News / Air cargo: e-commerce still masking the lack of industrial traffic

© Sergei Ianchuk

E-commerce may have pulled air cargo out of a hole in the second half of 2023, but its main driver – industrial activity – remains weak.

Air cargo traffic, capacity and revenues continued to recover in late 2023. According to IATA, world air cargo traffic expanded 8.3% year on year, as measured in cargo tonne-km (CTK), in November, the best month for industry traffic growth since December 2021.

After 17 months of consecutive decline, traffic began slowly growing again in August and has grown every month since, in no small part due to the easy comparison with very weak numbers in Q3 and Q4 22. And early reports for December 2023 traffic also point to continuing market improvement.

However, while recent traffic, capacity and yield numbers are heartening for air cargo capacity providers, the case for guarded or “cautious optimism” for 2024 remains.

IATA data and anecdotal reports from airlines show market strength concentrated in the Asia-Pacific and Middle East, both in terms of region of airline domicile and region-to-region international flows.

North America and, to a lesser extent European markets, are not seeing as much strength, which helps explain the glum market reports centric to those regions. According to IATA data, Europe to/from Far East and Middle East-centric markets are leading the traffic recovery.

In general, all major international air tradelanes are improving, but the intra-Far East, transatlantic and transpacific markets are recovering more slowly.

The driving force for the current air cargo recovery appears to be mostly cross-border e-commerce shipments exported via air from China. The air cargo traffic recovery began mid-year 2023, driven by air exports of e-commerce shipments to, primarily, Europe, followed by North America.

As reported in the Wall Street Journal late last year, China-based e-commerce providers Shein and Temu each ship over 1m packages a day to the US, as compared with about 20m a day via Amazon. To minimise sorting and handling in the US, most Shein and Temu shipments are pre-sorted by zip code at Chinese warehouses, before being sent via air freight to the US and handed off to final-mile companies. Average transit times are relatively quick: an estimated 76% of Shein shipments arrive within 10 days. versus five-to-eight days for most Temu shipments.

The strength of the air cargo traffic recovery has been based on the capacity recovery on long-haul tradelanes in the post-Covid era. Globally, air cargo capacity, as measured in available cargo tonne-km (ACTK), now exceeds pre-Covid era numbers by roughly 2%, but that number belies the fact that passenger aircraft belly capacity has not been fully restored in either the transpacific or Asia Pacific to/from Europe markets.

The closure of Russian and Ukrainian air space, due to the Russian invasion of Ukraine, as well as the slow restoration of PRC-domiciled airline belly capacity, have contributed to a higher-than-normal reliance on freighter capacity in those two major east-west markets.

In turn, this situation has helped to keep air cargo yields much higher than their pre-Covid levels. While the major international major region-to-region markets have seen year-to-date capacity restoration of roughly 7% or greater, the capacity growth on the transpacific has slowed dramatically in recent months. A continued slow recovery in capacity on transpacific lanes may slow the recovery in traffic volumes.

Given the turmoil in air cargo over the past four-plus years, overall world air cargo rates remain nearly 40% higher than their late 2019 levels. Headhaul rates on eastbound transpacific routes and westbound Asia-to-Europe routes began rising mid-2023 after 18 months of declines, relative to the extraordinary levels in late 2021 due to global supply chain disruption during the Covid-19 pandemic.

A good illustration of these trends is found in westbound East Asia-to-Europe air cargo yields: given the surge in e-commerce outbound from Asia (mostly China) to Europe, air cargo rates for seven major markets were 55% higher than pre-Covid levels, according a recent report from Drewry.

While the latter-2023 pick-up in air cargo traffic due to e-commerce is cause for optimism, the historic driver of air cargo growth, industrial activity, remains in the pro-longed doldrums. For any observer of freight transport, this missing air cargo growth driver should be a cause for concern.

Manufacturing purchasing manager index (PMI) data for December 2023 generally has shown a decline in manufacturing activity around the world, but, encouragingly, Mexico and India have been performing well. These two countries may offer opportunities for growth in early 2024 beyond the boom that is the outbound PRC e-commerce market.

Tom Crabtree is the managing director of Trade and Transport Group.