When so many airlines around the world landed their fleets in 2020, cargo hold capacity disappeared overnight. Adding to the demand pressure has been an increase in people using e-commerce for their purchases, as retail stores have been closed and people have chosen (or been forced) to stay at home.
This has fueled unprecedented spikes in the cost of air freight, encouraging more carriers to enter the market or expand capacity often by converting redundant passenger planes into temporary box transporters.
Seats have been removed from passenger aircraft to provide cargo space. Photo: Hi Fly
But times have changed again. With the return of passengers came the return of at least some of the hold capacity that had vanished in 2020. The most recent IATA industry update found that air cargo capacity in June and July was approaching pre-pandemic levels: good news, but only if demand equals capacity.
Is the demand starting to diminish?
According to Xeneta, the air cargo market contracted 5% yoy in August and 4% from pre-pandemic levels. The consequence of this has been a downward fluctuation in shipping rates globally, a trend that has been a trend since late March. Global rates peaked at 156% from 2019 levels in January and are currently down to + 113%. It is still tall, but not that tall.
The good news is that the decline in cargo rates is starting to slow down. As illustrated by the Xeneta chart below, August experienced a plateau in rates between Europe and North America, stabilizing below those seen in 2020 and 2021, but still much higher than typical 2019 rates.
Data and graph: Xeneta
However, air cargo carriers are expecting a muted fourth quarter due to a multitude of factors. In the mix are continuous disruptions to supply chains, a global economic slowdown, a lack of human resources, above-average fuel prices and, of course, the ongoing war in Ukraine.
Air transport operators begin to withdraw
Although the high season for air freight is still ahead, some airlines have already started to slow down. As reported by FreightWaves, global retail giant Amazon has curtailed its expansion to some extent, with its fleet growth slowing and the number of daily flights reduced. As of March, its total flight activity had grown at an average of 14.3% month-over-month. From March to August, it recorded an average monthly growth of just 3.8%.
Amazon has withdrawn its growth trajectory since March of this year. Photo: Amazon Air
Amazon, as a company, lost a whopping $ 3.8 billion in the first quarter of the year. This saw the closure or halt of construction of a record number of warehouses – 44 in total and 2.5 times more than previously planned for closure, according to American Shipper. It is now reportedly streamlining its air network due to fewer warehouses to replenish.
FedEx Express, the world’s largest cargo airline, has also felt the blow. Its September trade update showed that its first quarter earnings were well below expectations, with revenue declining by around $ 500 million. The loader admitted that he had reduced flight frequencies and grounded some planes to save money, although he was reluctant to accurately state how many planes would be parked.
FedEx will park some planes, although it hasn’t said how many or for how long. Photo: Fedex
DHL’s mid-August report found demand eased but said volumes remained stable after a significant drop in July. It also noted that improvements in shipping operations contributed to lower demand for air freight, but remained positive regarding the long-term outlook for the sector.
As reported by Loadstar, Kalitta Air has repositioned its operations to a new base in Ecuador, a move considered stimulated by the overcapacity of the Chilean market. It becomes the second airline to announce direct flights from Quito to Miami after Solent Freight Services earlier this year, both of which are intended to transport perishable goods to the United States.
UPS is bucking the trend and continuing to expand its fleet. Photo: Boeing
UPS, on the other hand, shows no such doubts in the air cargo industry. In August, it tapped into eight more Boeing 767 freighters from Boeing, bringing its fleet to 108 aircraft in total.
Still positive signs
Regardless of the relative damping of air cargo, there are many players looking to get into action. Global shipping giant Maersk is launching its own air cargo operation, piloting chartered Boeing 767s as a complement to its immense shipping operation. Vietnam is looking to start its first freight airline, IPP Air Cargo, and Indian new cargo operator Quikjet anticipates first flights by the end of the year. These are just a few examples of where air cargo is still on a growth trajectory.
QuikJet Airlines could begin cargo operations in a couple of months. Photo: QuikJet Airlines
While the long-term prospects remain to be seen, things need to be put into perspective. Yes, fares are slowing and demand is starting to decline, but compared to pre-pandemic times, air freight is still in a very good position.
However, the fourth quarter of 2022 features some strong headwinds and a fair amount of volatility that cargo carriers will face. Issues such as the reduction in purchasing power due to inflation, not to mention the continuing high price of jet fuel, will continue to dampen the air cargo market and reduce the profitability of airlines.
Hopefully, the FedEx situation is just a weakness and not a signal that the market is facing some major problems.
Sources: Xeneta, American Shipper, FreightWaves, Cargonow, The Loadstar