Skip to content
Search AI Powered

Latest Stories

AIR FREIGHT

Handle with care

Airfreight shippers and carriers alike will need to thoughtfully consider how to navigate the near future given the drastic drop in passenger flights.

SOL 2020 issue

If you had to pick only one word to describe the airfreight industry in 2020, “fragile” would be a good choice.

Air freight’s interdependency on passenger flights to move freight means that it has faced opposing demand shocks this year. Passenger demand plummeted as nations closed their borders and airlines grounded hundreds of aircraft. At the same time, demand for time-critical personal protective equipment (PPE) for first responders surged.


Overall demand for air cargo declined by 20% in June, but capacity dropped by 34%.1 The result was drastic price increases for cargos that absolutely had to move, such as medical supplies to combat the pandemic. The monthly TAC Airfreight Rate Index (Figure 1) reported a 45% increase in May over the previous 5-year high, which occurred prior to 2019 tariff implementations. Anecdotally, a few of my clients reported rates in excess of $10/kg on individual shipments from China to the United States. I’d be surprised if this weren’t reflective of a broader trend.

TAC Index monthly airfreight rates


[Figure 1] TAC Index monthly airfreight rates
Enlarge this image

Full speed ahead

The COVID-19 turmoil has also served to accelerate a number of trends that were already developing in the airline industry, such as the retirement of older aircraft—especially in the wide-body space, including the 767, 747, and A380. It’s doubtful that many of these planes will see service as cargo freighters. There are no conversion kits left for the 747, and the A380 are likely too expensive to be deployed profitably. However, retired 767s are seeing new life in DHL’s fleet; the company ordered three more passenger-to-freighter conversions in June.

Replacing these aircraft are more modern widebodies, like the 787 and A350 XWB. While the order book remains several years deep, airlines have cancelled over 800 orders for 2020 through June, or roughly 15% of Boeing’s total logbook. Almost 90% of the aircraft deliveries this year, however, have been widebody models. Depending on the configuration, the passenger and cargo capacities of the new planes are similar to the aircraft they are replacing. The impact on capacity in the market, however, will depend on the level of acceleration of retirements relative to new deliveries.

Meanwhile the pandemic disruption has impacted key airfreight routes throughout the globe. Shippers have reported circuitous routing for their shipments through new gateways. This has introduced longer transit times, both due to longer routes themselves and due to delays related to clearance of cargo passing through new customs jurisdictions. The shutdown of passenger flights has temporarily made Anchorage, Alaska, the world’s busiest cargo airport, rising from sixth to first place on the Air Cargo News’ “Top 20 Cargo Airports” list.

Another change worth noting is a general awakening to the value of resiliency in the design of a global supply chain. This will impact the use of air freight in several ways in the near term. First, the strategic importance of air freight as a safety valve has been proven during the first half of 2020. Few shippers with a global footprint will risk going without a robust air contingency capability in place. Second, Kearney’s 2020 U.S. Reshoring Index report, “Trade War Spurs Sharp Reversal in 2019 Reshoring Index, Foreshadowing COVID-19 Test of Supply Chain Resilience,” found a renewed focus on reshoring away from China to other low-cost countries (LCC), principally Vietnam. Because Vietnam has much slower ocean transit times than China (Maersk publishes a 22-day transit time to Los Angeles, California, versus 11-day service from Shanghai), the air option will be increasingly important contingency for Vietnam-manufactured goods.2

One trend that remains on pace is the adoption of digital freight platforms for bookings. After a short blip down during the peak of COVID-19 airfreight demand, Freightos’ Webcargo marketplace saw e-booking orders grow by over 700% in June 2020 with up to 15% of global airfreight capacity available on digital marketplaces.3 The principal features that made e-booking attractive before COVID-19, namely the convenience and transparency into rate and capacity, have even stronger appeal in a constrained market. Similar to other types of e-commerce platforms, digital airfreight marketplaces have reached a level of adoption in 2020 that was not expected to be achieved until years from now.

Volatility ahead

Given all the change and disruption happening in the industry, the big question on shippers’ minds is when we will get back to some semblance of normalcy. Many shippers have postponed airfreight negotiations with their forwarders, and many of our clients are asking us when they should follow through with their annual air tenders. 

