The air cargo industry plays a vital role in global trade, handling no more than 1% by volume but around 35% by value, going by the widely quoted statistics.
Recent years have been like nothing anyone could have imagined, showcasing what the air cargo industry does for the world.
Rachel Yuting Fan, Senior Macro Economist, started the cargo presentations with a graph showing that air cargo has largely followed global trade patterns since 1990 with one outperforming the other in certain years.
Real world GDP growth has always had its ups and downs with the biggest falls coming in 2008 with the Financial Crisis and in 2020 due to the pandemic.
The rapid falls were always followed by sharp recovery before getting back to normal.
“The world economy has been tough, it fell down but it always comes back. Nowadays we can expect the world economy to stabilise at around 3%, which is roughly the average if you look at the history of world economic growth. The IMF expected the world’s economy to grow at 3% in 2023 and 2.9% this year, 2024,” Fan told the audience.
Looking at real world exports to real GDP, the figure has risen exponentially since 1960 and continues to grow, which means trade has been a driving force during the expansion of the world’s economy.
The trend peaked at 2008, said Fan, before gently gliding down after that. Using 2015 as the baseline of 100, 2008 was at 103 and 2022 was 98, suggesting countries are increasingly looking inwards and trading less.
“This is not surprising, in 2022, in one year almost 3,000 trade barriers were put up worldwide. This is a big jump when you compare it to less than 1,000 observed in 2019,” said Fan.
Since the start of 2019, global cross-border trade has largely lagged behind industrial production.
Air cargo outperformed both in 2021 before the downturn in 2022 then starting its recovery late last year.
Air cargo entered the centre stage in 2020 by maintaining supply chains when countries went into lockdown.
Before the pandemic, the bellies of passenger aircraft provided more than half of air cargo capacity, which plummeted when passenger services stopped.
Cargo demand was still there, which led to the rise of preighter aircraft, which played a critical role delivering essential items such as PPE, medical equipment and vaccines.
Fan said air cargo was resilient in 2021 with stability in global supply chains returning in 2022, which meant fast deliveries were less urgent, reducing air cargo demand. Passengers started flying again, increasing belly capacity.
Global trade is projected to improve having fallen in 2020, bounced back in 2021 then declined in 2022 and 2023. It is projected to increase from 0.9% in 2023 to 3.5% in 2024.
Globally, cargo tonne kilometres were expected to be down 3.8% in 2023 with only Latin America registering growth, before rising 4.5% in 2024 led by the Middle East at more than 12% followed by Europe at around 4%.
A major story of the pandemic has been historically high yields, inflated demand combined with a lack of capacity.
Yields peaked in 2021 and have come down substantially since then due to increased capacity and competition from maritime freight after its disruption ended.
Since September, yields have gone up again due to rising jet fuel prices.
Fan said, “We expect cargo traffic to decrease slightly in 2023 before ticking up in 2024 and we expect yields to come off from its unsustainable high levels and to continue declining in 2023 and 2024. Nonetheless, we expect yields to remain above pre-pandemic levels.”
Airlines can expect to return to profitability in 2023 having seen passenger revenue fall more than 50% in 2020 and revenue is expected to be 15% above pre-pandemic levels for 2024.
Air cargo revenue rocketed with 2021 and 2022 more than doubling 2019 levels before coming down again.
In 2023, it is expected to be 34% above 2019 due to falling quantities and yields. For 2024, yields will fall further but still be 11% above 2019 with the expected sharp decline in yields expected to offset the increase in volumes.
Fan said, “In terms of the profit split between passengers and cargo, we expect this ratio to converge to pre-pandemic levels so that cargo revenue makes around 12% of the total airline revenue.”
Industry priorities
Global Head of Cargo Brendan Sullivan provided an update on the industry priorities of digitalisation, sustainability and safety and security.
For digitalisation, the priority is to move away from digitising paper documents to a data-sharing approach based on web APIs, which Sullivan said is more efficient and effective.
In the area of sustainability, cargo is supporting the aviation industry’s Net Zero commitments by increasing efficiency and reducing waste inside air cargo operations.
With safety and security, the commitment is to make sure cargo moves safely and securely.
Challenges remain going into 2024 due to conflicts in Ukraine and the Middle East, economic volatility bringing inflation, a weaker trading environment, shifting currency rates and slower GDP growth, which is affecting consumers, and there are concerns about the development of China’s supply chains as companies look at de-risking and moving around the region.
“These developments are ongoing so it is an area of challenge that we continue to monitor,” commented Sullivan.
