Skip to content
Search AI Powered

Latest Stories

AIR FREIGHT

Handle with care

Airfreight shippers and carriers alike will need to thoughtfully consider how to navigate the near future given the drastic drop in passenger flights.

SOL 2020 issue

This story first appeared in the Special Issue 2020 edition of CSCMP’s Supply Chain Quarterly, a journal of thought leadership for the supply chain management profession and a sister publication to AGiLE Business Media’s DC Velocity.

If you had to pick only one word to describe the airfreight industry in 2020, “fragile” would be a good choice.


Air freight’s interdependency on passenger flights to move freight means that it has faced opposing demand shocks this year. Passenger demand plummeted as nations closed their borders and airlines grounded hundreds of aircraft. At the same time, demand for time-critical personal protective equipment (PPE) for first responders surged.

Overall demand for air cargo declined by 20% in June, but capacity dropped by 34%.1 The result was drastic price increases for cargos that absolutely had to move, such as medical supplies to combat the pandemic. The monthly TAC Airfreight Rate Index (Figure 1) reported a 45% increase in May over the previous 5-year high, which occurred prior to 2019 tariff implementations. Anecdotally, a few of my clients reported rates in excess of $10/kg on individual shipments from China to the United States. I’d be surprised if this weren’t reflective of a broader trend.

[Figure 1] TAC Index monthly airfreight rates


[Figure 1] TAC Index monthly airfreight rates
Enlarge this image

Full speed ahead

The COVID-19 turmoil has also served to accelerate a number of trends that were already developing in the airline industry, such as the retirement of older aircraft—especially in the wide-body space, including the 767, 747, and A380. It’s doubtful that many of these planes will see service as cargo freighters. There are no conversion kits left for the 747, and the A380 are likely too expensive to be deployed profitably. However, retired 767s are seeing new life in DHL’s fleet; the company ordered three more passenger-to-freighter conversions in June.

Replacing these aircraft are more modern widebodies, like the 787 and A350 XWB. While the order book remains several years deep, airlines have cancelled over 800 orders for 2020 through June, or roughly 15% of Boeing’s total logbook. Almost 90% of the aircraft deliveries this year, however, have been widebody models. Depending on the configuration, the passenger and cargo capacities of the new planes are similar to the aircraft they are replacing. The impact on capacity in the market, however, will depend on the level of acceleration of retirements relative to new deliveries.

Meanwhile the pandemic disruption has impacted key airfreight routes throughout the globe. Shippers have reported circuitous routing for their shipments through new gateways. This has introduced longer transit times, both due to longer routes themselves and due to delays related to clearance of cargo passing through new customs jurisdictions. The shutdown of passenger flights has temporarily made Anchorage, Alaska, the world’s busiest cargo airport, rising from sixth to first place on the Air Cargo News’ “Top 20 Cargo Airports” list.

Another change worth noting is a general awakening to the value of resiliency in the design of a global supply chain. This will impact the use of air freight in several ways in the near term. First, the strategic importance of air freight as a safety valve has been proven during the first half of 2020. Few shippers with a global footprint will risk going without a robust air contingency capability in place. Second, Kearney’s 2020 U.S. Reshoring Index report, “Trade War Spurs Sharp Reversal in 2019 Reshoring Index, Foreshadowing COVID-19 Test of Supply Chain Resilience,” found a renewed focus on reshoring away from China to other low-cost countries (LCC), principally Vietnam. Because Vietnam has much slower ocean transit times than China (Maersk publishes a 22-day transit time to Los Angeles, California, versus 11-day service from Shanghai), the air option will be increasingly important contingency for Vietnam-manufactured goods.2

One trend that remains on pace is the adoption of digital freight platforms for bookings. After a short blip down during the peak of COVID-19 airfreight demand, Freightos’ Webcargo marketplace saw e-booking orders grow by over 700% in June 2020 with up to 15% of global airfreight capacity available on digital marketplaces.3 The principal features that made e-booking attractive before COVID-19, namely the convenience and transparency into rate and capacity, have even stronger appeal in a constrained market. Similar to other types of e-commerce platforms, digital airfreight marketplaces have reached a level of adoption in 2020 that was not expected to be achieved until years from now.

Volatility ahead

Given all the change and disruption happening in the industry, the big question on shippers’ minds is when we will get back to some semblance of normalcy. Many shippers have postponed airfreight negotiations with their forwarders, and many of our clients are asking us when they should follow through with their annual air tenders. 

