Delivering the Boeing World Air Cargo Forecast during the TIACA Air Cargo Forum in Miami, Darren Hulst Vice President of Commercial Marketing delivered some very interesting statistics to show how air cargo has evolved since the pandemic struck. Cargo revenue jumped over 70% while cargo traffic registered single digit growth.
“The value of air cargo rose tremendously and with it, so did the size of the fleet,” he told the audience of journalists and delegates.
There are 300 more dedicated freighter aircraft actively serving the cargo markets due to the demand for main-deck cargo.
Utilisation is 25-30% higher than before the pandemic, meaning not only are there 10-15% more aircraft flying, but they are also flying more frequently, making the industry more productive.
As is often highlighted, less than 1% of global trade by tonnage is transported by air, but it makes up 35% by value.
Goods that use air cargo include pharmaceuticals, perishables and high-value electronics. With advances in cold-chain technology, air cargo was a lifesaver distributing vaccines around the world during the pandemic.
High-value parts for supply chains that have been stalled or broken due to effects of the pandemic or delays in container shipping and port congestion gave air cargo a boost, showing its speed and reliability.
As the world exits the pandemic, air cargo will continue to evolve as the effects of the pandemic ease. Passenger traffic is adding capacity, and this will continue to have an effect.
Hulst said, “We see more belly capacity entering the market as passenger demand returns to normal. The supply/demand element of air cargo has eased slightly although yields are still significantly higher than they were before the pandemic.”
The run on goods in 2020 and 2021 as people were locked down in their homes has eased, with data noting that services are picking up and goods are still trending well above normal but heading back down.
E-commerce networks continue to grow, which the industry will need to think about from a structural perspective, Hulst told the audience.
He said, “There is a certain amount of critical mass to create an air cargo e-commerce network. We are seeing those developing including in Latin America where we have seen recently the joint venture with Mercado Libre to set up short-haul e-commerce networks. There needs to be a certain amount of critical mass, network and destinations to create something over time.”
Looking at the Trans-Pacific, transatlantic and Asia-Europe lanes, which, between them, account for over 70% of global air cargo, Hulst showed how the markets have changed.
Pre-pandemic, 62% of cargo capacity on the Trans-Pacific was on freighters, 33% on the transatlantic and 43% on Asia-Europe. During the pandemic, this went up to 81% on the Trans-Pacific, 60% transatlantic and 72% Asia-Europe. It remains at 81% on the Trans-Pacific, transatlantic is down to 38% and Asia-Europe is 67%.
“As we move out of the pandemic, we have seen some normalisation, particularly on the transatlantic market where we have shifted back to a 60/40 split between passenger belly space and dedicated freighter space that existed before the pandemic,” said Hulst.
While China remains largely shut, Hulst and the team do not see the split of belly and freighter capacity changing significantly. Yields remain well above pre-pandemic levels, double or more in some cases.
Even on the transatlantic where the passenger/freighter split is near pre-pandemic levels, yields are still 30-40% higher than before.
Trade outstrips GDP
Trade has outstripped GDP due to demand during the pandemic, and this continued with the growth of e-commerce. GDP is back above pre-pandemic levels and trade is 10% higher.
Hulst said, “While we may see some of that settle because of supply issues or because of slowdowns from a macroeconomic standpoint in places like Europe and the US, that will probably last a year or less and then we will see the trend growth-rate of around 3% per year for global trade. From a long-term perspective, trade is the main driver of air cargo demand.”
E-commerce networks have been established or grown rapidly in both mature and emerging markets, most notably in East Asia and Latin America. These networks need scale, said Hulst, increasing demand for aircraft.
“One thing that is fascinating to see is that in the US market in 2021, e-commerce was worth about $1 trillion. China’s e-commerce market is about $2 trillion but think about the potential that exists in other emerging markets over the next 20 years as we see more and more e-commerce demand and shipping via air,” said Hulst.
When talking about demand drivers, Hulst admitted it sounded like he was repeating himself, but e-commerce will be a major driver.
“During the pandemic, we probably saw a 3-4 year advancement for demand or use of e-commerce, in some markets it was 6-7 years,” he said.
Supply chain strategies will evolve, saying that companies who carry air cargo or are in an adjacent market like container shipping will diversify into air cargo to supplement their business to benefit from the speed and reliability of freighters.
The last point is the modal competition, highlighting the statistic of 1% of global trade by tonnage is carried by air cargo but 35% by value. A small shift could have a dramatic impact on air cargo and the closer the gap in price between air and ocean freight will impact the decision about which mode to use.
Hulst said, “Since the container shipping market is far more concentrated than it was even a decade ago, we are seeing far more discipline in the ocean container space, which narrows the gap between air cargo and container shipping pricing. You add some uncertainty in terms of the time that it takes and the congestion in some cases at ports, you see some attractive value in terms of decisions between shipping via different modes.”
In the past two years, Boeing has seen 40 new operators, some of which are completely new, shipping lines supplementing their business and airlines who only had passenger aircraft ordering freighters.
Retiring old models
A point Hulst thinks is overlooked is that there are over 1,400 freighters that will need to be replaced over the 20-year forecast. Replacing capacity that needs to be retired is not a choice, he said.
Over the last three years, Boeing has noticed airlines holding onto aircraft that should have been retired and aircraft being brought out of retirement, which will be replaced by new, more efficient aircraft.
Among larger freighters, over half the fleet is 20 or more years old, meaning 300 will need replacing by the end of this decade.
Hulst said, “It speaks to the stability of demand, in addition to the potential growth but some of these aircraft would probably have been replaced already, the compelling value of air cargo has kept them in the market. That replacement demand will accelerate as we move through the decade.”
Boeing is predicting annual air cargo traffic growth of 4.1% through to 2041, and the freighter fleet will grow just under 2% a year to support that.
To bridge the gap between the numbers, freighters will be more capable and productive to support the fleet needs over the next 20 years.
While gathering the data, the team found some very interesting insights such as US domestic air tonnage has grown 23% since 2019 but trucking only by 1%.
Other insights include 105 billion parcels were shipped in China in 2021, representing 28% average annual growth over the last five years, and Vietnam is the fastest growing East Asian market, making it the region’s fifth largest, up from 11th a decade ago.
Boeing’s forecast is that market needs nearly 2,800 new deliveries for freighters, of which 940 will be production freighters and over 1,800 will be conversions.
Single-aisle freighters will continue to be exclusively conversions, making up just under half of demand.
The rest will be split in thirds between widebody conversions, and new large and medium widebody aircraft.
The size of the freighter fleet is forecast to grow by 80%, with the number of active aircraft growing from 2,200 to 3,600.
Boeing would have placed the number higher but predicts freighters will be more productive and capable.
Asia Pacific will lead the way for deliveries, with 40% of demand for freighters expected to come from operators in the region.
It will be a mix of new and replacement aircraft, unlike North America, which will be mainly replacing aircraft.
With its product range, Hulst said that the 737-800BCF will serve the logistics and e-commerce markets, 767s, both from the factory and conversions, will serve the mid-size market, and in the large freighter market, the 777-8F will replace aircraft up to the 747-400F.
Hulst said, “Boeing freighters today carry about 90-93% of dedicated freighter capacity. With the complementary family from both the production and conversion space, we now have a total of over 1,150 freighters in the market or on order on our current platforms. Our commitment remains to support this growing market, understand the structural changes that are happening in air cargo and how those dynamics will continue to impact the demand for air cargo, not just between now and 2025 but between now and 2040, and how that might shape demand for aircraft in the long term.”
This article was published in the December issue of Air Logistics International, click here to read the digital edition and click here to subscribe.