The logistics industry, specifically air freight, has always been cyclical and dependent on global political and economic conditions. Aircraft carry cargo for specific customers, including individuals, enterprises, and governments. Suppose the customer and the economy feel terrible. In that case, the supply chain begins to feel bad, too – “anaemia of trade” affects capacity utilisation, demand and rates and ultimately forces logistics businesses and airlines to reconsider development strategies and long-term plans. The global recession of 2008-2009 is the clearest example of the impact of economics on global production rates and freight traffic.
However, the ongoing chain of events of 2019-2023, which began with a global economic downturn, which turned into the COVID-19 pandemic and today into growing military-political tensions, has become a “perfect storm” for the entire logistics industry, requiring almost monthly adaptation to changing global trends.
One of the essential qualities of today’s situation is the primacy of politics over economics. To please the political (or rather geopolitical) goals, trade and economic ties established over decades are being brought into play while international trade is being restructured globally and, above all, in Eurasia. First, the duration of the pandemic (and associated restrictions), and now the duration of the current military-political conflict, is becoming a critical factor in business planning. How long will the current situation last? Until spring 2024? Will it end after the US elections? Will it last until the end of the decade and completely redraw the political and economic map of the world? All these questions today are not at all idle when it comes to investments, business development, and the formulation of a medium-term and, even more so, long-term strategy for any significant business.
The importance of geopolitical factors for strategic and business planning of air cargo business operations is most evident in Eurasia. What at the beginning of the conflict seemed like something temporary, capable of ending immediately after the conflict’s end, gradually becomes a solid reality. And the longer the conflict continues, the more businesses get used to the situation and adapt to what is happening.
Restrictions imposed upon the Russian airspace and sanctions on everything related to trade flows through its territory have led to a radical, hitherto unprecedented, restructuring of commodity, financial and human flows in Eurasia. Akin to the “Great Migration” of the past, this “great shift in commodity flows” will, as political confrontation continues, shape the image and objectives of aviation logistics in Eurasia and, more broadly, throughout the world. New hubs for continental cargo transit, increased length and rising costs of some routes, and the need to create an entire service infrastructure (including, for example, MRO) for these new transport flows “south of Russia” lay the foundation for investment and strategic planning for airlines and related businesses.
We are already seeing examples of this continental shift. The total logistics-related investments of the UAE and Saudi Arabia amount to tens of billions of dollars and are long-term until at least 2030. Recent unprecedented orders for aircraft from Indian airlines also hint at the future development of passenger (and cargo) air transportation on the Asia-Middle East-Africa-Europe route. And, of course, investments not only in airport infrastructure and fleet but also in maintenance and sales expertise will be critical for developing the new “southern corridor”. Everything related to quick reconfiguration and adequate support of air cargo transportation, sales infrastructure and assessment of promising markets will be in demand.
But the most important thing is how exciting this work is and will be, how much it influences specific customers’ present and future development, and how directly it helps them adapt to an ever-changing reality. And I am happy I can help our clients find their strategy in an era of geopolitical changes.
Author – Alexander Kolbin, AIM expert