
“We have seen some increase in insolvencies across some sectors. A lot of businesses are already operating in a tight margin scenario, and fuel levies, as well as other factors, are increasing that risk.”