Air Cargo: Post-pandemic Slump and
Possible Recovery Nov/Dec 2023

In the depths of the pandemic air cargo rescued some major airlines — Cathay Pacific, SIA and Korean, for instance — as airfreight rates soared by up to four times the pre-pandemic level. Post-pandemic, air cargo supply and demand have readjusted and rates have slumped. But there could be positive repercussions from problems in the maritime sector.

There were three inter-connected reasons for 2021/22 air cargo boom:

• There was a surge in demand for time-sensitive medical goods and other equipment as well as internet-ordered consumer items.

• With most passenger widebodies grounded, bellyhold capacity was taken out of the market and overall cargo capacity was tightly constrained.

• Maritime containerships ran into major logistical constraints particularly at US West Coast ports, which resulted in a near quintupling in freight rates, which in turn had the effect of bolstering airfreight rates; the graph below illustrates how air cargo became more competitive relative to maritime cargo rates (a ratio of about 4 air to sea against pre-pandemic average of about 12).

The airfreight boom was essentially a boom in yields rather than volumes. In 2021 demand (CTKs) was about 6.8% higher than in 2019 but supply (ACTKs) was 13.1% lower. 2022 and particularly 2023 saw a rebalancing of the market. Supply was boosted by the return of bellyhold capacity so that the equal balance of freighter/bellyhold capacity was restored in 2023 to around 50/50 from 61/26/13 in 2021 (the 13 being pfreighters, passenger aircraft being used solely to carry cargo). Demand was suppressed by the slowdown in global trade, the late re-opening of the Chinese economy and the sharp rise in fuel prices.

Consequently, towards the end of 2023 global demand was estimated to be 2% below 2019 levels while supply was estimated at 3% above, with the Cargo Load Factor down 2.4 points to 45.2% As an aside, precisely identifying global CTKs and ACTKs is not simple: the ton or tonne in the ATKs might not be a weight measurement, it might be volumetric (40 cubic feet in the US version), so presumably volumes are impacted by packaging practices, which have inflated noticeably in recent times.

However, the data on yields is firm, and shows an extreme volatility: -8.2% in 2019, +54.7% in 2020, +25.9% in 2021, +7% in 2022, -32.2% in 2023. IATA’s official view is yields will continue to decline in 2024 but volumes will rise so that cargo revenue will be about 11% above 2019.

This is generally encouraging for specialist airlines like Cargolux which has warned about 2023 results, having reported recorded profits of US$1.6bn on revenues of $5.1bn for 2022. But It is also concerned about the emergence of new multi-modal competitors.

The big new competitor is Amazon. Amazon Prime Air now has 110 freighter aircraft in its fleet, including 10 new A330-300Fs operated by Hawaiian Airlines. Its major US hub is at Cincinnati and its European hub at Leipzig/Halle Airport in Germany. Partly as a consequence of Amazon’s expansion, both the major integrators — FedEx and UPS — have experienced negative growth in their daily package volumes since the end of 2021 (see graph) and are implementing rationalisation/cut-back programmes.

It is just possible that air cargo market conditions in 2024 will be better than expected. Unfortunately, this will be as a result of more geo-political conflict.

In December there were attacks on commercial shipping in the Red Sea on containerships heading to/from the Suez Canal, leading to major containerlines considering rerouting via South Africa. At the same time, traffic through the Panama Canal has been slowed by exceptional low water following drought in the region. The impact on ocean freight rates has been immediate: after hovering around $1,500/FEU for the past year, Drewry’s Global Container Index jumped by 80% to $2,700 at the end of December.

As the pandemic made clear, supply problems in the maritime sector translate into higher yields and greater pritability in the air cargo sector — unless the Canal situation also seriously impacts the global economy.