For more than two years, demand for air cargo vastly exceeded supply. But now, at the end of 2022, air freight capacity is approaching pre-pandemic norms. What happens now? By Helen Mann
A nyone who has taken an introductory economics course has likely learned about the forces of supply and demand. If not, the post-2020 air cargo market could provide a lesson. A combination of factors threw air cargo capacity for a loop in 2021. On one hand, U.S. retail sales reached $5.6 trillion in 2020, and then added another $1 trillion in 2021, the Census Bureau found. On top of that, data from healthcare improvement firm Premier Inc. shows that hospitals spent more than $3 billion on personal protective equipment (PPE) in the first two years of the pandemic. Many PPE products had to be transported from overseas. Unfortunately, this coincided with sharp declines in international air travel. While U.S. imports rose 20.7% in 2021, according to the U.S. Bureau of Economic Analysis, data from the International Air Transport Association (IATA) shows that global passenger traffic in 2021 was only 58.4% of 2019 levels. LOWER CAPACITY, HIGHER RATES “When the passenger airlines stopped flying internationally, it sucked a lot of capacity out of the system,” explains Neel Jones Shah, executive vice president and global head of air freight at Flexport, a San Francisco-based freight forwarder and customs brokerage. “Supply was nowhere close to meeting demand, so rates went up by three or four times what they historically were,” Shah adds.
More than a few conditions have changed since then. For one, many airlines added additional freighters to their fleets or converted passenger planes to mitigate passenger travel shortfalls in the wake of the pandemic. “Airlines looked to cargo to limit their losses during COVID,” says Robert Burdette, vice president of strategy at Shapiro, a Baltimore-based customs brokerage. “They had to find ways to get the most use out of each airplane.” MORE CAPACITY HERE TO STAY Additional cargo capacity won’t go away after air travel normalizes, Burdette warns. Domestic airlines transported 674 million passengers in 2021, according to the Bureau of Travel Statistics. That’s 82.5% more travelers than in 2020, but still 27.3% fewer enplanements than in 2019. Enplanements continued to grow in 2022. Domestic U.S. revenue passenger kilometers (a measure of actual passenger traffic) climbed 7% annually in August 2022, peak travel season, IATA reports. Global revenue passenger kilometers rose 67.7% annually that month, to reach 73.7% of 2019 levels. Air travel will recover to 94% of pre- pandemic levels in 2023, then reach 103% of it in 2024, IATA predicts. These numbers indicate that passenger plane belly capacity—which accounts for 54% of air cargo capacity, according to Boeing—will be readily available within two years. When that happens, Burdette explains, airlines could become saturated with excess supply.
November 2022 • Inbound Logistics 43
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