Growth in air cargo volume hits 4-year high – Naegeli Transportation, Inc.

Air cargo volumes increased 9.9% in June, capping the strongest annual first half for carriers since 2017 and giving the industry momentum heading into the traditional holiday shipping season, the International Air Transport Association reported Wednesday.

The news was less sanguine for companies that ship goods and are looking for more space in a crowded market. A large portion of the lift they need comes from passenger aircraft, with cargo riding in the lower deck. Passenger capacity sequentially improved 2.3 points in June, but was still down 60.1% from 2019 levels. And the critical international travel sector, in which widebody aircraft predominate, is still down 80.9%. From the cargo perspective, belly capacity was down 38.9% from June 2019 levels, the airline association said.

Overall air cargo capacity improved slightly to negative 10.8% based on a revised figure for contraction in May to 11.2% from the previous call of 9.7%. The large loss of passenger space was partially offset by a 29.7% increase in dedicated freighter capacity. The lack of international capacity is a major factor holding back business in the Asia-Pacific region.

June marked the 14th-consecutive month of improvement in air cargo demand since the pandemic bottom and was a slight improvement from May’s 8.5% growth, which IATA revised downward by 90 basis points. Two-thirds of the global growth was pushed by North America, where demand rose 24% versus the 2019 benchmark.

Demand, measured in cargo ton-kilometers, increased 8% for the first six months of the year, the best performance in four years, when volumes grew 10.2%. The international load factor registered 64.2%, the highest level for June since IATA started tracking how much aircraft space is filled in 1990.

Air cargo has proven to be a lifeline for many passenger carriers, as underscored by Air Canada’s record cargo revenue of $274 million in what was otherwise a dismal second quarter financially.

Conditions are ripe for the air cargo sector to maintain its growth trajectory through the end of the year. The U.S. inventory-to-sales ratio is at an all-time low, which incentivizes shippers facing stockouts to use more air transport to quickly replenish shelves. The Purchasing Managers Indices — leading indicators of air cargo demand — show business confidence, and manufacturing output and new export orders are growing at a rapid pace in most economies. At the same time, consumer spending on goods remains strong despite more opportunities to purchase services as countries reopen.

Revenue passenger-kilometers and cargo ton-kilometers. (Source: IATA)

Meanwhile, the unreliability of ocean shipping, in which port-to-port transit times have more than doubled and vessels are on schedule 35% of the time, is pushing more freight to air. And shipping by air continues to become more cost competitive. The true cost of ocean shipping from Asia to the U.S., after fees and surcharges are factored in, is $13,000 to $21,000 per full-size container — about 500% more than a year ago, depending on the port pairs.

IATA three weeks ago noted that the cost difference has been halved to the point that air transport is only six times more expensive than ocean.

Earlier this month, CLIVE Data Services reported cargo volume increased 1% in June, with a 22% shortfall in capacity.

IATA and CLIVE Data have different methodologies. CLIVE reports on cargo tons sold, whereas IATA reports on cargo tons flown. The former approach counts each ton once; the latter does so each time the shipment is transshipped through an intermediate airport and reloaded on another airplane.

IATA also calculates volume with a distance component — cargo ton-kilometers — so if the share of the long-distance route increases, the IATA numbers increase even if the same tonnage is moved. CLIVE Data gets its capacity data directly from airlines. The difference in capacity calculations comes from CLIVE counting the number of metric tons available to cargo per flight and IATA using available cargo ton-kilometers, a metric that combines weight and distance components.

Air cargo rates are strengthening again and are up globally more than 90% from the midway point in 2019. The gradual reintroduction of passenger flights could start to bring rates back down, but with little sign of demand diminishing, and uncertainty over COVID vaccination rates and the impact of the delta variant, the supply of passenger transport could fluctuate into 2022, keeping rates elevated.

Restrictions to contain COVID outbreaks in China last month caused domestic traffic to decline nearly 11%. Nanjing Lukou International Airport on Wednesday suspended all international flights and is temporarily closed because of the growing number of COVID infections, many of them from the delta variant, in the area.

But IATA officials repeated their frustration with governments for not taking a more risk-based approach toward reopening cross-border travel and pushed back against calls for making vaccination a requirement for international travel.

More than 110 countries still have bans on travel from high-risk regions or require inbound travelers to quarantine.

(Source: IATA)

“We are seeing movement in the right direction, particularly in some key domestic markets. But the situation for international travel is nowhere near where we need to be. June should be the start of peak season, but airlines were carrying just 20% of 2019 levels,” IATA Director General Willie Walsh said in a statement. “That’s not a recovery, it’s a continuing crisis caused by government inaction.”

On the positive side for airlines, Canada and Singapore recently announced timelines for reopening their borders. Canada said it will begin accepting fully vaccinated people from the U.S. in August and then in early September for people from other destinations. Also, the United Kingdom recently announced that vaccinated people from Europe and the U.S. can travel to the U.K. without restriction. With European Union countries also opening borders to U.S. travelers, bookings to Europe have increased substantially over the past two months, although IATA data shows a dip in the past week.

Walsh said Australia, which is shutting down the country again, is an example of a country that is too risk averse, noting that the average number of COVID cases per million is less than in the U.K. Chile also continues to have very restrictive measures despite having one of the highest vaccination rates in the world.

Meanwhile, the government of New Zealand announced it will suspend the quarantine-free travel corridor to Australia in response to the escalating number of cases there, effective Friday.

“With each passing day the hope of seeing a significant revival in international traffic during the Northern Hemisphere summer grows fainter. Many governments are not following the data or the science to restore the basic freedom of movement. Despite growing numbers of vaccinated people and improved testing capacity, we are very close to losing another peak summer season on the important trans-Atlantic market. And the U.K.’s flip-flop to reinstate quarantine for vaccinated arrivals from France is the kind of policy development that destroys consumer confidence when it is most needed,” said Walsh.

Click here for more FreightWaves/American Shipper stories by Eric Kulisch.