Air Freight Cargo

Air Cargo Capacity Increases

Charles Popick Newsletter

Shippers looking to divert from ocean freight exerts upward pricing pressure on air cargo

Demand for shipping is rising as countries begin opening themselves back up to both domestic and international travel, and the world economy is starting to see a strong rebound from the devastating impact COVID-19 wreaked in 2020. Demand for shipping in 2021 is surging but ocean freight capacity is not keeping up with the demand given the shortage and placement of containers. Shippers and carriers are trying to adjust to the current market situation of skyrocketing freight rates coupled with capacity constraints.

The upside is that world air cargo capacity has rebounded from the lows registered during the near total COVID-19 shutdown in Q2 2020. However, the increased demand from shippers looking to divert their cargo from ocean freight is exerting pressure on air cargo capacity driving air freight rates up. Per IATA, “North America and Africa CTKs (industry-wide cargo tonne-kilometres) are up by a robust 11.7% and 21.1% respectively compared with the pre-crisis period”. The capacity typically supplied on long haul passenger airplanes is still not available due to the methodical slow opening of international options for leisure travel. International passenger plane capacity fell by almost 50% in 2020. Yet, as countries continue to vaccinate their citizens, forecasts anticipate nations will start opening their borders to international travellers, thus also increasing flight schedules. In support of the anticipated rebound in tourism, airlines will be deploying larger portions of their aircraft fleet and this will add additional capacity into an eager shipping marketplace.

The capacity levels expected from the reentry of passenger airplanes will be less than the pre-pandemic volume. Almost all airlines have retired or grounded their A380 and 747 jumbo jets and replaced them with smaller, more efficient planes. For example, British Airways and Virgin Atlantic both retired all their 747s in 2020. This is a significant loss of air cargo capacity which will prolong the prevailing tight market constraints as ocean shipping slowly labors to recover.

Some airlines are choosing to rip out the seats in their passenger planes and opting to use them to move freight. This trend has created a large demand for freight conversion of airplanes. Israel Aerospace Industries conversion operations are solidly booked through 2022. However, it will take a while to see the impact of this added air cargo capacity in the system because aircraft conversions consume a long duration of time to complete.

To mitigate the tight availability brought about by the decrease in passenger airline capacity, some freight air cargo companies are bringing back into service jumbo jets that were previously taken out of service, and some are buying used aircraft to grow their fleet. Qatar Air recently acquired three Boeing 777 freighters, while Amazon outright purchased 11 Boeing 767-300 instead of leasing. All these purchases are designed to help increase the buyers’ capacity in air freight.

A few ocean carriers are jumping into air cargo operations to help alleviate losses in their ocean shipping operations. CMA CGM Air Cargo was recently created by CMA CGM, a French container transportation and shipping company, that will operate in Europe using four Airbus cargo freighters.

CPC expects air capacity to increase long before ocean capacity recovers to pre-pandemic levels. Leveraging CPC’s experience in the logistics industry, CPC will guide clients into optimizing service and cost to meet service level expectations using air vs. ocean and determining the right timing to obtain contracted rates versus spot quotes.

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