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Supply-demand imbalance continues to vex air cargo shippers

Heavy ordering increases transport need, but aircraft scarcity leads to higher prices and delays

DB Schenker is chartering aircraft from National Airlines and other carriers to make up for the lack of available passenger aircraft. (Photo: DB Schenker)

The new year is off to a hot start for the air cargo market with no sign of cooling off. International transport activity typically softens following the holiday peak season, but demand and rates remain elevated because of unusual shipping patterns and a severe shortage of airlift triggered by the coronavirus pandemic.

And logistics companies don’t expect air cargo volumes to subside before the Chinese New Year because manufacturers plan to continue operating without a traditional break. 

The latest consolidated statistics from World ACD and CLIVE Data Services for December showed air cargo volumes only contracted 3.7% to 5%, respectively, compared to 2019. The figures show how far the air cargo industry has recovered since hitting bottom last May, when demand fell nearly 40%. 

The thirst for air transport is heavily driven by continued inventory replenishment, with inventory-to-sales ratios near record lows for consumer goods, and a saturated ocean container market. Port and rail congestion as well as a shortage of empty containers continue to drive up ocean prices and cause significant delays, especially on trunk routes from Asia, pushing more incremental demand to air, according to analysts and logistics providers. Container vessels are stacked up outside the Los Angeles-Long Beach port complex, and the situation could get worse as a major COVID outbreak among dockworkers reduces productivity and turn times. 

Commodities seeking air transport include automotive equipment, consumer goods bought online and COVID-related medical supplies. Aircraft are also being utilized to ship new COVID vaccines, although how much general cargo they displace is unclear because a large number of doses move over the road and sometimes only involve a couple of containers per flight. Nonetheless, when space is tight, vaccines will get priority boarding. 

Residual demand for fourth-quarter product launches of gaming consoles and smartphones will exacerbate the capacity crunch through mid-February, San Francisco-based freight forwarder Flexport said in a customer update. 

Shippers are also leaning more toward airfreight as an inventory buffer because their forecasting models have been completely upended by the pandemic, said Bruce Chan, vice president of global logistics at investment bank Stifel, in a monthly commentary. “Predicting how and when consumption patterns stabilize is a gargantuan fear and the path forward is anything but linear, especially as COVID cases reignite and governments enact further shutdowns and border closures,” he wrote.

Many manufacturers in China have announced they will continue production through the Chinese New Year, which runs Feb. 12-26. Factories normally close for 10 days or more so workers can celebrate with their families, but this year a large number will stay open because the Chinese government is discouraging workers from traveling home due to COVID-19 outbreaks in many parts of the country. That could create backlogs because a large number of freighter flights were canceled weeks ago in anticipation of a dead shipping period, Flexport said. Any backlogs will depend on whether factories keep producing or workers just take vacation at home.

Airfreight demand is so strong that experts predict the market will be back to pre-pandemic levels by the end of March. That trend starkly contrasts with the passenger side of the airline industry, which is expected to remain depressed until vaccinations become more widespread in the second half of the year. Even then, international travel is likely to return more slowly, which means fewer aircraft to assist with long-haul trade. Airline industry officials say they don’t expect a full recovery until 2024.  

Globally, rates are more than double, and they are 2.5 times higher out of China to Europe and the U.S. than a year ago. Planes are full on those lanes, according to digital sales platforms, market information services and freight forwarders. 

Average rates soared 80% in December, from $1.80 per kilogram to $3.27 per kilogram, the highest year-over-year increase since May, but then tapered off 10% entering January, according to World ACD.

Rates are under heavy pressure because global capacity is still about 20% below 2019 levels even as more all-cargo operators add freighters and flights. The culprit is the paltry supply of widebody passenger aircraft on international routes, the majority of which remain parked because of the poor travel market. In fact, airlines are scaling back on flights during the first quarter as highly contagious coronavirus variants spread and governments close borders or implement strict travel restrictions. Air Canada and WestJet, for example, suspended 25% and 30% of their system capacity for the first quarter because of new inbound pre-departure testing requirements, provincial lockdowns and travel restrictions .

The global all-cargo fleet in 2020 grew 22.4% to 673 units, according to International Civil Aviation Organization figures. Operators  continue to add incremental capacity, including repurposed aircraft operated by passenger airlines, but it hasn’t been enough because the space shortage is about three to four times greater than the dip in demand, with the gap likely to get worse in the near term. 

Incremental Capacity

In the past month, Qatar Airways added three Boeing 777 freighters to its fleet, with China Airlines and AirBridgeCargo each adding one of the factory-built aircraft. Swiss International Air Lines has added Seoul, South Korea, and Lima, Peru, to its cargo-only network. The flights from Zurich will be operated by 777-300 Extended Range passenger aircraft that are being exclusively used for cargo.

During the past year, many forwarders substantially increased their use of dedicated charter flights to guarantee capacity for their customers. German logistics giant DB Schenker last week substantially expanded its private air network. It now has two routings touching three continents — Europe, Asia and North America — for the first time. In total, the freight management company controls 43 weekly Boeing 747 or 777 freighter flights — the equivalent amount of space in 135-widebody passenger jets. Among its contract carriers is National Airlines, according to photos accompanying the announcement. 

Munich Airport serves as the hub for the DB Schenker intercontinental cargo flights between the U.S. and Asia. 

Click here for more FreightWaves/American Shipper stories by Eric Kulisch.


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Eric Kulisch

Eric is the Supply Chain and Air Cargo Editor at FreightWaves. An award-winning business journalist with extensive experience covering the logistics sector, Eric spent nearly two years as the Washington, D.C., correspondent for Automotive News, where he focused on regulatory and policy issues surrounding autonomous vehicles, mobility, fuel economy and safety. He has won two regional Gold Medals and a Silver Medal from the American Society of Business Publication Editors for government and trade coverage, and news analysis. He was voted best for feature writing and commentary in the Trade/Newsletter category by the D.C. Chapter of the Society of Professional Journalists. He won Environmental Journalist of the Year from the Seahorse Freight Association in 2014 and was the group's 2013 Supply Chain Journalist of the Year. In December 2022, he was voted runner up for Air Cargo Journalist by the Seahorse Freight Association. As associate editor at American Shipper Magazine for more than a decade, he wrote about trade, freight transportation and supply chains. Eric is based in Portland, Oregon. He can be reached for comments and tips at [email protected]