Air Cargo Picks Up, While Demand Remains Weak

Shipments are increasing as the global economy gradually reawakens from a coronavirus-induced slumber and that is translating into slightly better air cargo demand, new data shows.

The International Air Transport Association (IATA) reported air cargo volume fell 20.3% in May from 2019, but that was better than April's year-over-year decline of 25.6%. International demand, measured by the amount of cargo tons times distance carried, dropped 21.5% in May.

The trade group's figures show better market conditions for airlines than those from market research firm World ACD, which recently said airfreight volume sank 29% below last year's level but improved 11% from April. It uses the dimensional weight of shipments, a different metric than IATA. 

IATA also announced on July 1 that May passenger demand ticked up from April – with a drop of 91.3% compared to May 2019. Passenger traffic was down 94% in April year-over-year. International air travel in May nearly came to a standstill, with 98% less passenger traffic than the prior year. U.S. domestic traffic was down 89.5% in May, an improvement over the 95.6% decline experienced in April.

"We are only at the very beginning of a long and difficult recovery. And there is tremendous uncertainty about what impact a resurgence of new COVID-19 cases in key markets could have," said IATA Director General Alexandre de Juniac, in a statement. 

With less trade and consumption because of quarantine measures around the world, one might assume there would be plenty of available transportation to move goods by air, but when airlines pulled down most of their passenger networks they eliminated more than half the normal lift.

In May, global airfreight capacity was 34.7% less than a year earlier, outpacing the drop in demand. But the capacity situation was better than in April when it dropped 41.6% from the 2019 level because passenger airlines began to add some flights in parts of the world, as reflected in the belly capacity improvement in May over April. Available cargo space on passenger airlines was 66.4% less in May compared to 2019, but that was an improvement from the 75% decline in April. The loss of belly capacity was partially offset by a 25.2% increase in capacity through expanded use of freighter aircraft.

The shortage of aircraft contributed to historically high transportation rates and load factors in April and May, but the capacity outlook continues to improve. On Wednesday, United Airlines announced a tripling of its August flight schedule from June – although it's still 40% less than in August 2019. In addition, Qatar Airways reinstated service to 11 destinations, and Austrian Airlines began long-haul service on select routes for the first time in 100 days.

IATA said cargo load factors rose 10.4% in May after a 12.8% rise in April. Planes are flying at near their full space utilization, an indication that there is still pent-up demand for air cargo that won't be relieved until passenger networks are running close to their normal levels.

Load factors increased notably for passenger aircraft in May and all-cargo carriers lost market share during the month to the mini-freighters operated by the passenger airlines, according to World ACD.

International airfreight is expected to slowly pick up along with the global economic activity. Global export orders are still down sharply from a year ago, but the Purchasing Managers Index showed month-over-month improvement in May.

Air cargo yields are still improving, although at a slower pace, according to World ACD. Per-unit profit grew 5% in May compared to an abnormal 63% spike in April, at the height of the capacity crunch and surge in shipments of personal protective equipment. The average unit price globally in May increased to $3.95 from $3.74 in spite of the additional capacity coming into the market from passenger aircraft and converted passenger freighters.

For the first time this year, yields fell for pharmaceutical and temperature-controlled products, which were down 1%, according to World ACD.

The downward pricing trend continued through June, with average rates from China to Europe sliding last week below $4 per kilogram and China to the U.S. averaging about $4.50 to $5 per kilogram, according to the TAC Index and anecdotal reports from industry contacts. Those rates are still about double those of normal peak periods, of which summer is not.

North America is the strongest freight market, according to IATA. Volume fell 9% on a yearly basis in May, but that was much less than the 20% or more declines in Asia, Europe, and Latin America. IATA attributed the difference to shorter and less stringent lockdowns in the U.S. and other regions, the large freighter fleets of a few regional airlines, and robust U.S.-China trade volumes. Demand on the Asia-North America route was down only 0.4% in May compared to 2019, with capacity down 28%.

"We appear to be in the very early stages of a recovery in air travel. But the situation is fragile. We need governments to support and strengthen the restart by quickly implementing the International Civil Aviation Organization's global guidelines for restoring air connectivity," de Juniac said. "Governments also need to avoid adding blockers to the recovery, such as implementing entry quarantines. They have the same impact as outright travel bans and will keep economies closed down to the benefits of aviation connectivity. Governments should also avoid new fees and charges to cover the cost of COVID-19-related health measures, such as testing and contact tracing, which will make travel less accessible.

Click here for more articles by Eric Kulisch.

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