Lopsided balance in air cargo volumes from Asia to Europe means that a flight with 100 tonnes of salmon from Oslo to Asia actually incurs considerable loss for the airlines, according to Avinor.
In that 90,000 tonnes of salmon worth around EUR 514 million was transported from Gardermoen airport in 2017, air freighting of salmon must surely be big business. If you think that, then think again. In fact, on its own air freighting salmon is a loss project for those engaged in the business of operating cargo planes.
“Salmon is a return product for air cargo companies. Probably, not many know that the price for sending fish by air from Norway is actually way below the cost price. Salmon is one of the lowest earning air cargo products in the world,” Martin Langaas tells SalmonBusiness. He is the director for traffic development and air cargo at Avinor.
Huge expenses part and parcel of air freighting
It’s a ‘chill-to-the-bone’ November day at Gardermoen. Pallets of salmon stand ready to be loaded on board the cargo planes that will fly out to different destinations in Asia and the United States. A great temperature for the raw salmon waiting outdoors, not so great for the ground crew that are kitted out with woolly caps, mittens and thick, padded jackets. It’s a hive of activity out on the apron as pallet after pallet is loaded on board the aircraft that are parked here. At the head of the queue for departure is Korean Air Cargo, which is now receiving the last of its seafood pallets.
Operating a cargo plane, with the range to reach Asia and capacity of around 100 tonnes air cargo, costs in the region between 150,000 and 200,000 kroner per hour. In that the air cargo company is paid on average ten kroner per kilo salmon, it’s obvious that the Oslo – Asia flight alone (takes nine to ten hours) is a money drain. At a rough estimate this trip in itself results in a loss of one million kroner for the company.
“Add to this flying up empty from Europe to Oslo airport to collect the fish, plus time on the ground for loading and unloading. All of this is dependent on the type of aircraft, fuel consumption etc., but with most category E aircraft that have around 100 tonnes cargo capacity, you can expect a cost of 3-3.5 million kroner for a round trip, Asia – Europe – Oslo airport -Asia,” explained Langaas, as he took out a pair of black gloves from his jacket pocket.
Lopsided balance for air cargo in and out of Norway
The reason for the aircraft flying without cargo from various places in Europe and up to Oslo airport is due to that the volume of air cargo leaving from Asia to Europe is much higher than the other way round. Herein lies the key for why the price to freight salmon is so low.
“Norway probably has one of Europe’s highest (energy) consumption of air cargo per inhabitant, but we have a population of just 5.5 million and accordingly – from a global perspective – we are extremely limited in how much we can generate in terms of incoming air cargo to Norway. Going out from Norway is another matter altogether as there are substantial volumes of air cargo, due to the Norwegian seafood export. This makes Norway a market that is contrary to most other European countries, where they import more air cargo than they export,” says Langaas.
Norway, which is one of the major markets for air cargo from Europe to Asia, is utilised therefore by several air cargo companies as a return transport market. They fly first from Asia and in to the major logistics hubs in Europe. Aircraft are emptied before flying up to Norway for collecting seafood that is then flown to Asia, and the home hub for the aircraft. The alternative, flying without cargo back to Asia, would end up incurring an even heavier loss than with freighting the salmon. In any case, it covers some of the costs of the trip.
“As with land transport the balance achieved in travelling to and fro directions affects the prices for air cargo in the different directions. Traditionally, airlines charge high prices from Asia to Europe due to high demand and low prices from Europe to Asia due to low demand,” says Langaas.
A man is walking resolutely towards us across the tarmac. He shivers when he stops. Langaas says hi to his Korean colleague, and in a light-hearted gesture about the freezing temperatures, he rubs his hands together before cupping them in front of his mouth and exhaling air in a cloud of steam. His colleague grins and replies politely before he boards his aircraft.
The last pallet of salmon is loaded on board the aircraft, which will soon be eastward bound. The balance for cargo volume carried in a direction is the reason why the price seafood exporters pay for air cargo from Norway to Asia, is lower than the cost price for airlines.
Asians buying more
Langaas believes the time for cheap freightage from Norway to Asia could soon be over.
“Anyone who knows the air cargo business knows the margins are narrow. Norwegian seafood exporters have historically speaking reaped the benefits of the disproportion in the global trade balance through accessibility to the overseas markets having been relatively cheap. The challenge ahead is that many European economies are thriving and that Asia is increasingly buying products that are transported as air cargo from Europe. If willingness to pay does not improve from Norway, this will lessen the attractiveness for airlines to fly via Norway to collect fish back to Asia,” says Langaas.
If seafood volumes continue as anticipated with significant growth in the future, Langaas is convinced this will prompt totally different demands to new routes from Norway.
“At Avinor we believe that exporters must to a greater degree commit to capacity and higher prices if they want their fish flown directly out from Norway,” concluded Langaas.