News / Rise in long-term contract requests shows air cargo is normalising

16/10/2023

Air cargo markets continue to move towards normalisation post-Covid and, while the watchword for 2024 is caution, it should be an improving picture as next year unfolds, according to a senior executive at a leading player.

At a recent seminar organised by Scan Global Logistics, Adriaan Den Heijer, EVP Cargo at Air France-KLM Martinair, underlined that after the pandemic – characterised by buoyant demand, the dramatic phasing out of bellycargo capacity, load factors increasing to historic heights accompanied by high yields – the market experienced “a very hard landing at the beginning of this year and one that I would say was harder than we expected”.

In fact, he said: “The ‘landing’ we expected over the next two, three years, happened within a six-month period, with demand going to levels lower than 2019.

“This has had a strong impact on load factors which in the industry are at the same level now as before the Covid crisis, despite the fact that not all capacity is back in place yet, especially to Asia.”

On the yield side, Mr Den Heijer quoted figures from IATA which showed an increase of 45%, when comparing January-July 2023 with the same period in 2019.

“I still think [the increase] is somewhere between 35% and 50% depending on the region. On the other hand, we also have significant extra costs in labour, fuel and other charges. So while unit revenues are at higher levels than before Covid, due to higher yields, unit costs have also gone up. So, profitability on some tradelanes is back to what we were seeing before the crisis, or even lower.”

Turning to the spot market, he estimates that, since the end of last year/Q1 23, rates have come down from being two to three times higher than post-Covid levels, to 35-40% higher.

Mr Den Heijer noted that a very important indicator of market ‘normalisation’ was long-term contracts, and said requests for such agreements from customers had fallen off sharply in Q1 and Q2 this year.

“We have, since, seen more requests for long-term contracts popping up, and the question is whether this is because of the winter period and seasonal effects, or does it point to more stability in the marketplace and a bit better balance between spot rates and long-term contracts?

“I think it’s too early to give any indication about that, but let’s say the instability and the cyclicality of the [air cargo] business is perhaps bottoming-out a little bit.

“We believe the first quarter of 2024 will still be tough, given year-over-year effects, but the rest of next year should show a little bit more stability, and [increasing requests for] long-term contracts are an indicator of this.”