Heavy lifting: How NZ is riding out air freight squeeze

The Government is set to extend its airfreight subsidy scheme after spending less than half of the allocated emergency funding, and as exporters face a squeeze in getting goods to markets.

The International Airfreight Capacity Scheme was launched in May with an initial schedule of 53 weekly flights from New Zealand to international destinations.

In response to demand from the business community, the schedule has since grown to support 70 weekly flights at the beginning of this month.

This represents about half of all the international flights flown from New Zealand each week, said Transport Minister Phil Twyford.

The Government has already allocated up to $320 million to support international airfreight.

Most freight is carried in the belly holds of passenger aircraft, and because nearly all scheduled international services to and from this country have been suspended, this space has disappeared from the market.

By the end of this month, when the scheme expires, it is expected that a maximum of $140m will have been spent, Twyford told the Herald.

Under the terms of the scheme, funding is provided to guarantee freight capacity on key routes with airline and carrier agreements.

''The Government is giving careful consideration to the ongoing need for the scheme in light of continued border restrictions and limited passenger air travel," said Twyford.

Customs Brokers and Freight Forwarders Federation chief executive Rosemarie Dawson said there were anecdotal reports that air cargo prices and a shortage of capacity had forced some exporters to opt for sea freight instead.

She said it was crucial the Government subsidy was continued to help hold rates for exporters.

"If it wasn't for the subsidy, what is flying now wouldn't be. There is a need for Government to continue — it is propping up the freight market."

There was concern among fresh food firms that there wouldn't be enough space for produce such as cherries or capsicums during the export season. "It's a very narrow window."

Air New Zealand, China Airlines, Emirates, Freightways Express, Qantas and Tasman Cargo (DHL) have been part of the scheme.

When it was launched, the Ministry of Business, Innovation and Employment said the key assessment criteria were the contribution to ensuring the supply of critical imports (particularly medical supplies) and maintain the economic benefits of high value exports. Secondary objectives were to provide opportunities for repatriation, maintain future tourism capacity, international relations, and the competitiveness and sustainability of the aviation sector.

Air New Zealand is running up to 52 freight flights a week and its chief commercial and customer officer, Cam Wallace, says the government subsidy is an essential bridge between airlines and exporters.

"The model is challenging. [Pre-Covid] it was passengers and freight and then you'd manage the price around those two segments. When you've only got freight and an empty cabin upstairs, it does challenge the model."

The airline is using its 787 Dreamliners for international freight and with little or no passenger luggage to stow, their cargo capacity was significantly improved.

"I think we've got enough capacity and we can add flights," said Wallace. "The capacity of belly space has expanded materially because we don't have as many customers up top."

Changing fleets

Around the world, belly cargo in passenger planes accounts for about 50 per cent of all airfreight but in this country it is much higher - about 80 per cent here.

DHL Express has specialist freighters and its New Zealand country manager Mark Foy said one flight a week between Sydney and Auckland was part of the Government scheme.

He said his company had increased its capacity directly into New Zealand and into Australia during the pandemic, with more scheduled services from Asia and the United States.

It had also operated 20 charter flights into Auckland from Hong Kong.

Next month it will launch Boeing 747-800 freighter services once a week into Auckland from Hong Kong via Sydney and these would provide 120 tonnes of capacity.

Unlike airlines that are facing a plunge in demand and having to park up planes, DHL was expanding and renewing its global fleet, adding planes which include aircraft converted from passenger operations.

The company will add four 767-300 Boeing Converted Freighters (BCF) to give it more efficient capacity. The rush to specialised freighters has also helped Boeing as passenger aircraft orders and development stalls. The plane maker has now received 51 orders and commitments for the 767-300BCF.

Air New Zealand has used Dreamliners for dedicated freight flights. Photo / Brett Phibb

Passenger airlines are taking a more ad-hoc approach. Some have removed seats from planes to provide more cargo space as more airlines have turned to being "freight dogs", and the number of freight-only flights has soared during the past six months. Portuguese charter airline Hi Fly took the seats out of an Airbus A380 to increase cargo capacity to 60 tonnes and 320 cubic metres.

While airline pilots have been grounded, demand for freighters has boosted the international profile of pilots such as Cathay Pacific 747-400F first officer Eva Claire Marseille, who has been constantly documenting her global cargo flying on social media during the pandemic.

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What lockdown did to business

Foy said his firm experienced a sharp drop-off in business during the five weeks of lockdown in this country.

It was paid $2.19m for 312 workers from the Government's wage subsidy and he said the focus was on retaining staff.

After lockdown there was a Christmas-style surge in demand for five weeks but this had flattened out. "Now that surge has ended and we have pretty consistent volumes and they're back to where they were pre-Covid."

There was some growth in exports and a significant increase in the e-commerce business as more Kiwis have gone online to shop. Foy said this looked as if it could be a structural change in the way New Zealanders buy things.

This is emphasised by NZ Post, which says about 200 parcels a minute went through its network in the first two weeks of alert level 3 when the country came out of hard lockdown - a 105 per cent increase in online shopping during that time.

NZ Post says the online spending continues to be up 30 per cent on this time last year.

Airfreight is an early barometer of economic activity and Foy said there was now a levelling off of heavier cargo such as parts and machinery. Not only was there less demand for aviation spare parts, but there were signs of ebbing shipments of agricultural machinery.

A Singapore Airlines Boeing 747 freighter at Auckland Airport. Photo / Brett Phibbs

"I think it's probably the nervousness in what's coming ahead — when there are uncertain economic times, what we will see is a business spending $70,000 instead of $100,000."

International Air Transport Association figures show that belly capacity for international air cargo in June was down 70 per cent on last year.

While this was partially offset by a rise in freighter capacity on the market, up 32 per cent, overall global capacity was down 33.9 per cent for international operations, year-on-year, while demand in cargo tonne kilometres was down 19.9 per cent.

What's coming through Auckland Airport

Auckland Airport says international air cargo data for the first half of the year to June showed that while airfreight demand has declined by 16 per cent year-on-year, available capacity has dropped away by about 25 per cent.

Scott Tasker, the airport's general manager aeronautical commercial, said government support for airlines through the freight capacity scheme had been vital in keeping air trade connections flowing.

"But the usual pattern is for a peak in cargo volumes from around October to January, so without a border reopening or an increase in cargo flights, whether that's freighters or cargo-only passenger aircraft, it will be a challenge to match that demand with capacity. It's possible that a shortage of capacity could be a challenge for exporters getting fresh, seasonal produce, such as avocados and cherries, to international markets."

As New Zealand got back alert level 1 on June 8, imports and exports moved closer to a pre-Covid patterns for that month.

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Respiratory equipment remained the top growth category but flows of food products replaced the urgent need for Covid-related items.

Year-on-year, June tonnage fell 17 per cent, due mainly to a 24 per cent fall in imports.

"We've seen relatively good volumes into the US, which is our third largest market," Tasker said. "Export volumes were up 30 per cent on the previous month off the back of strong numbers for lamb, beef, respiratory equipment, salmon and prepared foodstuffs, and the year-on-year drop in overall freight volumes to and from the US was only 1 per cent."

In June, Auckland Airport had 10 airlines operating 255 international cargo flights using passenger aircraft, in addition to 113 international freighter flights.

Auckland Airport freight

Top export growth commodities, June (year-on-year):
• Respiratory equipment (+240 tonnes, +348%)
• Lobster (+166 tonnes, +152%)
• Lamb (+111 tonnes, +91%)

Top import growth commodities
• Capsicum (+115 tonnes, +184%)
• Coffee (+41 tonnes, +479%)
• Food preparations (+30 tonnes, +17%)