The airfreight industry experienced record high rates in the spring of 2020. Around 45% of airfreight is transported in the belly of passenger planes, but with passenger traffic down, about 75% of airfreight capacity was removed from the market.
The world is returning to the skies, but the effects of the pandemic still linger for the air cargo industry. Global international air cargo capacity is down 6% as of April 2022, while Asia to the Middle East to Europe is up 9% from continuous rerouting.
Several other factors are impacting air passenger traffic and cargo capacity, including the ongoing conflict in Ukraine, the skyrocketing fuel prices, the rising shipping costs, and the continued demand straining ocean and land freight. As expected, the demand for air cargo capacity is expected to continue well into 2023, and possibly longer.
Factors affecting air cargo
Following the pandemic, a sequence of events created a “perfect storm” of disruptions that impacted air cargo, all of which were interconnected and influenced by one another.
While struggling with other challenges, the Russian invasion of Ukraine had a detrimental impact on already weakened supply chains.
To start, suppliers of essential goods and raw materials, such as neon gas, steel, platinum, and titanium had to shut down, worsening the ongoing vehicle and semiconductor chip shortages. Crops and raw goods are short, pushing prices to increase, and the goods that can ship to the rest of the world will do so at higher costs.
On top of that, the high fuel prices are increasing the costs of travel and shipping for everyone, consumers and businesses alike. Then, the invasion forced cargo airlines to divert flights away from the region, adding to the time and costs to ship goods.
Both Russia and Ukraine are home to fleets with extra-large cargo capacity, and there are few options to replace them. Added to the ongoing issue of limited cargo space with passenger traffic still slow to return to normal, shipping rates may double or triple.
From the beginning of the pandemic, low air cargo capacity has been a problem for supply chains. With land and ocean cargo overwhelmed, air cargo became a viable solution, but the limitations on passenger travel and the variant strains of Covid-19 brought reduced passenger travel. With fewer passengers in the air, the bellyhold capacity is reduced, further limiting the available capacity.
Passenger freight also has limitations. Schedules for passenger flights don’t always align with the best routes to deliver goods, passenger flights don’t always serve key cargo trade routes, and not all cargo is suitable for the payload of passenger aircraft.
Rising shipping rates and inflation
The current air cargo situation is a confluence of many different factors, but the shipping rates are among the most noticeable. Shipping rates have been unstable since the beginning of the pandemic, but the rising fuel costs and Russia-Ukraine conflict only worsened the situation.
In addition, the economic rebound, increased consumer spending, and limited air cargo space further fuel the rising costs. Airfreight was once reserved for urgent, high-value shipments – with associated costs – but it’s now an alternative solution to the issues of truck driver shortages, port congestion, and other supply chain disruptions.
Shipping costs have a direct correlation with inflation as well, which is expected to increase through 2022. Inflation increases about 0.7 percentage points when the freight rates double, peaking after a year. It can continue up to 18 months, however, and likely will in the current climate.
Because shipping costs increased in 2021, inflation can reach as high as 1.5 percentage points in 2022. The conflict in Ukraine will also fuel global inflation, though how much remains to be seen as the situation develops.
The conflict may cause more significant disruptions to the supply chains in the future, pushing global shipping costs and fuel costs higher, and in turn, leading to increased inflation.
Air Cargo and Passenger Air Travel in 2022
Historically, cargo capacity increased faster than its demand. Passenger air traffic was typically high compared to airfreight, which was reserved for urgent, high-value shipments.
When passenger air traffic decreased during the pandemic, along with it, cargo capacity was reduced. This demand is putting stress on supply chains, even as passenger traffic continues to rebound.
The demand for consumer and industrial goods is surging in the aftermath of the pandemic, which had a detrimental impact on the supply chain and revealed weaknesses and bottlenecks.
Cargo carriers and logistics companies relied on air freight to transport more goods without concern for congestion at ports or shortages of ocean containers, long-haul truckers, or rail cars, leading to greater demand for air freight capacity overall.
More passenger flights mean more bellyhold cargo space for freight, but this is still impacted by the Russian airspace squeeze, the circuitous routes, and the rising cost of fuel and shipping. Until those other factors level out, airfreight will be at a premium.
Managing volatility
With the ongoing issues with the global supply chain, shippers are forced to become more creative in their approach to shipping and delivering goods.
Companies are relying more on airfreight in light of current demand, and regional air cargo is becoming an established mode of shipping. Manufacturers should still consider other options like freight forwarding and third-party logistics companies, however, which can offer resilience in the midst of shifting market conditions.
For example, third-party logistics provider DB Schenker has an established network of 54 charter cargo flights that connect America, Asia, and Europe, and always searches for alternative airports for transportation.
Key takeaways
The pandemic brought unprecedented challenges and disruptions to supply chains, and the effects aren’t going away anytime soon. Even years later, we’re still struggling with the lingering impact of the pandemic and new disruptions with the Russia-Ukraine conflict, high costs, and shortages. As a result, the demand for air cargo capacity is expected to continue well into 2023.
Credit AirCargo News by Bill Heaney