Air cargo climbs to smoother altitudes

Global demand for air cargo has become volatile over the past few years due to the pandemic and geopolitical events. As a result, carriers had to adjust capacity levels. Now, the industry is being affected by rising inflation, interest rates and energy costs.

Data gathered by market analyst firm Xeneta indicates that turbulent conditions caused global air cargo volumes to decline February through November 2022. In December, however, volumes stabilized. A weekly market analysis by Clive Data Services, part of Xeneta, found that chargeable weight fell 8% in 2022 compared to 2021, an improvement over the -13% in 2019. Meanwhile, the general airfreight spot rate registered its largest year-on-year decline of 35%.

Capacity in December 2022 recovered to 93% of the 2019 level, the firm reports. Clive’s “dynamic load factor,” which measures the volume and weight perspectives of cargo flown and capacity available, declined 7 percentage points year-over-year to 57% and was 5 percentage points below the figure for December 2019.

“It would be easy to take a pessimistic view of the global air cargo market’s downturn, but this would ignore where it has come from,” says Niall van de Wouw, chief airfreight officer at Xeneta. “There’s little use comparing it to the same time last year because then we had no Ukraine conflict, no high energy prices, no soaring interest rates, nor the impact of the subsequent cost-of-living pressures.”

Cause for optimism

The International Air Cargo Association (TIACA) maintains that, structurally, the industry is in a good place. “Toward the second half of 2023, we could see demand picking up compared to this year,” the association states.

The Insight Partners predicts the air cargo market to grow from $123.90 billion in 2022 to $175.24 billion by 2028. The latest Boeing World Air Cargo Forecast reports that the world’s freight fleet is expected to double in size over the next 20 years on the back of average annual cargo traffic growth of 4.1%.

Despite the current global environment, Xeneta stresses that airlines are still achieving overall average rates 75% higher than pre-COVID.

“If in January 2020 you had asked airline executives if they’d like to see airfreight rates across the Atlantic or from Asia Pacific 75% higher, we would have heard a unanimous ‘yes,’” said van de Wouw. “The difference now is that there’s less pressure if you’re a shipper, even though you’re still paying more. In terms of the long-term sustainability of the air cargo supply chain, this will help.”

Clive data reports airfreight spot rates on top volume corridors declined more sharply in December. Outbound Asia Pacific spot rates have been falling for eight consecutive months, with spot rates from Asia Pacific to North America down 13% since October.

This represented a 58% decline on a year ago, but remained 87% above the 2019 level. December’s airfreight spot rate on the Europe to North America corridor stood 7% up over the October level. Replicating the market trends on the other main lanes, this rate was down 46% versus a year ago but still 80% up on 2019, reports Clive.

Comparing the overall global market with this time last year, WorldACD Market Data reports chargeable weight in weeks six and seven of 2023 was down 19% compared with the equivalent period last year. “Most notably, tonnages ex-Asia Pacific are down by 36%, although this comparison is skewed because Lunar New Year started 10 days later last year,” it says.

There were also double-digit percent year-on-year drops in tonnages outbound from North America (-19%), Middle East & South Asia (-13%), and Europe (-12%). Tonnages outbound Africa were on the rise compared with the previous year (+9%).

Overall capacity has jumped by 17% compared with the previous year, with positive developments from all regions including Asia Pacific related to post-Lunar New Year recovery. The most-notable increases were ex-Europe (+19%), ex-Middle East and South Asia (+18%), and ex-Africa (+16%).

Worldwide rates are currently -26% below their levels this time last year, at an average of $2.81 per kilo in week seven, despite the effects of higher fuel surcharges, but they remain significantly above pre-pandemic levels.

Uncertainty remains

For the immediate future, the market for air cargo remains uncertain.

“We don’t see demand recovering quickly because of what’s happening around the world, but we do expect to see supply continuing to come back into the market,” says van de Wouw. Still, he sees a very efficient air cargo market, especially when compared to how far ocean rates have fallen in recent months.

“The fact that the airfreight domain is more competitive and fragmented on the supply side meant rates didn’t go as crazy as we saw with ocean container prices, so the decline—now that airfreight volumes are lower—is more gradual,” says van de Wouw. “Air cargo is much stronger than it was pre-COVID, but the current direction of the market means there’s some degree of good news for everyone.”

TIACA predicts that toward the second half of 2023 demand could pick up. “Current retail inventory levels are high, but when consumer spending resumes, we can expect to see demand across the product range,” the organization says.

Industry positives

A number of factors are driving today’s air cargo markets, including the increase of airfreight fleets across different regions. Passenger flights have returned, which has increased cargo capacity and market reach.

The International Air Transport Association (IATA) reports that globally, full-year 2022 traffic was at 68.5% of pre-pandemic (2019) levels. International traffic in 2022 climbed 152.7% versus 2021 and reached 62.2% of 2019 levels.

Air India recently announced that it’s ordering a record 470 Boeing and Airbus planes. It’s the second largest order ever for Boeing in terms of the number of aircraft, and third largest as measured by dollar value.

IAG Cargo is ordering 25 Boeing 737-8200 and 25 737-10 aircraft, plus 100 options, a move that Luis Gallego, IAG’s chief executive, describes as “an important part of IAG’s short-haul fleet renewal.” The aircraft will be delivered between 2023 and 2027 and can be used by any airline in the Group for fleet replacement.

Air Canada Cargo marked continued market growth across some of the largest global trade routes. Jon Turner, vice president of cargo at Air Canada, attributes this to the return of all temporarily converted passenger aircraft back to their core mission of flying passengers. Last year, the carrier also introduced its second and third freighters and opened 13 new freighter markets.

“As we look forward to 2023 and prepare to welcome four additional freighter aircraft this year, we remain laser focused on building a freighter program that complements our global passenger network and ensures shippers have access to reliable, year-round capacity,” Turner says.

Carriers also continue to implement collaborative agreements. Last May, Cathay Pacific and Lufthansa Cargo brought Swiss WorldCargo into their joint business agreement that allows for streamlining of operations, including, terms of sales, pricing, contracts and the handling of goods between Asia and Europe. Together, all three can collaborate on network planning, sales, IT and ground handling. Cargo customers can access the entire joint network via the booking systems of all three partners.

Some collaboration is also occurring with steamship lines to complement container shipping solutions and expand service to key trade lanes. Atlas Air took delivery of a B777-200F that it will operate on behalf of Mediterranean Shipping Co. as part of a previously announced long-term ACMI agreement. The aircraft is the first of four new Boeing 777 freighters that Atlas will operate for MSC.

“There are many positive things that the industry can focus on such as innovation,” says TIACA. “Since early 2020, innovation has been phenomenal, from process innovation to technical innovation to people and skills innovation. We have seen significant improvements in all areas of activity, but we must ask the question: How can we ensure the pace of innovation continues beyond the pandemic?”

One area in which TIACA hopes to see improvement in 2023 is in the regulatory environment, as air cargo needs a much more flexible regime to be in place so operators can deploy their equipment where the demand is needed. TIACA is working with the Global Express Association (GEA) through the International Civil Aviation Organization (ICAO) mechanism to try and establish a greater understanding at regulatory level of this need for flexible open air cargo agreements.

Economic factors, however, will continue to affect the industry, which TIACA officials say will have a major influence during the first half of 2023. TIACA expects further capacity increases as freighter conversions and production deliveries look very buoyant for the next few years.

TIACA also sees demand for e-commerce continuing to be a source of growth, but expects demand to wain this year compared to 2022, thereby placing downward pressure on yields given the resulting additional air cargo capacity.