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Following the outbreak of COVID-19 at the end of 2019, the world faced challenges not seen since the Great Influenza epidemic in 1918. Fast forward to 2020, and the impact of the COVID-19 pandemic has reached unprecedented levels, causing constrained capacity, disruption to services, and destabilized freight rates. This article will analyze how the air freight sector has survived, identifying possible behavioral changes of key players with respect to cargo-related liability claims as we emerge in a new era of cargo transportation.
The COVID-19 crisis impacted the aviation sector in strikingly different ways for passenger and air cargo sectors. The impending insolvency situation, ongoing issues with carrier flexibility, and greater reliance on air freight stand out as primary drivers of the increase of claims. These factors have shaped the number and nature of cargo claims over the past two or three years. As we near the end of 2021, we predict the focus will turn to managing a post-COVID transition and repositioning businesses to address the mounting revival of air passenger travel.
Impact of COVID-19 on the aviation industry
According to the International Air Transport Association (IATA), 2020 has been confirmed as the worst year on record for the airline industry. In a publication titled “IATA World Air Transport Statistics” (WATS), performance figures for 2020 reveal the damaging impact of the COVID-19 crisis on global air transport.
In summary, total industry passenger revenues fell by 69 percent and net losses totaled $126.4 billion. Most damning of all, the decline in air passenger transportation in 2020 was the largest single drop recorded since global revenue passenger kilometers were first tracked in around 1950. Flowing from the fact that passenger aircraft are responsible for transporting almost half of all air cargo shipments, the air freight market worldwide has equally been affected by COVID-19.
Chart 1 (above), taken from the IATA Air Cargo Market Analysis July 2021, highlights the substantial fall of industry-wide cargo ton-kilometers (CTKs) in the first quarter of 2020. Remarkably, the seasonally adjusted metric in red (which evens out periodic swings) has rebounded strongly from May 2020, when strict lockdowns were lifted, with CTKs around 5 percent higher than the pre-crisis peak in August 2018.
- Three kinds of cargo-related liability claims are increasing:
(1) Impending insolvency situations
(2) Ongoing issues with carrier flexibility
(3) A greater reliance on air freight
- Carriers are now turning to managing the revival of passenger travel