2017 was a stellar year for air cargo, with the industry celebrating a full recovery and 10.1 percent growth, more than doubling the estimated long-term growth rate, according to Boeing.
While 2018 hasn’t delivered equally prosperous conditions, airfreight growth is positive and expected to be around four percent for the year, according to The International Air Transport Association (IATA). This result is aligned with the industry’s predicted long-term growth rate.
A respectable year of growth
“Last year, there was a big restocking cycle, and that propelled the high level of growth,” shares Ellis Taylor, analyst at FlightGlobal. That restocking cycle peaked at the end of 2017, and now the sector has slowed to enter a more long-term trend. “We are on track for that 4% annualised growth rate,” he reassures.
This return to normalised growth is likely to be maintained according to Boeing’s World Air Cargo Forecast, which states, “many indicators show that the air cargo market is fundamentally well positioned to sustain the growth momentum at or above the long-term trend.”
Demand is steady
It’s been a positive year for most of the industry, airline heads of cargo surveyed in early July told IATA they were “positive about the outlook for freight volumes over the next 12 months, albeit slightly less so than they were earlier in 2018.” Despite the slight caution, IATA’s respondents were “increasingly positive about the outlook for cargo yields.”
What’s driven this year of cautious optimism? Demand growth has been steady. IATA’s Q3 report indicated annual growth in FTKs (freight tonne kilometres) had slowed but continued to rise in seasonally adjusted terms. However, the report stated, “the upward trend has slowed markedly from that seen during the best of the upturn in airfreight last year.”
Rising affluence in Asia is driving regional e-commerce volumes and demand for airfreight goods including pharmaceuticals and fresh foods. The global appetite for e-commerce continues to feed the sector’s growth as well. Taylor highlights, “e-commerce from China and Asia, on the whole, is probably going to be one of the major drivers for the next few years.”
Healthy yields despite challenges
According to IATA, yields “have continued to trend upwards in the second half of 2018, albeit at a slower pace than a year ago.” The increase in yields is despite some pressure from rising fuel costs and a looming shadow of the potential pilot labour crisis and the associated rising costs.
Rising fuel prices are the industry’s dominant concern regarding increasing operational costs. Taylor says, “Fuel certainly is the biggest one. History has proven that airfreight is really sensitive to fuel price increases, particularly when it comes to dedicated freighters. When the price of fuel goes through US$100 a barrel and up to US$150 a barrel, the economics of dedicated freighters get hit quite hard.”
Rising labour costs are casting a shadow, especially on a long-term outlook, specifically out of the US where a pilot shortage has forced carriers including United and Delta to deliver significant pay increases.
Taylor says, “the fear for the industry is that starts off a trend,” also noting that while a lot of capacity is flown out of Asia, some are operated by US carriers (hiring US pilots) such as Atlas Air and Polar Air. These freighter companies operate aircraft for Cathay Pacific and Asiana, who may, in turn, incur higher charter rates as a result.
“They’re on US contracts – if (the cost of) US labour goes up, costs might creep up. This incurs a wider cost impact,” he concludes.
Political and capacity concerns
While the industry has enjoyed a sunny disposition this year, two major concerns are rising political tensions between the US and China, as well as a continued trend of capacity outstripping growth.
The latter was highlighted by IATA in its Q2 2018 financial data release which stated, “available freight tonne kilometres (AFTKs) grew by 4.5% year-on-year in August, up from 3.9% in July and faster than the corresponding annual demand growth rate for the sixth month in a row.”
After consistent political turbulence between the US and China in 2018, these tensions have become an obvious concern for the industry. Speaking to Air Cargo World recently, Alexandre de Juniac, IATA’s director general and CEO, said that air cargo is still “somewhat insulated from the current round of rising tariff barriers,” but that “deterioration in world trade is a real concern.”
A bright future
What does the crystal ball hold for 2019 and beyond? If trade tensions stay at a manageable simmer, the stars of the next decade could be technology and the disruption presented by powerful e-commerce players.
There’s a buzz in the air about autonomous airfreight in its many incarnations – from drones to autonomous airliners. “Cargo is the place where we can experiment with autonomous aircraft,” notes Taylor. The recent suggestions of trialling single-pilot freighters in a move towards completely autonomous operations seems a natural evolution for business leaders looking to explore resolutions to rising labour costs.
In some countries, drone delivery is already a reality in last mile fulfilment. E-commerce has the volume and power to change so much of the logistics landscape, and that includes airfreight. Amazon is already taking more control over their delivery chain. Taylor says, “In the US, they have put on 20 Boeing 767 freighters. At the moment, that’s limited to US domestic. But it will be interesting to see if that spurs on the other major e-commerce operators to start operating more of their own aircraft or coming into arrangements.”
It is set to be an interesting future.