There is always plenty of action in the air cargo industry, falling much less dramatically during the pandemic and recovering much quicker than the passenger sector, soon exceeding 2019 levels.
Demand remained above pre-pandemic levels for some time, said Andrew Matters, Head of Policy Analysis at IATA, speaking at IATA’s headquarters at Geneva Airport on Wednesday 7 December, returning to 2019 levels in early 2022 before declining in recent months.
Measured in cargo tonne kilometres, demand is about 6% lower than 2019 levels.
Cargo volumes are declining in the face of global headwinds, said Matters, citing the Russia-Ukraine conflict, weak economic growth, high inflation, interest rates and the rising cost of living.
The pandemic growth rates were not sustainable so were always going to come down, and all regions of the world are being affected.
Latin America was the best, or least worst, down around 1.5%, compared to Europe, which was down almost 19% due to being most heavily affected by the conflict in Ukraine.
Globally, volumes are down 13% compared to 2021, and combined with capacity staying stable, the cargo load factor has declined, returning to pre-Covid levels. Load factors are 48.7%, down 7.5 percentage points on a year ago.
Looking ahead, Matters said, “We think that the decline in volumes is going to continue into 2023. This primarily reflects the more challenging global economic backdrop both in terms of global economic growth and international trade.”
IATA has factored in a decline of 8% for 2022 and another 4% for 2023. Yields were up 7% in 2022 but IATA does not think that this is sustainable, forecasting a fall of 22% for this year.
Matters said this sounds like a dramatic fall but yields increased 50% in 2020, followed by another 24% rise in 2021 and another 7% in 2022.
With yields and volumes going down, revenue will fall from around $200 billion to the region of $150 billion in 2023, which is still 50% higher than before the pandemic.
Matters said, “Once again, the exceptional period that we have had looks like it is coming to an end. We are starting to come back towards more normal levels across a number of variables that we are more accustomed to.”
Cargo’s share of total revenue peaked at 40% in 2021, and is expected to go down to around 28% in 2022 and go a bit below 20% for 2023. Matters said this is because cargo revenue is falling and passenger revenue is increasing.
In 2019, cargo revenue was 12% of the total revenue, so, despite the fall, the share is considerably higher than it was pre-pandemic.
Multiple shocks have impacted economic growth and trade, with global GDP growth falling from 6% in 2021, a strong year bouncing back from the impact of Covid, to around 3% in 2022 and the prediction is around 1.3% for 2023.
International trade growth is expected to fall from 10% in 2021 to 3.5% in 2022 to 1% in 2023.
Indicators point to weakening air cargo demand. New export orders have been declining for some time, pointing to softness going ahead. Business confidence surveys and business inventories also point towards softness.
Freighter deliveries are expected to be at their highest level since 2012, which means more capacity at the same time as demand is cooling.
This is not good news for yields, combined with the return of belly capacity as passenger demand returns, said Matters.
Summing up, Matters said, “We think the air cargo market is cooling after what has been a very strong and unusual period and we expect that this is going to continue into 2023. It is important to note that it is not all bad news, a lot of it is just coming back from unusually and unsustainably high levels.”
Revenues will still be 50% higher than before the pandemic, and there is a chance things will improve.
If the conflict in Ukraine is resolved, consumer and business confidence would likely rebound quickly, which would have a positive effect on economic activity, consumer spending, business investment and international trade.
Looking at supply chains, Matters said they have been disrupted for a number of years, which could lead to cargo moving from maritime to air as businesses try to plug gaps in their supply chains.
He said, “If we were to get a sudden turnaround in confidence that fed through to demand, often in that first recovery upswing, that favours air cargo as businesses need to get inventory into their warehouses and stock onto their shelves quickly, it is only through air cargo rather than through shipping that they can do that.”
In a good place
These are interesting times to be part of the air cargo industry, said Brendan Sullivan, Global Head of Cargo at IATA, who has been in his role since July 2021.
There are challenging headwinds but air cargo continues to play a vital role in global supply chains, moving cargo from specialised products to humanitarian shipments.
Aviation has recovered from the pandemic, which is impressive considering the scale of the financial and economic damage it caused.
He said, “We should not forget that air cargo demand returned to pre-Covid levels in January 2021, that was a phenomenal achievement and sets the industry up very well to deal with the headwinds that it faces today.”
The key priorities are reaching net zero goals, modernising processes, improving safety, particularly for carrying lithium batteries, and making air cargo attractive to new and diverse talent.
