The pandemic has caused considerable damage to various industries worldwide with the global supply chain seriously disrupted due to airfreight capacity shortage arising from international lockdowns and passenger flights suspensions. The airline industry has been struggling with a full reopening and getting passenger aircraft back in the air, given the current challenges, while the freight forwarding services industry is questioned by shippers for not being able to source space and confirm transit time and rates.
Air cargo has been playing a vital role in contributing to the operating financial targets of flights in the air, and the need to start preparing for the post COVID-19 period is imperative. Air cargo counts over 30-40% of total revenue for some airlines, and hopefully we will see airlines paying more attention on air cargo as a product the years to come.
International air cargo capacity will remain low at least for the next 1-2 years, as the pandemic has forced airlines to plan their passenger network expansion strategy very conservative compared with 2019, by eliminating possible financial risks, and despite an increase of ‘Freighters’ (once economies open those aircraft will return to the passenger market) or Passenger-to-Freighter converted capacity, the belly and overall capacity the next 2 years will remain lower than 2019, resulting to unstable and high rates, and to ad-hoc only capacity and pricing procurement models, while many carriers will cancel traditional BSA and CPA contracts.
More concerns are the increase of eCommerce which is estimated 30% of air cargo presently, and the new ban of passenger-to-cargo flights services in China by 2020 which may further tighten air capacity, and push up air freight rates. Rumors say that new regulations which will take effect from January 2022, also prohibit cabin seats to be removed to increase cargo space. Airlines that have removed or are readjusting cabin layouts to fit more cargo are required to restore aircraft to their original configuration. Market watchers said the move is mainly due to transport safety, in a bid to “ensure the safety of cargo flights,” but it will hurt the air cargo transport capacity, and further push up the cargo prices, given the limited market for anti-epidemic-related items combined with rising fuel costs.
Small and mid-size (SME) forwarders and consolidators represent over 45% of the global airfreight volumes, and during the recent months have increased their share, as they are the winners versus the global logistics providers. The traditional airfreight forwarder has been transformed to an efficient space broker, capable to find uplift solutions via different airports and procure space in combination with several carriers. Global forwarders are not efficient enough to operate out of their SOPs while airlines are canceling BSAs and not offering steady schedules. They are not flexible enough to make fast operational and last-minute financial decisions, and offer similar uplift solutions to their clients as the SMEs can.
The air cargo market is and will remain very fragmented due to the presence of shippers, forwarders, consolidators, brokers, GSAs and airlines, which makes it very difficult for the supply chain to adopt during crisis or big market changes. We will witness an increased focus on freight consolidation to reduce the cost of air freight, resulting in market concentration for forwarders and consolidators, followed by faster marker technology adoption aiming to reduce operating costs.
Christos Spyrou
CEO & Founder Neutral Air Partner
www.neutralairpartner.com
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