There have been wild fluctuations in the air freight market over the past twelve months. From being, according to IATA, the “Worst Year for Air Cargo Demand Since Performance Monitoring Began”, to resembling a boom, and some of this at the same time. It is not simply a question of volume of demand but a structural change in the nature of the market.
Forecasting the future of air freight is much more difficult now than in 2019. What is highly probable is that growth and market structure are likely to be quite different than previously assumed. The volume and pattern of demand are changing rapidly but so is the supply-side. A reasonable description might be ‘a wild ride’.
Short-term prospects are extraordinarily uncertain. On the one hand, underlying demand from economic growth is likely to be quite high, with inventory levels, in particular, supporting vigorous growth in the US market especially. Demand in the rest of the world will probably be even more volatile with export demand into the US from Europe being high. However, there is still real uncertainty on the timing of any European recovery. Although many European economies are likely to have a ‘snapback’ in demand sometime in 2021, its timing is very unclear. The vigour of any recovery may also be restrained by economic fundamentals in many Euro states, with Italy, Spain and France facing the prospect of fiscal contraction at some time.
However, many other economies in regions such as North or South East Asia are likely to see much stronger rebounds due to their domestic economies being less severely affected with the major proviso that heavily tourism-dependent nations will take longer to recover.
Unusually, the major problem is not demand but supply. This is very hard to estimate as it is unclear when passenger air services will recover. It may be that airlines will not be in a financial position to recommission their fleets for some considerable time, whilst there is a strong likelihood that any recovery will miss major tourist seasons and thus any incentive to put more aircraft in the air in the short-term will be less. It is very likely that airlines will focus on fewer, more profitable services. Thus, belly freight capacity will remain depressed. The incentive for more freighter services may also lessen as the prospect of a return to normality moves closer.
Therefore, the prospects for the air freight sector are likely to be:
The air freight market is changing, making the likelihood of structural change in this market is very high. Looking at the Boeing forecasts the situation over the longer term may be quite different to the past. Growth of the air fleet over the next 20 years is forecast to be 3.2% annually, whilst growth in air cargo is forecast to be 4%. The logic of these numbers is that available belly freight capacity will fall. This suggests that the low freight rates seen in the ten years before 2020 have come to an end.
There is likely to be consolidation in the airline market, reducing both competition and capacity. Growth in passenger numbers is likely to be lower at least in the nearer term, something amplified by greater barriers to movement through the use of various ‘health’ measures. Demand for airfreight, however, is likely to remain strong, with e-commerce, in particular, underpinning long-term growth. This suggests that networked airfreight or ‘air express’ solutions will take a greater share of the market. Therefore, over the long term:
Source: Transport Intelligence, April 22, 2021
Author: Transport Intelligence
This brief has been taken from a larger paper, ‘Airfreight in 2021: A Wild Ride’ by Ti Senior Analyst Thomas Cullen. This paper is available exclusively to GSCi subscribers. Each week, Ti’s team of senior analysts and industry experts deliver analysis covering the latest logistics and supply chain trends exclusively to users of GSCi.
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