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Special Report: Greater China Air Cargo Update

E-commerce and fluid borders to define region’s airfreight growth

Is there a flicker of light at the end of the air freight tunnel? The sector has been depressed for months, but the latest data points to a turnaround driven by e-commerce. Associate editor and chief correspondent, Tom Ballantyne, reports.

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October 1st 2023

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It was not exactly a surge in the sector, but when the International Air Transport Association (IATA) released its latest cargo statistics they contained good news. Read More » Global air cargo demand increased for the first time in 19 months in August, up 1.5% overall, with international air cargo higher by 1.2%.

Asia-Pacific airline cargo volumes increased year-on-year by 4.9% for the month, a significant improvement over July at around 2.3%, IATA reported. Additionally, the within-Asia trade lane’s performance improved with international FTKs (Freight Tonne Kms) contracting by 4.7% compared with a 9.7% annual decline in July.

It was welcome news, said IATA director general, Willie Walsh, although he noted the results were off a low 2022 base and that market signals are mixed.

“While many uncertainties remain, we can take some optimism from PMI (Purchasing Managers Index) data moving towards positive territory. This is particularly significant as we head into air cargo’s traditional peak year-end season,” he said.

Data from the Association of Asia Pacific Airlines (AAPA) for the same month was a little more pessimistic with the regional airline body warning declines in export orders prolonged the decline in air cargo markets for August.

Demand measured in FTKs showed a 1.8% year-on-year fall for the month compared with the subdued volumes recorded in the same 31 days in 2022. International freight load factor remained under pressure, recording a 6.6 percentage point decline, to average 58.8%, after taking into account a 9.2% year-on-year expansion in offered freight capacity.

AAPA director general, Subhas Menon, said Asia-Pacific airlines reported a healthy 232% increase in international passengers carried, to 171 million air travelers, in the first eight months of the year yet the region’s airlines recorded a 7.6% decline in international air cargo demand in the same period. It reflected a prevailing weakness in international trade flows, the AAPA said. “In addition, the normalization of container shipping rates affected demand for air shipments of non-time sensitive goods,” he said.

Overall, demand has been strengthening since February. This trend, as it evolves in coming months, will be watched carefully, Walsh said. “Many fundamental drivers of air cargo demand, such as trade volumes and export orders, remain weak or are deteriorating,” he said.

“And there are increasing concerns about China’s economy. At the same time, we are seeing shorter delivery times, normally a sign of increasing economic activity. Amid these mixed signals, strengthening demand gives us good reason to be cautiously optimistic.”

Despite the sector being in the doldrums at present, longer-term projections for its recovery are optimistic. A report by ResearchAndMarkets.com forecasts the Asia-Pacific air cargo market will grow from US$38.4 billion in 2022 to $59.3 billion by 2028 at an annual rate of 7.3%.

E-commerce will be a primary driver of this growth. “Online retailing attracts more prospective customers than bricks and mortar-based competitors because the internet has global reach. In addition, e-commerce market players can choose various logistics options such as surface transport and air transport, to deliver packages to their customers. Therefore, as the e-commerce market is growing, varying buying patterns and trends have been observed in multiple countries across the Asia-Pacific,” it said.

Online supply chain publication, The Loadstar, added: “E-commerce activity is still strong although markets worry about a slowdown in China as well as in the West,” it said. “Despite the flat-to-weakish tone overall, some sources foresee a rise in rates, given the significant product launches coming up that started in September and hence some sort of peak season this year.

The majority of purchases are influenced by a nation’s demographics: the percentage of young people indulging in e-commerce activity, the economy of the country, the age group interested in e-commerce and the level of awareness of Asia-Pacific citizens.
E-commerce is expected to fuel the air cargo industry as online shopping boosts demand for parcel delivery services, delivering goods with speed, efficiency and reliability. The fast-growing cross-border e-commerce market and rising domestic volumes sent by large and small e-retailers are driving Asia-Pacific air cargo market growth.

“That would be a welcome improvement on last year, when the traditional peak in rates ahead of the Thanksgiving and New Year holiday season failed to happen.

“Others remain nervous about persistently weak demand and continuing overcapacity, despite carriers’ recent cutbacks in services. So, for the time being, cargo rates have continued bouncing along the bottom. With jet fuel prices spiking again, by more than 26% in the month to August 25, according to Platt’s data, there appears to be a renewed squeeze on profits for air cargo carriers, especially operators of dedicated freighters with older, less fuel-efficient aircraft.”

In its 2022 outlook, the International Air Cargo Association (TIACA) said the industry is subject to a multitude of influences and the downturn in demand is a logical consequence of high inflation, high interest rates, high energy costs and concerns about job security. All these factors create a pattern of defensive consumer spending when discretionary spending is being pulled back, the association said.

The current situation will pass, forecasts TIACA. “The hope central banks will start reducing interest rates appears to be occurring. Air cargo is structurally in a good place with quality performance in moving perishables, high tech, pharmaceutical and ecommerce commodities.”

Another indicator of an eventual strong recovery of air freight is the growing appetite for new freighters and passenger-to-freighter conversions (P2F). Boeing’s 2022 World Air Cargo Forecast predicts the global freighter fleet will increase more than 60% by 2041 with the Asia-Pacific taking over a third of deliveries. The global P2F market size, valued at $2.14 billion in 2021, is projected to grow to $5.19 billion by 2029.

Analyses by the Centre for Aviation (CAPA) and AeroDynamic Advisory forecasts annual P2F conversions will more than double from 70 between 2010 and 2020 to 163 from 2021to 2030. The peak of conversions is likely to be 2023-2025 followed by a decline in the next five years. But the more than double rate will remain, with manufacturers introducing more aircraft types for certification as converted freighters, the authors forecast.

Cirium’s Q3 2022 analysis reports almost 200 P2F conversions were completed in 2022 compared with 120 in 2021. “We have noted record numbers of conversion order announcements. This is driven by e-commerce growth, availability of feedstock during and post the pandemic, lessors converting surplus passenger aircraft from their portfolios and some customers securing slots in the mid-2020s,” Cirium said.

The aviation analytics company said there is a concern a bubble might be forming in the P2F market with around 220 conversions completed in 2023, but longer term it forecasts the industry will need 1,600 to 2,000 converted freighters in the next 20 years. “The growth of e-commerce is a key driver for the conversions market,” Cirium said.

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