Focusing on these issues will help the industry through challenging times and deliver on the value of air cargo, said Sullivan.
Operators are working towards cutting harmful materials used and the use of single use plastics.
Sullivan highlighted Lufthansa Cargo using more environmentally friendly films, IAG Cargo piloting less harmful plastics and LATAM Cargo using reusable covers and pledging to eliminate all single use plastics in the coming years.
The industry needs to focus on repairing, refurbishing, repurposing and recycling as much as possible, and circular approaches are being developed, particularly with ULDs and straps.
Facilities need to be made more sustainable, which Sullivan said the industry is working on with net zero buildings and incorporating sustainability into the planning of buildings through electrification and other measures.
“Over the last few years, we have seen an acceleration in air cargo’s sustainable transformation. Maintaining momentum is essential if we want to survive as an industry, we need to bring all industry partners, big and small, onboard to that common goal,” he said.
E-commerce continues to grow, with Sullivan calling it an “unstoppable trend”, saying that the pandemic consolidated consumer behaviour, with air cargo playing a vital role delivering the goods.
The value of e-commerce is expected to hit $5.7 trillion in 2022 and grow to $7.3 trillion by 2025.
Online retail sales were 21% and even with the drop in consumer spending, 159 billion parcels were handled in 2022, four times higher than eight years ago, and this number is expected to double by 2027.
Sullivan said, “80% of cross-border e-commerce is shipped by air. That really shows that air cargo is built to support cross-border e-commerce. Some 18-20% of air cargo by volume is e-commerce and we are just focusing on B2C; when we move into B2B e-commerce, we see those numbers increasing.”
Compliance remains an issue when transporting lithium batteries, particularly with new and inexperienced entrants to the e-commerce sector.
The industry needs to press and help regulators crack down on rogue shippers, urged Sullivan.
He ended his presentation by saying, “It’s clear that we have challenges ahead but these are challenges that we are better equipped to face than we were pre-pandemic. We can look at our own organisations, note our strengths and improve on the weaknesses, we can better collaborate amongst all the stakeholders, re-imagining global supply chains to drive sustainable and inclusive growth.”
Safely handling dangerous goods
When Dave Brennan, Head of Cargo Safety and Dangerous Goods took to the stage, he commented that all he talks about these days are lithium batteries.
The biggest concerns surrounding transporting lithium batteries are undeclared or improperly prepared shipments, sometimes through ignorance but some refuse to comply with regulations, declaring the shipment as something completely different such as children’s clothes or toys when they are sending thousands of counterfeit mobile phone batteries.
“That puts a significant risk on everybody in the air transport chain including the passengers on that aircraft,” said Brennan.
IATA is working with industry stakeholders to reduce risks but something required is incident data because if people do not know what is going wrong, they cannot fix the problem.
IATA’s incident data programme is open to airlines, both IATA and non-IATA members, and it is being upgraded to provide more information about lithium batteries.
Regulations are being enhanced with the UN sub-committee on transporting dangerous goods agreeing to a new UN number specific for vehicles powered by lithium ion batteries, changing it from battery-powered vehicles, distinguishing them from other batteries such as wet cells.
The focus is on things like e-scooters and e-bikes, which are typically shipped in cardboard boxes so everyone knows that they contain lithium batteries.
When batteries are shipped by themselves, they have to be shipped at a reduced rate of charge to reduce fire risks, something that the ICAO Dangerous Goods panel may decide is necessary for vehicles powered by lithium-ion batteries.
The industry is working to make supply chains more resilient with IATA developing the Center for Excellence for Independent Validators (CEIV) to cover lithium batteries.
A company’s policies and procedures are audited to confirm a high level of compliance for handling and shipping lithium batteries.
To counter fire risks, airlines are providing additional protection through products including fire resistant containers and fire containment covers, which will give the flight crew time to reach land safely.
These offer six hours of fire protection, which IATA believes is enough, wherever in the world the fire warning was triggered.
Governments need to step up, with Brennan saying that the industry is doing everything it can to prevent undeclared dangerous goods from getting into the system but only governments can enforce the rules, particularly when people have deliberately lied about what they offer as air cargo.
“We believe those people, frankly, should be thrown in jail but the governments have to step up and do that,” said Brennan.
This article was published in the February issue of Air Logistics International, click here to read the digital edition and click here to subscribe.