While tourism and travel have stopped for all but the rich and famous, the need for vital medicines and supplies hasn’t. Grounding passenger planes has a huge knock-on effect for the ability to ship items in our interconnected world.
Significant amounts of the world’s stuff gets placed into cargo holds alongside passengers’ suitcases on commercial flights. While this cargo accounts for around 2% of an airline’s total revenue, it has an outsized impact on the global freight industry. “Wide-bodied aircraft with two aisles can carry 20 tons or more of cargo,” explains John Strickland, an aviation analyst. “Now, as we’ve seen massive quantities, sometimes 90% or 100% of these flights canceled, suddenly all this cargo capacity has disappeared out of the market, because there’s basically no regular passenger scheduled flights operating.”
Every year, 52 million metric tons of cargo is transported by plane, according to the International Air Transport Association (IATA), accounting for 35% of global trade by value. Early indications show there’s a crunch in space: Belly capacity for international air cargo shrank by 44% in March compared to a year before because of the lack of passenger flights. “At present, we don’t have enough capacity to meet the remaining demand for air cargo,” warned Alexandre de Juniac, director general and CEO at the IATA. “The gap must be addressed quickly, because vital supplies must get to where they are needed most.”
Airlines that have grounded fleets because of a lack of passengers are rapidly retooling their planes to deliver cargo alone. Some airlines have stripped out the seats in their cabins to make room for boxes full of cargo. Lufthansa and El-Al are two operators that have boosted their cargo capacity per flight from around 20 tons to 50 tons. Other airlines have taken a low-tech approach, piling boxes of PPE onto passenger seats and strapping them in with netting covering the entire cabin to keep them sturdy.
The movements of the world’s largest cargo aircraft, an Antonov AN-225 with the code name UR-82060, are the best indication of what is being moved where during the coronavirus crisis: Often these shipments are pharmaceutical supplies destined for those sick with Covid-19 — demand for drug shipments worldwide has doubled, says the IATA — or food. (One source in the fresh produce industry says the cost of shipping it via charter flights has tripled.) The plane, which can store more than 250 tons of cargo in its hold, has yo-yoed from Tianjin, China, to destinations in Kazakhstan, Azerbaijan, Ukraine, France, and Germany in the past two weeks. (It’s due to land in the United States in the coming weeks, too.) Other, slightly smaller planes carrying cargo have been contracted from Antonov, a Ukrainian airline, to countries as varied as Canada, Qatar, Kuwait, and Slovakia in the past two months. Air Charter Service had moved 11,000 tons of cargo by the middle of last week, the majority of it PPE.
What little space isn’t reserved for personal protective equipment, ventilators, or life-saving drugs to tackle the effects of Covid-19 is being taken up by another precious cargo: bars of gold.
“The logistics of gold usually is done by commercial flights,” says Simon Mikhailovich, founder of the Bullion Reserve, a gold investment company with offices in New York, Zurich, and Singapore. “Gold is very dense and malleable. You can easily move millions of dollars of gold in a cargo hold of a plane, and it doesn’t need much space and doesn’t weigh that much for the value being transferred. But since there has been a huge decline in flights, you can appreciate how it would be much more difficult to get cargo across.”
This restricted movement has been compounded with material changes in the gold supply chain worldwide: Three major Swiss gold refineries, staffed mostly by Italians who crossed the short distance over the border to go to work, closed when Italy totally locked down on March 20. Overnight, companies supplying a third of the global gold supply stopped operating.
In early April, some refineries reopened but at less than 50% capacity, pushing the price of gold higher. U.S. prices are currently at an eight-year high; U.K. and European gold prices have never been higher. The evacuation of mines like those Air Charter Service helped to broker also means production capacity has dropped around 10%. “The Covid crisis has thrown a wrench in moving metal around really quickly, easily, and at low cost,” says Adrian Ash of BullionVault, an online gold and silver bullion market.
This crisis has generated a time-honored reaction to periods of great turmoil: people abandoning currency and taking solace in commodities. BullionVault has seen a record number of new accounts in March and April, all wanting gold delivered. The London Bullion Market Association, which operates the world’s major trading market for gold, has noted a huge uptick in the number of charter flights shipping gold worldwide. It’s a costly business: Flying 100 tons of anything from Europe to China will now cost $1 million, reckons Lancaster.