Air cargo set for another challenging year

Air cargo is set for another challenging year with geo-political tensions continuing to weigh heavily on global supply chains.

However, on the plus side, the surge in cross-border e-commerce remains a major growth driver, according to Glyn Hughes, Director General of the International Air Cargo Association (TIACA).

Speaking at the Association’s Media Day earlier this week on the outlook for air cargo, he said the Russia-Ukraine conflict had now gone on for two years, adding cost, time, and complexity (to supply chains), particularly on EU-Asia air cargo routes.

Turning to China, economic recovery had been slow, but GDP nevertheless increased in excess of 5% last year “which indicates that there is still growth and strength in this market.”

India, with its diversified production base is fast-becoming a powerhouse of international trade with a forecast for GDP last year of more than 7%, which is expected to continue in the next few years, Hughes noted.

While air cargo experienced a fair degree of volatility and uncertainty, one constant was the effervescence of the e-commerce segment.

“When we talk with our members and participate in events across the globe, e-commerce growth is something that unites all markets and is now estimated to account for about 15 to 20% of current air cargo volumes.”

With online marketplaces such as Tik-Tok Shop and Temu, expanding quickly and posting spectacular sales growth, the outlook for e-commerce looks set to remain extremely positive which bodes very well for air cargo, he underlined.

“It's worth noting that of the 100 or so million of the world’s inhabitants set to join the ‘consumer class’ this year, about a third are from India. Most of these potential consumers are very technically-connected young people which is likely to contribute to the growth in e-commerce activity.”

2023 saw “a huge recovery” in belly capacity which actually ended the year at or just above the levels seen pre-COVID. Coupled with the influx of freighters during the pandemic, it has created a situation now where there is excess capacity in certain markets which has maintained the pressure on yields seen for most of last year.

However, there was some uptick (in yields) at the very end of last year when some shippers looked to move cargo from maritime to air due to the longer sailings around Africa as a result of the threat of attacks on ships in the Red Sea, to ensure delivery before Christmas, Hughes added.

The disruption to ocean shipping schedules has triggered considerable increases in costs per TEU and resulted in a narrowing of the differential between ocean and air freight rates. Moreover, as a consequence of it (the disruption) being prolonged, there is now a lack of available containers as they are taking three or four weeks, if not longer, to get back to points of origin.

“All of this is having a ‘multiplier effect’ in making air cargo a more attractive option which was demonstrated in the run-up to the Chinese New Year, and we expect this to continue, certainly for the next few months.”

Commenting on the restrictions to the daily transit of ships through the Panama Canal because of drought conditions locally, Hughes said this has led to an increase in West Coast US port activity and inland transport. But the impact on air cargo has not been that significant with perhaps a minor shift to air to Latin America.

As for the macro-economic outlook, TIACA anticipates that the second half of this year could see the start of moves on the part of central banks to lower interest rates which will give a boost to consumer demand.

“But inventory levels remain high, and it will probably be also in H2 [second half] before we start to see restocking on any scale,” Hughes observed.

As for the performance of specific verticals in 2024, TIACA’s members are anticipating e-commerce “to continue to grow in double digits.”

A similar growth rate is expected from ex-China ultra-fast fashion with an acceleration in the volume tonnage being shipped.

High-tech, which has been subdued the last few years – for example, smartphone sales have fallen quite significantly – is expected to rebound somewhat towards the second half of the year. Pharma and perishables are also set to maintain their solid numbers. The recent Valentine's Day saw some very large volumes of fresh flowers moving by air.

“Overall, we do anticipate volume growth this year, perhaps in the low-to-middle single-digits and for the drop in yields to stabilize.”

The Media Day also saw Hughes provide updates on TIACA’s priorities, upmost among them digitalization and sustainability “probably the two most popular buzzwords at industry events” but also safety and security as well as recruitment initiatives.

On safety and security, Hughes insisted it will always be a top priority at TIACA “and more so than ever with the proliferation of smaller shippers in the e-commerce space.

“We honestly need to do more as an Association and as an industry in making sure that the entire global air cargo community is fully conversant and compliant with the various regulations in place.”

As for attracting people to the sector, he said: “Our aim is that the next generation workforce will look at us as an inclusive and diverse environment in which they would like to build a career.”

He highlighted the growth in TIACA’ membership – now 450 strong with close to 200 freight forwarders among its ranks, 55 airports and 50 airlines. Members also include 28 GGSA, 18 ground handling companies, 19 shippers, seven manufacturers and 19 IT providers. “TIACA is the only global association that represents the entire supply chain.”

As for the geographical origin of its members, Europe is the leading region (37%), followed by North America (23%) and Asia 16%.