Global supply chains are transforming, and so is the air freight industry. As the post-pandemic industry reshapes, it will look much different from the pre-pandemic landscape.
Compared to ground and ocean transport, air freight serves as an important piece of global supply chains, albeit a smaller one. In the future, air freight’s footprint promises to comprise a larger percentage. It will also grow in importance of the overall mix of cargo transport.
Here are five emerging trends transforming tomorrow’s air freight industry.
#1: The Rise of e-Commerce. Ignited by the pandemic, e-Commerce is a growing and irreversible trend. Now, fostered by developing technologies and changed consumer shopping habits, e-Commerce is not a fad.
e-Commerce provides both speed and convenience. Consumers they can get their products overnight, next day, or in two days. And they can shop without leaving home. Furthermore, consumers can shop when they want – morning, day, or night.
What’s not to like about this trend?
As a result, this blitzing demand has overwhelmed traditional means of delivery. According to the International Air Transport Association (IATA), cargo demand in 2021 will exceed last year’s cargo demand. That represents an increase of 2.8 percent over the pre-pandemic demand rate in in 2019. (American Shipper)
Moreover, demand stimulated by e-Commerce will continue to grow as import data reflects. To handle the deluge of imports, the ports of Los Angeles and Long Beach are considering operating 24/7.
Looking beyond relieving short-term bottlenecks, port executives believe this is a long-term solution. Besides benefitting consumers, this trend also benefits shippers as well as air carriers.
#2: Scarce Air Cargo Capacity. Tight capacity has been looming since the onset of Covid-19. Capacity for ground and ocean cargo were swamped. And that demand for capacity spilled over into air cargo.
Besides consumers’ change in shopping habits, manufacturing is at record levels. The purchasing manager’s index (PMI) came in at a reading of 53.4 up from 51 the month prior. A reading above 50 indicates a growth trend. This indicates economic growth may run for a while as pent up demand unleashes.
The retrofitting and manufacturing of cargo planes is one example boosting the PMI.
In a report by CNBC, Boeing is converting passenger fleets to cargo jets. Along with building new air cargo planes, Boeing is converting outdated 737 passenger planes for companies like Amazon to meet e-Commerce’s growing demand. It is doing the same for Chinese airlines in Shanghai, Guangzhou, and Jinan.
The growth of e-Commerce and the general economic recovery are likely long-term trends. Fed by new technologies and new business practices, we can expect long-term growth. And that will further challenge the trend of scarce air cargo capacity.
#3: Supply Chain Diversification. As the economy picks up, we will see a flurry of activity related to the diversification of supply chains. In particular, we can expect increased activity due to on-shoring and near-shoring. As businesses transfer manufacturing from China to places like Mexico and Canada, regional air traffic should increase.
This represents more than a surge. Regional air cargo shipping will likely take hold as an established shipping mode. Don’t forget other modes have limited capacity availability. Thus, consumer demand and capacity constraints are unlikely to abate anytime soon.
Also recall vaccine deliveries have saturated distribution networks because vaccine distribution relies heavily on air transport. With the Covid-19 coming under control in the U.S, air cargo deliveries will shift to South America and India.
The mid- and long-term appear to be shaping up with air cargo as a key mode of transport. Supply chain diversification will trigger near-and mid-term increases in air cargo. Meanwhile, the long-term prospects for air cargo will likely increase, too, as more companies diversify their supply chains to mitigate risk.
Supply chain diversification is a gradual but growing trend.
#4: The Rise of Air Freight as an Omnichannel. Pressured by customer demand, a rising trend toward an omnichannel strategy is afoot. Airlines are seeing a need to look beyond traditional airport-to-airport service. Now, airlines and other stakeholders see opportunities in providing end-to-end services.
Loadstar news reports this trend is taking shape in Europe . To optimize delivery, Swiss World Cargo has partnered with the Swiss Postal Service. In the U.S., Amazon is expanding its Amazon Air Services and combining it with its ground transport services. Amazon’s goal, like Swiss World’s, is to provide seamless end-to-end service.
In North America, FEDEX and UPS comprise 80 percent of the air cargo market. Now, Amazon is snapping up air cargo space to meet its needs. That leaves only a small percentage for others to expand into air freight services.
As this trend unfolds, partnerships between airlines and shippers will likely increase. Likewise, shippers and airlines may also increase partnerships with integrators/3PLs.
In the future, air freight will likely pursue an omnichannel strategy. That should help ease competition for limited cargo space and moderate rates.
#5: Rising and Volatile Shipping Rates. Shipping rates have been anything but stable since the pandemic hit in March 2020. As long as demand for cargo space exceeds supply, rates will continue to rise.
Currently, international travel is 88 percent below pre-crisis levels. That’s significant because passenger planes transport 60 percent of all air cargo.
The IATA reports that more air cargo planes are flying today than in pre-crisis times. In total, 1,100 air cargo planes are operational – 240 more planes than in January 2020. Yet, the industry still has a 39 percent capacity shortage.
To ease capacity constraints, manufacturers are building more cargo planes and retrofitting passenger planes. While helpful, it takes time to manufacture and retrofit planes.
In the Pacific Rim, for example, Boeing is building 930 new planes. Also Boeing plans to convert 1,500 737s to meet demand for the next 20 years. But Boeing’s planned production still falls short of the demand.
So, stable rates remains elusive for the long-term. As distribution of vaccines shifts to international deliveries, rate volatility will likely persist. Also, the uneven opening of economies should further delay stabilization of rates.
The Changing Landscape of Air Freight
The supply chain industry is transforming, and so is air cargo. Five emerging trends will reshape the air cargo industry from its pre-pandemic operations.
Some of these trends will take effect before others. But what’s notable is that these trends will have lasting effects. That is, they will change best business practices as well as technologies. That should result in improved operational effectiveness and efficiency.
As the air cargo industry transforms, your supply chain must transform with it.
At American Global Logistics, we stay ahead of the trends. When you partner with us, you won’t have to worry about falling behind. We’ll keep you ahead of emerging trends and the competition.
You can get in contact with us here.