The short answer is we’re unlikely to see stabilization through the end of the year. COVID-19 continues to spread across much of the U.S., and many Americans will be reluctant to fly anytime soon. Both of these issues will factor into passenger demand and the reintroduction of widebody belly space into the market. The International Air Transport Association’s (IATA’s) own forecast is that passenger volumes will not return to 2019 levels until 2024.

If that’s the case, then we can expect quite a bit more volatility ahead. Shippers—recognizing the need for air freight as an expensive (but necessary) lever to enhance the resiliency of their global network—will need to be nimble to deploy it at a reasonable cost. However, the adoption of tools like digital marketplaces can provide more transparency to enable better decision making. Even the largest users of air freight are facing the same issues, so those shippers that make the best of the current situation will be those leveraging all the tools available.

Notes:

1.1. Air Cargo Market Analysis,” IATA (June 2020): https://www.iata.org/en/iata-repository/publications/economic-reports/air-freight-monthly-analysis-june-202022

2. To obtain this data, Maersk’s scheduling tool was accessed on July 31, 2020 (www.maersk.com).

3. Damian Brett, “Digital air cargo bookings continue to grow despite COVID-19 outbreak,” Air Cargo News (July 20, 2020): https://www.aircargonews.net/airlines/digital-air-cargo-bookings-continue-to-grow-despite-covid-19-outbreak

The Latest

More Stories

penske truck leasing site with rooftop solar panels

Penske activates solar panels at three truck leasing sites

Penske Truck Leasing will activate rooftop solar-powered systems at three U.S. locations by 2025 that handle truck leasing, rental, and maintenance, and plans to add seven more sites as part of an initiative to boost efficiency, minimize energy costs, and reduce emissions.

Penske said today that its facility in Channahon, Illinois, is now fully operational, and is predominantly powered by an onsite photovoltaic (PV) solar system, expected to generate roughly 80% of the building's energy needs at 200 KW capacity. Next, a Grand Rapids, Michigan, location will be also active in the coming months, and Penske's Linden, New Jersey, location is expected to go online in 2025.

Keep ReadingShow less

Featured

retail store tech AI zebra

Retailers plan tech investments to stop theft and loss

Eight in 10 retail associates are concerned about the lack of technology deployed to spot safety threats or criminal activity on the job, according to a report from Zebra Technologies Corp.

That challenge is one of the reasons that fewer shoppers overall are satisfied with their shopping experiences lately, Lincolnshire, Illinois-based Zebra said in its “17th Annual Global Shopper Study.”th Annual Global Shopper Study.” While 85% of shoppers last year were satisfied with both the in-store and online experiences, only 81% in 2024 are satisfied with the in-store experience and just 79% with online shopping.

Keep ReadingShow less
Mobile robots, drones move beyond the hype

Mobile robots, drones move beyond the hype

Supply chains are poised for accelerated adoption of mobile robots and drones as those technologies mature and companies focus on implementing artificial intelligence (AI) and automation across their logistics operations.

That’s according to data from Gartner’s Hype Cycle for Mobile Robots and Drones, released this week. The report shows that several mobile robotics technologies will mature over the next two to five years, and also identifies breakthrough and rising technologies set to have an impact further out.

Keep ReadingShow less
warehouse automation systems

Cimcorp's new CEO sees growth in grocery and tire segments

Logistics automation systems integrator Cimcorp today named company insider Veli-Matti Hakala as its new CEO, saying he will cultivate growth in both the company and its clientele, specifically in the grocery retail and tire plant logistics sectors.

An eight-year veteran of the Georgia company, Hakala will begin his new role on January 1, when the current CEO, Tero Peltomäki, will retire after a long and noteworthy career, continuing as a member of the board of directors, Cimcorp said.

Keep ReadingShow less

Securing the last mile

Although many shoppers will return to physical stores this holiday season, online shopping remains a driving force behind peak-season shipping challenges, especially when it comes to the last mile. Consumers still want fast, free shipping if they can get it—without any delays or disruptions to their holiday deliveries.

One disruptor that gets a lot of headlines this time of year is package theft—committed by so-called “porch pirates.” These are thieves who snatch parcels from front stairs, side porches, and driveways in neighborhoods across the country. The problem adds up to billions of dollars in stolen merchandise each year—not to mention headaches for shippers, parcel delivery companies, and, of course, consumers.

Keep ReadingShow less