Air Freight: Challenges and Opportunities

It’s time to re-look your air freight options. Air freight is under transition due to a variety of factors, and it’s reshaping how we do business.

As air freight undergoes change, it presents both challenges and opportunities. As air cargo changes, so, too, is logistics. Driven by chaos and uncertainty, air freight offers a timely and promising alternative.

In this post, we’ll address air freight’s challenges and opportunities. More important, we’ll discuss what they mean to shippers and other air cargo stakeholders.

As we emerge from the pandemic, supply chains continue to remain under stress. The primary challenge is to keep goods flowing. To do that, during the pandemic, many companies turned to air cargo.

At the same time, ocean shipping, the main mode for shipping cargo, became over-stressed. First we saw blank sailings. Then came port congestion, delays, capacity shortages, and rising prices. And they continue today. Hence, air freight has become a more favorable option.

That’s a quick background of the changing face of shipping. Now, let’s look into the challenges and opportunities of the post-pandemic world.

 

Post-pandemic Air Freight Challenges

Several challenges impact shippers and other stakeholders. They include cost, capacity, and unrelenting and spiking consumer demand.

Rising shipping costs. Costs today are under pressure with little relief in sight. That includes air freight as well as ocean and ground transport. Upward pressure on costs comes mainly from the rise of e-Commerce born out of the pandemic. The singular change in consumer behavior – the pivot to online shopping – is reshaping supply chains. And that especially pertains to air freight.

To meet increased consumer demand, shippers responded by expanding dependance on air cargo. Why? Simply put, to keep cargo moving. That alone has put upward pressure on costs.

Additionally, air cargo space availability dwindled compared to demand. That led to capacity constraints, which put further pressure on prices. As a result, shipping prices have spiked but will likely level off once normalization sets in.

Capacity constraints.  Airlines today are in short supply since there’s little demand for travel. Consequently, at the height of the pandemic, airliners like Emirates and Lufthansa, converted passenger planes to “preighters”. This reflected an expedient way to deliver critically-needed cargo medical supplies. Preighters contribution to mitigating capacity constraints thus far has been limited.

As the economy recovers, we should see a return to travel at pre-pandemic levels. That would make cargo holds on passenger planes available in greater numbers. But capacity would likely still be limited.

Add pandemic-induced capacity constraints, and now there’s a squeeze on all modes of shipping. But air freight, in particular, has its challenges. The time needed to manufacture new planes is lengthy at about 9 – 12 months. As you can see, that precludes a rapid expansion of fleets. That precludes a rapid industry transition.

Unrelenting and spiking consumer demand. Coming out of the pandemic, we’re beginning to see consumer demand not only snap back but bounce to new highs. That’s now reflected in rising prices as indicated by inflation.

At the latest annual Berkshire Hathaway meeting, Warren Buffett told shareholders, We are seeing substantial inflation,”. The latest inflation statistics bear out his claim. Inflation in March has increased almost twofold to 2.6% compared to 1.4% in January.

That reflects a lot of pent up demand as consumers emerge from lockdown. Shopping in on the rise. So is going out to restaurants and bars, etc. Travel is also enjoying an increase in demand. And eCommerce shows no signs of decline. Inflation will likely increase before it levels  off. And we’re only at the beginning of this trend.

Regardless, it appears a new trend of increased shipping by air is reshaping business as we know it. Consequently, eCommerce is further squeezing capacity with more online orders for electronics, pet-related products, and fitness and sports apparel.

Finally, let’s not overlook the need for speed. Consumers haven’t lowered their expectations – pandemic or no pandemic. That stems from their belief in the art of the possible and technology.

 

Post-pandemic Air Freight Opportunities

Challenges abound in air freight’s transition to increased operations. But opportunities outnumber the challenges.

Shipping costs. Air cargo shipping costs are declining relative to ocean shipping costs. Capacity is increasing albeit gradually easing some price pressure. Meanwhile, supply chains are undergoing diversification, relieving an over reliance on ocean shipping.

That, too, relieves price pressures. On the whole, air cargo is seeing increased prices that will likely moderate over time.

Increase in capacity availability.  To be sure capacity will continue to remain tight. But as reliance on air freight increases over time, capacity constraints should moderate. Capacity constraints affect all modes of transportation – that’s a first.

Currently, more airlines are coming back into service due to increased travel. As that happens, more capacity will become available. And air freight might lead the way in easing those constraints.

Diversification of shipping modes.  Increased use of air freight, has led to greater diversification of delivery modes. Whether by design or by reaction, that diversification will likely be enduring for some businesses. During the pandemic, diversification was necessary. Now diversification is taking hold because it works.

It’s not just expedient – it’s advantageous. Beyond that, improved customer service and satisfaction will likely reinforce delivery mode diversification.

Improving customer service/satisfaction. Customer service/satisfaction are improving due to the shift to air freight. As mentioned above, customer service and satisfaction have benefitted by the increased dependence on air freight. That may be an unintended consequence.

Nonetheless, shipping more cargo via air freight than in pre-pandemic times shows promise. With reduced order-ship times, customers are getting products more quickly. That raises customers’ satisfaction as well as their expectations.

Last mile delivery. This final opportunity reflects a change in how shippers view supply chains. They’re taking a more holistic view. That is, businesses are beginning to view supply chains from end-to-end. That provides the potential for entering the market for last mile delivery.

Some airlines have already entered into last mile delivery. As competition heats up, others will likely follow carriers like FEDEX and UPS. That will benefit both shippers and customers.

 

The New Face of Air Freight and What It Means to You

Air freight is in the midst of a transition to meet today’s supply chain demands. They reflect a new operating environment.

In transitioning, air freight must overcome various challenges. At the same time, it stands to benefit from new opportunities. And that will change pre-pandemic supply chain management practices.

To offset capacity constraints, rising shipping rates, etc. use of air freight will grow. The benefit of this change is manifold.

It will help keep goods flowing with reduced order-ship times. It will help stabilize supply chain operations. It will also lead to stabilization of rates. Finally, it will lead to improved customer service and satisfaction. And that will open up opportunities for growth, such as last mile delivery service.

Contact American Global Logistics to find out how we can help you meet your customers’ demands. We’ll help you optimize your supply chain as the economy recovers. And we’ll leverage our global network to ensure you get the capacity you need when you need it.