Eye on the Horizon: A Look at the Future of the Air Cargo Industry
Following five years of flat volume growth in the air cargo industry (due mainly to the global financial crisis), the International Air Transport Association (IATA) predicts that air cargo revenues will pass the £12.76 billion mark in 2019. This is a £4.79 billion increase on forecasts for 2018. In an interview earlier this year with aviationbusinessme.com, Glyn Hughes, global head of IATA Cargo, said he expected cargo tonnes carried to increase from 63.7 million in 2018 to 65.9 million in 2019. Although the 3.7% increase is good news for the cargo industry, the figure was down from the 4.1% increase recorded between 2017 and 2018. Hughes said this was probably due to subdued global trade – the result of increasing use of tariff barriers by some nations.
Recent increases in air cargo revenue and tonnage is due mainly to a boost from e-commerce, the growth of cargo services in emerging markets, and technological developments in both new aircraft technologies and the digitization of the industry. But with change comes challenges – increased price pressure, global trade tensions and increasing industry regulation, disruption through digitization and demand to speed-up the movement of goods across the globe. The future success of the air cargo industry is going to depend on stakeholders’ ability, throughout the supply chain, to adapt to these changes with speed and agility, and to form strategic partnerships. The challenges ahead are otherwise too complex for any company to win on its own.
The future of the air cargo industry at a glance:
- Air cargo will account for more than 13% of airline revenues in 2019, according to IATA predictions.
- Global trade protectionism is expected to influence the growth percentage of cargo tonnes carried by air in 2019 (3.7%) – the lowest recorded by IATA since 2016.
- Air-freight volumes will increase by 3% a year on average until 2030, according to McKinsey & Company analysis.
- Market intelligence company, Xeneta, warns that as air carriers’ freighter aircraft and belly-hold capacity expand, competitive pricing pressure (at a possible rate of 3%) could negate the profits made by the overall net gain.
- Digitization is expected to significantly disrupt the air cargo industry as cost constraints and the challenge of implementation restrict companies’ ability to adapt.
- E-commerce has increased in the last 15 years by 20% year-on-year and is forecast to continue at a growth rate of between 10 and 15% over the next 10 years, according to McKinsey & Company. Cross border e-commerce, expanding quicker than overall online sales (at a rate of about 25% a year), is expected to present a sizeable opportunity for aircraft cargo charter.
- According to Boeing’s World Cargo Forecast 2018-2037, Asia markets (including domestic China, intra-East Asia, East Asia-North America and Europe-East Asia) are expected to grow faster in the next decade than the world average annual air cargo growth. The Civil Aviation Administration of China (CAAC) reports that China transported 7.06 million tonnes of airmail cargo in 2017 – representing a 5.6% year-on-year increase.
- Collaboration between air-freight shippers, freight forwarders, airlines and cargo charter brokers will be needed to better forecast volumes and peak demand in order to deliver cargo when needed and avoid surplus.
- While there is plenty of investment in developing passenger terminals, development of cargo facilities tends to focus on automation instead of new sites, which are critical to the future of the air cargo industry.
- The global world freighter fleet will grow by more than 75%, according to Boeing’s World Air Cargo Forecast. They predict that 3,260 freighters will be in service by 2037 – an increase of 1,390 from 2017.
- Major aircraft manufacturers as well as dozens of startups are in the process of developing future aircraft technology that will allow self-flying planes to safely and efficiently deliver cargo services to customers around the world.
- IATA expects “smart, balanced and data-driven” regulation to increase in the air cargo industry. As there is forecast to be more goods transported by air freight and drone delivery in the future, safety has been placed at the centre of all new regulations. According to the 2018 IATA Cargo Strategy, regulation will continue to be developed and maintained to ensure the safety of aircraft, passengers and crew.
- According to Supply Chain Beyond, just 60% of air cargo forwarders offer their clients online registration, while few provide online quotes or are able to manage shipments online. They predict that as traditional freight forwarders struggle to change their thinking and implement new business models, they may lose out to newer, digital-savvy startups.
Air cargo industry capitalizes on e-commerce
Boeing’s World Air Cargo Forecast 2018-2037 puts global retail e-commerce sales at £1.83 trillion in 2017 and forecasts that this figure will almost double to about £3.9 trillion by 2021.
Cargo Facts Consulting estimates that Amazon alone spent close to $14.3 billion on shipping goods throughout North America in 2018 (about 65% of Amazon’s total market). Although there is no figure for Amazon’s domestic air transportation spend, the amount spent by the company on aircraft to support its network is an indication of how important air cargo capacity is to the business.
