Air Freight/ Cargo is a trade facilitator that contributes to economic development and the creation of millions of jobs. Air cargo transportation accounts for almost 35% of world trade value.
According to research, the global air freight market will reach a whopping $377 billion by 2027. While this is slow but steady growth, it has nudged the global demand for international operations, measured in cargo tonne-kilometres (CTK) or freight tonne-kilometres (FTK), up by 10.4% in 2021.
Among all these, the Asia Pacific region shows the most promise. This region showed a 20.2% annual increase in freight capacity in 2021. According to the Association of Asia Pacific Airlines (AAPA), air cargo demand recorded a 5.1% yearly increase in January 2022.
While cross border travel has been relaxed, the implications of Ukraine and Russia’s conflict have affected cross border trade in an unprecedented way. Cargo airlines still face challenging operating conditions due to the ongoing conflict in that region.
This has a broader impact than previously thought. Elevated fuel prices threaten to suppress the margins and earnings of an industry which is already struggling to survive. There needs to be a thorough risk assessment, after which measures can be taken to harmonise and regularise the growing demand for air cargo.
The Changing Landscape Of Air Freight
The onset of Covid- 19 has shaped the country’s logistical landscape and has also heavily influenced worldwide cargo operations. Compared to ground and ocean freight, air cargo, although a smaller part, serves a vital role in the global supply chains and cargo transportation. With growing emphasis on high volumes of heavy shipping, businesses are looking for ways to adapt.
Emerging Trends In The Air Freight Industry
The Rise Of e-Commerce
e-Commerce is an irreversible trend, fueled by the pandemic and growing daily to accommodate developing technologies and the changing consumer pattern. It provides both speed and convenience. Consumers can get their products overnight, the next day, or in two days. Also, they can shop without leaving their homes. Furthermore, they can shop whenever they want – day or night.
The International Air Transport Association (IATA) predicts that cargo demand in 2022 will exceed last year’s demand. That results in a significant increase over the pre-pandemic demand rate in 2019. As a result, this fast demand has overwhelmed traditional means of delivery.
Online demand for e-Commerce will continue to grow. Several ports in Asia, Europe, and North and South America are considering operating 24/7. Besides benefiting consumers, this trend also helps shippers and air carriers. Cargo airport executives believe this is a long-term solution, looking beyond short-term bottlenecks.
Change In Air Cargo Capacity
It is known that since the onset of Covid-19, there has been a shortage in cargo capacity. The capacity for ground and ocean cargo was swamped. And that demand for capacity spilt over into air freight. Besides the change in consumers’ purchase habits, manufacturing has increased to record levels.
The purchasing manager’s index (PMI) showed improvements from the previous months. This indicates that a trend toward economic growth may run for a while as pent-up demand is finally unleashed.
The retrofitting and manufacturing of cargo planes is one trend in how companies are addressing this shortage. In a 2021 CNBC report, aircraft manufacturer Boeing had started converting passenger fleets to cargo jets. Along with building new air cargo planes, Boeing converted outdated 737 passenger planes for companies like Amazon to meet the growing demand for e-commerce.
The growth of e-commerce and the general economic recovery are likely long-term trends. Fed by new technologies and business practices is expected to show long-term growth. This will further challenge the trend of insufficient air cargo capacity.
Supply Chain Diversification
As the economy picks up in 2022, we’re seeing a lot of activities related to the diversification of supply chains. More activity due to on-shoring and near-shoring has increased the need for order fulfillment and has increased regional air freight.
Regional air cargo shipping will likely take hold as an established shipping mode. Other modes like road and ocean cargo have limited capacity. Moreover, consumer demand and capacity constraints are unlikely to go away anytime soon.
Supply chain diversification is a gradual but growing trend. The Covid- 19 vaccine deliveries had saturated distribution networks as vaccine distribution relied heavily on air transport. With the pandemic coming under control, air freight deliveries are shifting focus to South America and India, where there still is a scope for growth of heavy shipping.
The mid and long-term strategies appear to shape air cargo as a key mode of transport. Supply chain diversification has triggered increases in air freight. Long-term prospects for air cargo will likely increase, too, as more companies diversify their supply chains to mitigate risk.
The Rise Of Air Freight As An Omnichannel
Thanks to the increasing customer demand, an omnichannel strategy is almost necessary today. Airlines see a need to look beyond traditional airport-to-airport service. Now, airlines and other stakeholders see opportunities to provide end-to-end services.
Heavy Shipping companies are partnering with ground operations to improve last-mile delivery. In Europe, Swiss World Cargo has partnered with the Swiss Postal Service to optimise its delivery. Amazon is expanding its Amazon Air Services and combining it with its ground transport services.
As this trend continues, partnerships between airlines and shippers will most likely increase. Air freight will possibly pursue an omnichannel strategy, easing the competition for limited cargo space and moderate rates. Likewise, shippers and airlines may expand partnerships with 3PLs and logistics aggregators for a better omnichannel experience.
Rise Of Volatile Shipping Rates
Domestic and International shipping rates have not been stable since the pandemic hit in March 2020. Be it due to the ongoing crisis in Ukraine leading to fuel costs or a shortage of air freight space, rates will continue to rise as long as demand for cargo space exceeds supply.
Currently, passenger planes transport 60% of all air cargo, and due to the pandemic and other reasons, international travel is still almost 80% lesser than what it used to be pre-covid.
More air cargo planes are flying today than in 2020, yet the industry still has a 39% capacity shortage. Manufacturers are building more cargo planes to ease capacity constraints and retrofitting passenger planes. While helpful, it takes time to manufacture and retrofit planes.
Stable rates still remain a plan for the long-term. In India, rising fuel prices have jacked up domestic and international freight shipping rates. Further, the uneven opening of economies should delay the stabilisation of rates, at least when it comes to heavy air cargo.
The supply chain industry is transforming, and so is air cargo. These emerging trends will reshape the air cargo industry and hopefully normalise daily operations. Some of these trends will take effect before others. But what’s notable is that these trends will have a lasting impact. They will change best business practices as well as technologies, which should result in improved operational effectiveness and efficiency. As the air cargo industry transforms, the supply chain must transform to provide proper logistics support.