Summer crush for air freight space likely to cost ag export sales

Ag export air freight squeeze and cost hike may last until 2024

Agribusiness
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Exporters are crunching the numbers to anticipate how to handle a summer jump in demand for limited air cargo space

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The squeeze on Australia's agricultural air freight pipeline caused by coronavirus is just a couple of months from becoming even more seriously congested when a host of perishable export crops start to be harvested.

Exporters and logistics specialists are madly crunching the numbers to anticipate how to handle the jump in demand for cargo space on a limited squadron of aircraft when spring and summer months deliver a rush of high value horticultural produce to fly around the globe.

While ships handle the vast majority of what farmers and food processors actually export, aircraft are essential to move a range of short shelf life products as diverse as milk, mangoes, molluscs, melons and meat.

National carrier Qantas, alone, would normally send all types of Australian freight to more than 500 destinations worldwide via 22 dedicated freight handling terminals.

However, farm export sector officials estimate the COVID-19 pandemic has cut Australia's air transport capacity as much as 90 per cent after outbound travel demand evaporated in March.

Flights in and out of the country, and interstate, are back to a bare minimum, yet markets for our perishable, time sensitive exports still remain hungry and open for business.

Capacity strained

Congestion issues increased last week when Qantas temporarily suspended operations in Melbourne after a coronavirus outbreak among freight terminal staff.

"The challenge is not just how we are going to meet our capacity needs this summer - this shortage of air cargo space may go on for years," said Australian Horticultural Exporters and Importers Association chief executive officer Andrea Magiafoglou.

"There's a concerning expectation we may not have the capacity we require and a lot of product will divert into domestic markets rather than go overseas."

She said a few summer exports, including cherries and avocados, totally relied on air freight and were particularly vulnerable to the shortage of cargo space.

IFAM has been a very positive story, but there are real concerns about the summer peak - Michael Coote, Ausveg

Exporters admit they would be in far more strife if not for the federal government's much applauded $350 million freight assistance package which has effectively underpinned up to nine airlines' cargo services at a time when carriers have almost no passengers to cover aircraft flying costs.

Since April the International Freight Assistance Mechanism (IFAM) has subsidised movements of about 63,000 tonnes of exports.

Canberra last month topped up its original $110m commitment to help keep key overseas freight routes and flights operating until February - a peak time for Chinese New Year export sales.

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However, there will still be big quantities of summer fruit including cherries, rockmelons and stone fruit to send offshore until March or April - all vying for space alongside brassica crops, beef, lamb, aquaculture and dairy exports, and facing huge freight bills if government help dries up.

Ausveg export development manager Michael Coote said before IFAM was introduced freight prices soared as much as seven times their pre-COVID-19 rates, which was a scary prospect to return to.

Even with the IFAM, current export costs were two to three times higher than a year ago - typically up from between 50 cents and $1 a kilogram to $1.60 to $2 or more.

Positive story

"IFAM has been a very positive story, but there are real concerns about the summer peak," he said.

"It's hard to know how some export sectors can cope, especially given some people predict aviation freight capacity won't recover until 2023-24.

"Sea freight is already a big export route for horticulture crops and people are reviewing their air freight options, but some of these highly perishable crops present a real challenge.

"In fact, although 90pc of fresh vegetable exports go by sea, there's been strong growth in the perishable market in recent years."

He noted fresh asparagus exports accounted for about 50pc of the 10,000t Australian crop, mostly flown to Japan, Singapore and Hong Kong over summer.

That niche trade alone generated about $30m, largely for the Koo Wee Rup district in southern Victoria.

In normal times Australia's $15b a year beef and sheepmeat industries would send about $1b in premium red meat exports by air.

Making the best of it

Australian Meat Industry Council CEO Patrick Hutchinson said some exporters, particularly smaller operators, were struggling to get space, and high freight costs were chewing into margins, but they were making the most of a difficult situation.

"Costs were going through the roof before the IFAM was introduced," he said.

"It's been a godsend for us, and taken a lot of pressure off.

"Freight prices, space issues, and lack of available flights to some destinations are still a worry, but at this time you can't look a gift horse in the mouth."

Fortunately domestic consumption of available red meat had risen to absorb some product which processors were no longer exporting because of space and cost constraints.

At its peak during the past four months local meat sales were up to 32pc above the same time in 2019.

Mr Hutchinson said export freight issues were also complicated by fluctuating demand and prices overseas.

Total sheepmeat sales were down about 16pc, US meat orders had spiked in May but dropped since, and returns from the huge Chinese market were "a bit erratic" because it had been carrying a lot of stored inventory.

In addition to numerous COVID-19-related export complications, many livestock producers were trying to rebuild herd and flock numbers rather than sell animals for slaughter.

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The story Summer crush for air freight space likely to cost ag export sales first appeared on Farm Online.

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