The short answer is we’re unlikely to see stabilization through the end of the year. COVID-19 continues to spread across much of the U.S., and many Americans will be reluctant to fly anytime soon. Both of these issues will factor into passenger demand and the reintroduction of widebody belly space into the market. The International Air Transport Association’s (IATA’s) own forecast is that passenger volumes will not return to 2019 levels until 2024.

If that’s the case, then we can expect quite a bit more volatility ahead. Shippers—recognizing the need for air freight as an expensive (but necessary) lever to enhance the resiliency of their global network—will need to be nimble to deploy it at a reasonable cost. However, the adoption of tools like digital marketplaces can provide more transparency to enable better decision making. Even the largest users of air freight are facing the same issues, so those shippers that make the best of the current situation will be those leveraging all the tools available.

Notes:

1.1. Air Cargo Market Analysis,” IATA (June 2020): https://www.iata.org/en/iata-repository/publications/economic-reports/air-freight-monthly-analysis-june-202022

2. To obtain this data, Maersk’s scheduling tool was accessed on July 31, 2020 (www.maersk.com).

3. Damian Brett, “Digital air cargo bookings continue to grow despite COVID-19 outbreak,” Air Cargo News (July 20, 2020): https://www.aircargonews.net/airlines/digital-air-cargo-bookings-continue-to-grow-despite-covid-19-outbreak

Recent

More Stories

ATRI releases annual list of nation’s top truck bottlenecks

ATRI releases annual list of nation’s top truck bottlenecks

New Jersey is home to the most congested freight bottleneck in the country for the seventh straight year, according to research from the American Transportation Research Institute (ATRI), released today.

ATRI’s annual list of the Top 100 Truck Bottlenecks aims to highlight the nation’s most congested highways and help local, state, and federal governments target funding to areas most in need of relief. The data show ways to reduce chokepoints, lower emissions, and drive economic growth, according to the researchers.

Keep ReadingShow less

Featured

chart of warehouse rents

Colliers: warehouse construction rates return to pre-pandemic levels

It’s getting a little easier to find warehouse space in the U.S., as the frantic construction pace of recent years declined to pre-pandemic levels in the fourth quarter of 2024, in line with rising vacancies, according to a report from real estate firm Colliers.

Those trends played out as the gap between new building supply and tenants’ demand narrowed during 2024, the firm said in its “U.S. Industrial Market Outlook Report / Q4 2024.” By the numbers, developers delivered 400 million square feet for the year, 34% below the record 607 million square feet completed in 2023. And net absorption, a key measure of demand, declined by 27%, to 168 million square feet.

Keep ReadingShow less
chart of trucking costs per mile

Uber Freight: Trump tariffs will likely be avoided after pause ends in March

As U.S. businesses count down the days until the expiration of the Trump Administration’s monthlong pause of tariffs on Canada and Mexico, a report from Uber Freight says the tariffs will likely be avoided through an extended agreement, since the potential for damaging consequences would be so severe for all parties.

If the tariffs occurred, they could push U.S. inflation higher, adding $1,000 to $1,200 to the average person's cost of living. And relief from interest rates would likely not come to the rescue, since inflation is already above the Fed's target, delaying further rate cuts.

Keep ReadingShow less
chart of container imports at US ports

Descartes: U.S. container imports reached a record for the month of January

Against a backdrop of tariff volatility and uncertain business conditions, U.S. container imports reached a record for the month of January at 2,487,470 TEUs (twenty foot equivalent units), according to a report from supply chain software vendor Descartes.

The surge comes as the U.S. imposed a new 10% tariff on Chinese goods as of February 4, while pausing a more aggressive 25% tariffs on imports from Mexico and Canada until March, Descartes said in its “February Global Shipping Report.”

Keep ReadingShow less
supply chain pro using multiple screens

Cofactr acquires Factor.io to speed procurement for hardware manufacturers

Supply chain software vendor Cofactr said Thursday that it has acquired the AI-based solution provider Factor.io in a move it said will enable faster procurement and reduce logistical delays for its clients.

According to Cofactr, Factor.io automates the ordering and tracking of manufacturers’ complete list of materials, components and parts—across the hundreds of suppliers that produce and assemble them—so they can more efficiently move from sourcing and shipping to finished goods.

Keep ReadingShow less