Since 2015, the e-commerce giant has grown its fleet of five 767s, to 40 767-200s, 767-300ERs and 767-300 freighters. Late last year, Amazon signed a deal for an additional 767-300ER and early this year, took delivery of its first order of 20 737-800BCFs cargo planes. The total value of Amazon’s cargo charters in 2018 is estimated at around $498 million, compared to £160 million in 2016 (just under 2% of the total value of the U.S. air freight and express market).
Speaking to Air Cargo News, McKinsey & Company partner, Ludwig Hausmann, predicted that the cross border click-to-door e-commerce market totalling five billion shipments a year (about 10% of air cargo volumes), will grow to 20% by 2022. Air cargo’s growing popularity with e-commerce companies comes down to the need for a speedy delivery time of just 72 hours.
But industry experts caution that while companies offering air cargo services ride the thermals of a buoyant e-commerce market, they should be thinking ahead to a time when the e-commerce market matures and 20% annual growth rates come to an end. If the broader air cargo sector is able to build integrated supply chains (similar to those used by express companies), there is a significant opportunity to keep reaping the rewards of a mature e-commerce market.
erging markets lead air cargo growth
Rapid economic growth in Asian markets will continue to lead annual air cargo growth, with China rapidly increasing its fleets of cargo planes and air freight volumes, while also growing its air route networks. According to a China Daily report, in July last year alone, 595,000 metric tonnes of air cargo were transported by China carriers. This represents an 8.7% year-on-year increase – far above the global air cargo transport average of 2.1%.
Boeing predicts that in order for China to keep up with the next two decades of growth in the cargo industry, they will need an additional 200 cargo planes and 470 converted freighters.
In 2018, SF Airlines, part of China's largest package courier SF Express, launched a direct cargo route from Shenzhen to Chennai in southern India as well as a new direct all-cargo air route between Shenzhen in Guangdong province and Singapore. China's YTO Airlines has also been busy – opening its Zhengzhou-Tokyo international air route and a direct air cargo route from Changsha in Central China's Hunan province, and Manila, the capital of the Philippines.
In recent air cargo news, SF Airlines has filed an application with the US Department of Transportation to open a scheduled cargo service three times per week between Hangzhou and New York, starting in September 2019.
With China’s rapidly growing economy (including their e-commerce sector), expanding middle classes and a number of new general and cargo airports in the offing, the future of the air cargo industry in China is expected to continue on a growth trajectory.
Air cargo traffic between the emerging markets of Asia, Africa, the Middle East and Indian subcontinent is forecast to increase by 6% in the next 10 years, and at about 5% in the next 20. South Africa’s OR Tambo International Airport is about to undergo an upgrade that will include a state-of-the-art cargo terminal able to process two million tonnes of cargo a year.
The health of global air cargo charter and the global economy is largely dependent on connectivity so it is hoped that despite global trade tensions, governments will maintain an open global economy which profits all customers, in both developing and developed nations.
Cargo aircraft of the future
Despite an increase in passenger belly capacity (27% between 2010 and 2015), according to Boeing, freighters will continue to transport more than 50% of the world’s air cargo for at least another two decades. This is due to their ability to reliably offer highly controlled transport, and their unsurpassed capacity in terms of volume, dimensions and hazardous materials. In a five-year period from 2010 to 2015, large freighters in operation increased by 8%.
Around 40% of wide body freighters are operated by express carriers to connect their door-to-door transportation network. In 2015, wide body freighters generated 40% of air cargo industry revenue. Restrictions on the range capacity of fully loaded passenger flights as well as the number of routes serving high-demand cargo markets, will continue to make freighters the cargo plane of choice for the foreseeable future.
Along with the demand for unmanned military aircraft, it is the challenge of moving goods around the world in the fastest time possible, and increasingly to remote areas with limited airport facilities, that has driven the rapid progress of drone technology. This in turn is creating new possibilities for the cargo industry.
Boeing HorizonX, for instance, is using new aircraft technology to develop autonomous air travel – having completed aerodynamic flight tests of self-flying planes (or unmanned cargo aerial vehicles) in early 2018. The intention is to create future cargo aircraft that will be able to meet on-demand air deliveries of up to 500 pounds. The air vehicle’s dual rotor system has completed a rigorous test programme inside the Boeing Vertical/Short Takeoff and Landing (V/STOL) Wind Tunnel in Ridley Park, Pennsylvania.
