Unprecedented turbulence hits air cargo industry

By Karen E. Thuermer, Contributing Editor · April 6, 2020

With the spread of the coronavirus (COVID-19), the current prospects for the air cargo industry are bleak. Before COVID-19 had much of an impact on cargo volumes, International Air Transport Association (IATA) data had already reported that demand, measured in cargo tonne kilometers (CTKs), decreased by 3.3% in January 2020 compared to the same period in 2019, while capacity rose by 2.1%.

These figures were their worst since 2012. In the meantime, freight performance was its weakest since the global financial crisis in 2009 when airfreight markets contracted by 9.7%. January also marked the 10th consecutive month of year-on-year declines in cargo volumes.

“There was optimism that an easing of U.S.-China trade tensions would give the sector a boost in 2020,” says Alexandre de Juniac, IATA’s director general and CEO. “But that has been overtaken by the COVID-19 outbreak, which has severely disrupted global supply chains. We’re in unknown territory, and, for sure, 2020 will be another challenging year for the air cargo business. Tough times are ahead.” ATA maintains that it’s unlikely COVID-19 had much to do with January’s weak performance.

“Complicating freight volumes and load factors is the fact the Chinese Lunar New Year started early this year—January 25 compared to February 5 last year—and was extended two weeks due to the coronavirus,” says Niall van de Wouw, managing director of Amsterdam-based CLIVE Data Services.

In mid-February, air carriers began cutting capacity globally and canceling flights to COVID-19 infected areas. In fact, CLIVE reports that the global air cargo market decreased nearly 9% year on year in February.

“A lot of airlines have reduced their flights all the way back to April,” says Brian Bourke, chief growth officer, SEKO Logistics. In turn, loss of capacity has caused shippers to scramble for alternatives, including freighter service. But much all-freighter services out of China has also been suspended.

“Freighters are being repositioned to take the demand,” says Bourke says. He predicts that through April the airfreight market will remain unstable, including ocean alternatives. “Rates are going through roof, and then there will be a rush to get inventory to its destinations. This will put further stress on air freight as we get closer to peak demand.”

Bourke suggests shippers create contingency plans immediately and hints that it might already be too late to find viable alternatives.

Brandon Fried, executive director of the Airforwarders Association, advocates utilizing a freight forwarder in unique situations such as this. “Forwarding companies understand mode complexity, indirect routing strategies and knowledge of how to avoid shipment delays, even during a ‘black swan’ event such as the coronavirus scare.”


Prior to COVID-19, the air cargo industry was already facing turbulence due to a downturn in global manufacturing and U.S.-China trade tensions. “Every month last year traffic figures reported by IATA came in below those of 2018,” comments Josh Collingwood, regional marketing director, market analysis for Boeing Commercial Airplanes. “At the end of 2019, they finished about 2.2% down across all regions.”

The one exception was Africa, which saw an increase. However, Africa represents less than 2% of total traffic share. IATA reports that volumes for Asia Pacific carriers declined in 2019 by 5.7%, the largest decrease of any region. Capacity increased by 1.1%, while demand contracted by 5.9% in January 2020.

Volumes among North American carriers fell 2.9% in 2019, compared to a record year in 2018. But IATA says CTKs contracted by 5.6% year on year in December—the weakest monthly growth outcome for the region since early 2016, and decreased 1.3% year on year in January. Seasonally adjusted cargo demand rose slightly following the thawing of U.S.-China trade relations, as capacity increased by 3.4%.

European airlines saw international freight traffic contract by 1.7% in 2019—the weakest result since 2012. Contributing factors were a softening economy, including that in Germany, and ongoing uncertainly over Brexit. For January 2020, IATA posted a significant drop in cargo demand: 3.7%.

Middle East carriers were especially hit hard last year. Freight volumes decreased 3.4% year on year in December and capacity increased by just 1.9%, the lowest of any region. “This contributed to an annual result of a decline in demand of 4.8% in 2019—the second greatest decline in growth rate of all the regions,” IATA reported. Annual capacity increased just 0.7%, and January showed no sign of relief when cargo volumes decreased 1.4%. Capacity increased by 2.9%.

“When Europe and Asian economies struggle, Middle East carriers feel the impact more,” says Collingwood. “They have an overexposure to some of those major markets.”

