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Planes grounded, roads cut off: has the air freight market bottomed out?

With just 96 days until Christmas (sorry), the peak season for e-commerce and freight is just beginning. Despite the timing, several major air cargo operators are beginning to show signs that they anticipate lower demand, or at the very least, a flattening of the accelerated capacity needs that have characterized the pandemic.


When so many of the world’s airlines grounded their fleets in 2020, belly cargo capacity disappeared overnight. This demand pressure was compounded by an increase in the number of people using e-commerce for their purchases, as retail stores remained closed and people chose (or were forced) to stay at home.

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This has fueled unprecedented spikes in the cost of air freight, encouraging more carriers to enter the market or increase capacity, often by converting redundant passenger planes into temporary carriers.

Seats were removed from passenger aircraft to provide space for cargo. Photo: Hi Fly

But times have changed again. With the return of passengers came the return of at least some of the belly capacity that had disappeared in 2020. IATA’s latest industry update noted that air cargo capacity was, as of June and July, close to pre-pandemic levels – good news, but only if demand matches capacity.


Is demand starting to decline?

According to Xeneta, the air cargo market contracted 5% year-on-year in August, and 4% from pre-pandemic levels. This has resulted in lower shipping rates globally, which has been a trend since late March. Global rates peaked at 156% above 2019 levels in January, and are currently down to +113%. It’s still high, but not as high.

The good news is that the drop in freight rates is starting to slow. As the Xeneta chart below illustrates, August saw a plateau in rates between Europe and North America, stabilizing below those seen in 2020 and 2021, but still well above at typical 2019 rates.

Data and chart: Xeneta

Nevertheless, air cargo carriers anticipate a lackluster fourth quarter of the year, due to a multitude of factors. In the mix are ongoing supply chain disruptions, a global economic slowdown, a lack of human resources, higher than average fuel prices and, of course, the ongoing war in Ukraine.

Air cargo operators are starting to pull out

Although the high season for air cargo is still ahead, some cargo airlines have already started to slow down. As FreightWaves reported, global retail giant Amazon has slowed its expansion to some degree, with fleet growth slowing and the number of daily flights declining. Through March, its total flight activity had risen an average of 14.3% month-over-month. From March to August, it averaged just 3.8% monthly growth.

Amazon has retreated on its growth trajectory since March of this year. Picture: Amazon Air

Amazon as a business lost $3.8 billion in the first quarter of the year. This has caused it to close or halt construction of a record number of warehouses – 44 in total, and 2.5 times more than previously slated for closure, according to American Shipper. It is said to be rationalizing its air network due to the reduced number of warehouses to supply.

FedEx Express, the world’s largest air cargo carrier, was also affected. Its September business update showed its first-quarter earnings were well below expectations, with a shortfall of some $500 million disclosed. The shipper admitted to reducing flight frequencies and grounding some planes in order to save money, although he was reluctant to state precisely how many planes would be parked.

FedEx will park some planes, though it didn’t say how many or for how long. Photo: Fedex

DHL’s report in mid-August noted that demand had slowed, but said volumes remained stable after a significant drop in July. He further noted that improvements in ocean freight operations had contributed to a drop in demand for air freight, but remained positive about the longer-term outlook for the industry.

As reported by the Loadstar, Kalitta Air has repositioned its operations to a new base in Ecuador, a move seen as spurred by overcapacity in the Chilean market. It becomes the second airline to announce direct flights from Quito to Miami after Solent Freight Services earlier this year, both targeting the transport of perishable goods to the United States.

UPS is bucking the trend and continuing to expand its fleet. Photo: Boeing

UPS, on the other hand, shows no doubts in the air cargo industry. It tapped Boeing for eight more Boeing 767 freighters in August, bringing its fleet to a total of 108 aircraft.

Still positive signs

Regardless of the relative slowdown in air cargo, many operators are looking to get in on the action. Global shipping giant Maersk is launching its own air cargo operation, flying leased Boeing 767s to complement its huge ocean cargo operation. Vietnam is planning to start its first cargo airline, IPP Air Cargo, and India’s new cargo operator Quikjet is planning first flights before the end of the year. These are just a few examples of where air cargo is still on a growth trajectory.

QuikJet Airlines could start cargo operations in just a few months. Photo: QuikJet Airlines

If the long-term prospects remain to be seen, it is necessary to put things into perspective. Yes, rates are slackening and demand is starting to decline, but compared to pre-pandemic times, air cargo is still in a very healthy position.

Nevertheless, the fourth quarter of 2022 comes with strong headwinds and a fair amount of volatility that freight carriers will have to contend with. Issues such as reduced purchasing power due to inflation, not to mention the still high price of jet fuel, will continue to dampen the air cargo market and reduce the chances of airline profitability.

Hopefully the FedEx situation is just a blip and not a signal that the market is facing major issues.

Sources: Xeneta, US Shipper, FreightWaves, Cargonow, The Loadstar

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