According to sUAS News, the Chinese Academy of Sciences modified and successfully flew an unpiloted PAC P-750 XSTOL turboprop plane in 2017. Now some of the most exciting future aircraft are being developed by China’s Beihang UAS Technology (part of Beihang University, previously known as Beijing University). The BKZ-005 unmanned aerial vehicle will be tested in September this year with a view to deployment later in 2019. The self-flying planes will carry up to 1.2 tonnes of cargo over 745 miles at an altitude of over 16,000 feet.
Beihang recently established a partnership with Garuda Indonesia which will see the national airline carrier using three BKZ-005s to transport cargo in Indonesia. Plans are to eventually take delivery of 100 cargo UAVs to connect Indonesia’s more remote regions that have limited airport infrastructure.
Meanwhile, Amazon is creating future aircraft technology to develop safe and efficient drone delivery. The delivery system is called Prime Air and when fully developed will be able to get packages to customers in 30 minutes or less using drones (or unmanned aerial vehicles).
Cargo services logistics challenges
Air cargo will face a number of logistics challenges in the near future. At the beginning of 2019, the electronic air waybill (e-AWB) became the default contract of carriage for all air cargo shipments. The need to digitize the air supply chain is at the heart of this switch-over from manual and paper-based processes. But while the e-AWB will no doubt result in fewer delays and costly errors, in order to work efficiently, stakeholders need to have access to accurate information in real-time, and must be able to communicate electronically with other stakeholders in the supply chain. The cost and implementation of supporting technologies will continue to challenge the suppliers of cargo services for some time to come.
Another challenge facing the industry is that an increasing number of nations require air cargo carriers to submit data of incoming shipments to customs and border control in advance. Despite initiatives like Air Cargo Advance Screening (ACAS) and Pre-Loading Advance Commercial Information (PLACI), staying current with the specific information required by international customs agencies continues to be a headache for the industry, especially in smaller countries outside the United States and European Union.
A number of changes around security filings and mail shipments will also come into effect in 2019 with the SAFE Framework of Standards and ICS-2, which no longer grants exempt status to mail shipments. Postal groups and air express carriers must now report mail shipment information to customs agents. It’s expected that by 2023, carriers will be required to report postal shipments. The challenge facing the cargo services supply chain is how to develop a system that will allow information to be sent from their mail system to a platform that can be accessed in order to complete security filings.
While e-commerce has been a boon for the industry, the speedy and efficient delivery of domestic and international shipments of e-commerce packages is still a hurdle. Perhaps the factor that will have the most effect on the air cargo industry’s success or failure is the ability to bring together the entire air logistics chain to speed-up the movement of goods, accelerate customs clearances, and provide customers with simple and easy traceability from order to delivery. As air cargo continues to transform quicker than ever before, the industry will have to look to technology to automate processes, raise levels of data quality, facilitate information-sharing and streamline compliance requirements.
The ultimate aim of air cargo digitization is to achieve a paperless process and smart data sharing in order to transport goods by air in the fastest, simplest and safest way possible. A digital approach to air cargo services is intelligent, cost-effective and environmentally friendly. It’s also more attractive to clients because there is far less room for human error than is the case with manual processes.
While the industry battles to adopt digitization, according to a McKinsey & Company report, a glut of start-ups are seeing an opportunity to disrupt air cargo business. The report warns that modern shippers demand a better service at a more competitive price with easy access to all shipment information. It is the use of new technologies that will become the differentiator for cargo services coping with very tight margins and competing in an increasingly competitive market.
McKinsey & Company estimates that automated processes can reduce the time needed for booking by 90% – from 60 minutes to less than a minute, with real-time confirmation. They predict that digitized sales and customer service will become the industry benchmark and set customer expectations.
It seems that traditional carriers who have been in the business for many years and have the capital to spend on resources, development and training, now have a unique opportunity to adopt the latest digital innovations and place themselves in a particularly strong position for the future.
Fast and reliable future for air cargo
Right now about 35% of world trade value is transported by air. The next 15 years will no doubt bring critical change and development to the industry as world GDP grows alongside human populations demanding delivery of more high value goods than ever before. With speed and reliability as air cargo’s main strengths, the industry will continue to be the preferred solution for transporting time-sensitive, higher value goods. How well they manage to do this will depend on the industry’s ability to master the many challenges it faces in the next decade and beyond.
Air Charter Service is a global air cargo charter brokerage. Our size, global infrastructure and experience in cargo chartering is what sets us apart from our competitors. Speak to our team to find out more about our full range of cargo aircraft, from small jets for urgent packages, to large freighters for outsize cargo.