Despite the gloom surrounding the world due to the pandemic and the staggering number of lockdowns, the logistics industry and the supply chain management services including air cargo management have fared well, relatively, in the past few months.
According to the data released by the International Air Transport Association (IATA), the air cargo demand has matched its pre-COVID levels since January 2021. This turnaround can be attributed to several external factors.
With minimal time to catch up with the production level, due to the lockdowns, the manufacturers have opted for air transportation to recover the time lost. The disruptions in the container shipment supply chain have contributed to the higher demand for air cargo as well.
The Market Situation
More good news as IATA’s Business Confidence Survey of airline CFOs and Heads of Cargo, in July 2021 showed that the pressure on airline profitability has eased. A very few carriers reported red losses during this period, thanks to significant cost reductions and a slight increase in passenger demand in the last few months.
The capacity increase is poorer than the demand causing the rates and load factors are to remain high.
Many Asian nations, including Indonesia, Vietnam, Myanmar, Thailand, Cambodia, Malaysia, and Singapore, have reinstated their strict lockdowns due to the spread of the virus’s highly transmissible Delta variant. Also, the COVID restrictions in Europe might also affect the speed of the market’s recovery in 2021
Returning to the pre-pandemic capacity of operation does not seem feasible in the short term.
Global Demand Capacity
The global demand for air cargo in January 2021 was the same as January 2020, even though the Lunar New Year didn’t result in any volume slow down this year, as most factories remained open and the travel restrictions in China.
In terms of volume, the air cargo demand remained relatively stable in May-June, as compared to the same months in 2019. There was a 9.9% rise in cargo tonne-kilometers (CTKs) in June 2021 over June 2021. The global YTD CTK rose by 8% compared to that in 2019 and is the strongest first half since 2017. (Source: IATA data)
Changes in rates
With a record-high increase in the Freight Load Factor globally the rise in the rates is inevitable. With demand for airfreight skyrocketing and a capacity that is not flexible, dependable air transportation can only come at a premium.
Trends for the coming months
In the coming months, the demand for air freight will grow actively, keeping up with the world GDP that is forecasted to increase by 6% in 2021 and further in 2022.
The peak cargo season historically begins around October and the carriers and related businesses might start facing stronger demand around the period.
With a low level of the current inventory to sales ratio and the disruptions in the container shipping supply chain, the air freight demand season might begin sooner than the usual period.
The industry is also anticipating the return of the passenger air travels and the much-awaited belly capacity, and this might improve the slow upward trend in increasing capacity in the coming months.
While the increased capacity will help to meet the demand in supply movement easier, it will also cause a downfall in the elevated rates that are currently welcomed.
Conclusion
A majority of the participants of the July 2021 Airline BCF survey expect that it would take at least two more years (2023) for air travel demand to reach its 2019 levels. With more cost reductions underway, all is not dark and gloomy in the air transportation yet.
Despite the tighter capacity constraints, the indicators like Purchasing Managers Index (PMI) point towards a resilient and dynamic growth in the demand for air cargo transportation.
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