Kuwait's Agility looks to cut costs as coronavirus weighs on global cargo demand

Exclusive: The company is suspending planned investments, hiring and non-essential spending in its regional logistics arm

Agility has set up Global Response Aid, a joint venture with Dubai-based AiNanoLab, in the emirate. AFP

Kuwait's Agility is taking measures to cut costs and preserve cash in its Middle East logistics business as the novel coronavirus pandemic slashes global air freight demand and capacity.

The company's regional logistics arm is putting all planned investments on hold, freezing hiring, suspending non-essential spending and studying a reduction in salaries for upper management in response to industry-wide disruptions from the Covid-19 outbreak, Bassel El Dabbagh, regional director for chemical logistics at Agility, told The National. 

"There's major disruption, of course," Mr El Dabbagh said. "The situation is very fluid and everyday there are new constraints on air or sea side and more countries are going into lockdown ... We're taking all the measures you would in a crisis."

The rapid spread of the deadly virus is taking a heavy toll on the air cargo industry. The disruption of global supply chains led to a decline in cargo demand, while the grounding of passenger jets because of travel restrictions resulted in even deeper cuts to cargo capacity.

In February, global air cargo demand, measured in cargo tonne kilometres, declined 1.4 per cent versus the same month last year, according to the latest report by the International Air Transport Association (Iata). Cargo capacity dropped by 4.4 per cent year-on-year.

The impact of the coronavirus outbreak on the air freight industry is adding to the difficulties of transporting key goods such as medical supplies. Iata called on governments to take urgent measures to keep vital air cargo supply lines open.

"It’s been busy with the extra load of adapting to new realities," Mr El Dabbagh said. "Volume-wise, we're seeing a drop in ocean freight volumes by 10 per cent to 15 per cent and a drop in air freight volumes by 20 per cent to 25 per cent compared with last year”.

Agility has directed employees who can work from home to do so,  while regional operations staff – those working in airports, ports, warehouses or driving trucks – have been split into two teams alternating shifts to minimise the risk of infection.

"Our motto in this crisis is 'keep cargo moving' because it keeps essential supplies coming to all countries," Mr El Dabbagh said.

The regional logistics unit is taking measures to preserve cash in the midst of the industry-wide crisis but has no immediate plans to cut jobs.

"Any non-essential spending, planned activities, and investments are put on hold but not cancelled," he said. "So far we are not reducing headcount. The situation is fluid, so if it's better or worse, we will reassess."

It is also monitoring announcements by governments in its markets about economic stimulus packages aimed at easing the burden on the private sector and how it can benefit from measures such as temporary tax reductions or deferrals, Mr El Dabbagh said.

As China, the "factory of the world", is ramping up production capacity, air cargo demand is falling sharply as Europe goes into lockdown and the US restricts travel, he said.

"The Middle East is doing OK, faring slightly better than other regions, capacity is constrained in air and sea freight but essential goods are still flowing in," he said. "Capacity constraints between Middle East and Asia are less than between Europe-China or US-China."

In the Middle East, air freight rates have reached "unprecedented levels" and premiums must be paid to get cargo uplifted on a priority basis, according to Agility's updates about the Covid-19 impact on the global supply chain.

A timeline for the industry's recovery is difficult to forecast but the company is looking at several baseline scenarios, he said.

In one scenario, governments may begin easing travel restrictions in the summer if the virus is contained, leading to a surge in cargo volumes by the fourth quarter. However, another scenario could see a resurgence of the virus in the winter that would delay a recovery beyond 2020.

Global air freight capacity is currently down by 22 per cent compared to the same period last year and more declines are expected, according to Agility's research partner Seabury.

Global belly-hold capacity on passenger planes dropped to one-third of its levels in January as tighter travel restrictions and border closures led to thousands of flight cancellations. The increase in freighter capacity to move cargo is insufficient to offset the loss of belly capacity, according to Seabury.

There were more than 962,000 Covid-19 cases globally as of Thursday, with over 49,000 deaths, according to Johns Hopkins University, which is tracking the pandemic. More than 202,000 people have recovered.

* This article has been updated following clarification from Agility