On the plus side, the e-commerce boom shows no signs of stopping, which brings demand for shorter delivery times, something only air cargo can fulfil.
Sullivan said, “It requires cooperation from governments to improve delivery times and reduce dwell times that exist inside the supply chain.”
Rebounding passenger demand is bringing back belly capacity and while the whole air cargo market is down, specialised cargo such as pharmaceuticals are proving resistant to the ups and downs.
Focusing on digitalisation, Sullivan highlighted PLACI (Pre-loading Advanced Cargo Information), a data set which is shared along the supply chain with customs authorities to provide an additional layer of security.
Sullivan said a number of PLACI regimes are being implemented, saying, “What we need to do and make sure happens is that these programmes achieve their objective of an additional layer of security but do not impact cargo flows, slowdown and create friction at borders and transit points. For that to occur, governments must work closely together to deploy a PLACI programme.”
There are numerous examples where freight moves across multiple PLACI regimes and if they are not aligned, the data sets cannot be shared and used for their intended purposes, slowing or stopping trade flows.
Sustainable growth is essential and the air cargo industry is a key driver toward achieving the United Nations Agenda 2030 Sustainable Development Goals (SDG).
Air cargo directly contributes to seven of the goals, point one of no poverty, point two of zero hunger, point three of good health and well-being, point eight of decent work and economic growth, point nine of industry, innovation and infrastructure, point 12 of responsible consumption and production, and point 17 of partnerships for the goals.
Special cargo can make up almost 60% of overall cargo revenue, depending on the company, so it is vital to minimise losses for perishable products such as fruit and vegetables.
Dangerous goods represent almost a third of special cargo and 27% of that number is lithium batteries, which is increasing year on year as consumers purchase more devices.
Sullivan also wanted to highlight 13 billion doses of Covid-19 vaccines were administered globally, many of which travelled with air cargo.
Air cargo saves lives by transporting goods to those in need. In 2023, the UN World Food Program estimates 362 million people needed humanitarian assistance and protection, which is not a good record to break.
“One in 22 people will be requiring some form of assistance across the globe. It shows how important it is that we deliver as a community and air cargo absolutely responds to that,” said Sullivan.
He brought up the response following the devastating earthquake in Türkiye and Syria in February, with 3,500 tons from 90 different countries being delivered.
The other innovation Sullivan praised was the establishment of airbridges including the EU Humanitarian Air Bridge, which has delivered more than 4,000 tons of aid since 2020.
Safety and security was his final point, amendments to how lithium batteries are transported including a reduced state of charge and a new designation for vehicles.
For fire-resistant containers, a new standard has been created for lithium batteries, which is going through the approval process.
Keeping the entire supply chain safe is essential, with Sullivan saying regulators must regulate the entire supply chain and not just one party or one party unnecessarily.
He said, “There will be some changes to ICAO Annex 18, they’re finalising what they will look like but they provide a regulatory framework for regulators around the world to have oversight of the entire supply chain.”
Digital future
The final cargo session was Digitalization in Air Cargo: Navigating the Future, delivered by Head Digital Cargo Henk Mulder. There are several trends in air cargo and they need the right digital tools.
E-commerce is a digital product, he said, and once an order is placed on Amazon or another provider, someone has to pick the order and it has to be moved in several stages.
Mulder said, “The increase in e-commerce is a massive challenge for companies both on the e-commerce side and on the recipient side. For example, customs may be receiving twice as many parcels tomorrow as they did a year ago. Digitalisation really helps them in predicting these flows and handling the information they have to handle.”
Digitalisation can also help make operations more sustainable by analysing practices and unlocking efficiencies, help manage capacity fluctuations and implement other technologies such as robotics.
Capacity fluctuation has remained a challenge post-pandemic due to geopolitical issues, meaning freight has to find new routes.
Mulder said, “The ability to understand what those routes are and how to adapt quickly requires very clear information about where the problems are, where the capacity is needed and how you respond to that.”
Data is not a commodity you buy by the kilo, said Mulder, pointing out that there are multiple stakeholders and functions, and cargo cannot move without the necessary information.
Historically, the solution was creating large volumes of paperwork, which is no longer acceptable so making the information available for interested stakeholders is very important.
ONE Record is designed to link information digitally so any party who needs it has access.
The idea of a data network is truly innovative and going to change the industry, Mulder said.
IATA aims to have ONE Record implemented by 1 January 2026, with Mulder saying, “By 2026, all airlines will have the capability of using the ONE Record approach to share data across the supply chain.”
This article was published in the February 2024 issue of Air Logistics International, click here to read the digital edition and click here to subscribe.