With small domestic markets, Middle East carriers such as Emirates, Etihad, Qatar Airways and Turkish Air rely on increasing revenues by expanding fleets and worldwide networks. Competition is fierce in the region and can lead to extreme measures, such as Qatar Airways’ recent addition of a nine-minute flight between Maastricht Airport (Netherlands) and Liège Airport (Belgium), per a client request. The flight was recently ended at the urging of the Dutch infrastructure minister.

The only region to suffer worse than the Middle East was Latin America where in December demand decreased 5.3%. It was also the only region to experience a reduction in capacity (-3.1%). “Social unrest was a major factor and made an impact on its air cargo activities,” IATA reports. However, January figures show freight demand there increased 1.4% compared to January 2019.

“Seasonally-adjusted freight volumes in Latin America also ticked upward, underpinned by new route connections, which is a positive development for the region’s carriers,” IATA reports. Capacity increased by 2.4% year on year.

Wings up

But not all is doom and gloom. Boeing’s World Air Cargo Forecast 2016-2037 surmised that Asia will continue to lead the world in average annual air cargo growth. The reason: its fast-growing economies and expanding middle classes. Boeing also suggests that during that period, domestic China, intra–East Asia, East Asia–North America, and Europe–East Asia markets will grow faster than the world average growth rate.

While Boeing projects that more single aisle aircraft will be deployed on passenger flights, more freighters will be needed for air cargo needs. “Single aisle aircraft are not designed to carry cargo, particularly the larger general cargo that is consolidated and containerized,” says Collingwood, who emphasizes how freighters offer flexibility to go where and when cargo is needed. “They can carry general cargo, over-size, and project freight—cargo that’s important to logistics managers and those who are consolidating and working with shippers to keep the timeline right,”

With air cargo demand expected to grow 4.3% per year through 2038, Boeing projects some 2,800 new deliveries of freighter aircraft, of which 1,780 will be conversions. Of course, e-commerce is driving demand of Boeing’s 777F, the dominate aircraft in the express market. “It’s to the point where Boeing is increasing its production rate to two a month,” says Collingwood.

According to Boeing, global retail e-commerce sales are expected to reach nearly $4.9 trillion by 2021, more than double of what was reported in 2017.

Fast track

IATA has identified digitalization as especially critical for carriers to remain relevant in meeting shipper demands. Plaguing air cargo has been its fragmented supply chain, which comprises truckers, ground handlers, airlines, forwarders and shippers, most of whom operate via paper-based systems.

Lufthansa Cargo recently employed digitization through its entire transport chain at its Lufthansa Cargo Center at Frankfurt Airport. “We want to offer our customers seamless digital solutions,” said Peter Gerber, CEO of Lufthansa Cargo.

This means truckers no longer must pre-book a slot. “Truck drivers arrive and a slot is assigned,” says Dr. Jan-Wilhelm Breithaupt, vice president of global handling management, Lufthansa Cargo. “The process is done remotely. And in the future, truck drivers also will be able to see exactly when they can arrive.”

Lufthansa now offers a digital interface that provides customers and partners a binding offer that can be booked in real time and confirmed straightaway. “To achieve this, we connect digitally with our partners along the transport chain,” says Gerber.

American Airlines is also investing in a new cargo end-to-end management system. According to the carrier, phase 1 went into place on October 1. “We are always looking at our products and resources to see where we can best support our customers,” says Rick Elieson, president of cargo and VP of international operations at American. “This past year, we launched the first and largest phase of a modernization journey that replaces our computer infrastructure and better prepares us to adapt to future demands.”

According to Elieson, the platform has a host of modern technology components that are expected to allow for more efficient online channels, better tracking, greater efficiency in warehouses, and a robust back-end system should strengthen both the customer and team member experience. “We’re certainly not alone in this journey,” he says. “As an air cargo industry, we’re making a lot of investments that will shape both the efficiency and the transparency of how goods are moved around the world.”

Those investments in innovation will certainly be put to the test as the world works its way through the coronavirus, and the need for robust supply chains resume.

“In 2018 when freight volumes broke records month after month, we were compelled to find ways to improve our communication, coordination, and the efficiency of our operation,” says Elieson. “Those improvements have continued to benefit us long after demand has waned. I have no doubt that the challenges of the current operating environment will similarly refine how we approach our business. and we are committed to adapting and finding ways to continuously improve.”

April 6, 2020