The Air Cargo and Logistics Value Chain: The Case of Australia

The COVID-19 pandemic period offered the opportunity to consider the adjustment of elements of the transport system to the shock. This paper reviews the experience of the air freight system. It discusses how initially the pandemic led to rising rates, especially because of restrictions on passenger travel, which in turn induced a supply response that allowed capacity to recover. The consequences for trade costs are also examined using data on product imports by Australia by mode. The rise in trade costs for air freight during the pandemic was significant but less than that for sea freight. The drivers of variation in trade costs at the levels of product and economy of origin are identified, including distance, unit value, and institutional variables. The long run trend is for trade costs to fall in both sea and air freight modes. There is scope for further reduction in costs associated with air freight when supported by innovation in the sector, including the application of digital technology. This shift is facilitated by a number of policy initiatives, including more open policy regimes for air freight services and implementation of commitments in the World Trade Organization’s Trade Facilitation Agreement.