Date: 18.02.2021

Air cargo capacity to remain constrained until 2023

In the absence of belly-hold capacity (passenger aircraft), big volume shippers are taking freighter and charter options, potentially affecting air cargo capacity available to some shippers and underlining the importance of the strength of partner carrier partnerships and of our time-sensitive sea/air solutions.

Air cargo capacity is expected to remain constrained for some time, resulting in the biggest volume shippers increasingly relying on charter operations, as scheduled carriers are forced to further reduce passenger flights (PAX) due to increased travel restrictions globally, with a large amount of the world’s airlines fleet parked up and not operating.

In addition, continued high demand for air freight on some lanes prevails, with PPE/ COVID testing kits, vaccines and component/raw material shortages forcing the need for the faster transit to market.

The market has also been impacted by severe ocean freight delays, as we have publicised over recent months, resulting in ‘distressed ocean freight’ transferring to quicker transits by air freight, taking much needed capacity.

Global vaccination programmes are likely to lead to a pick-up in passenger travel in the second half of the year, but this capacity will mainly be short-haul and domestic flights, which won’t add any capacity for long-haul cargo operations.

Long-haul travel, which is a much bigger part of global air cargo capacity, has been grounded since the first quarter of 2020 and will be slower to resume, with the market unlikely to be back to normal until 2023, it is widely reported in the aviation industry. 

Many of the world’s larger airlines have converted some of their PAX aircraft to cargo-only flights, to ensure air freight continues to move – commonly referred to as Preighters.

In the absence of passenger ticket income, operating costs are far above their normal levels and rates have escalated to a new ‘normal’ level, which is significantly higher than the pre-pandemic level. 

Unless a satisfactory return is achieved on these flights, with a revenue stream that covers costs, aircraft are withdrawn, reducing capacity further and through market dynamics, costs rise further, to make it attractive and viable carriers to continue operating PAX freighters.

In terms of additional dedicated freighter aircraft coming into the market to alleviate any capacity shortfall, the lead times for production and converting freighter aircraft are long and the uncertain economic outlook may deter companies from investing in all-cargo aircraft.

With the air freight belly-hold capacity constriction likely to last, chartering may have to become a more permanent part of large shippers supply chains.

Where strategic capacity is available, spot rates are moving in one direction, with Shanghai to North Europe up significantly year over year and reflecting further volatility on a continual basis.

Chinese New Year has seen no softening in demand, with rate negotiations weekly or even per shipment and the number of spot rates increasing drastically compared to previous years.

Alexandre de Juniac, IATA director general, said that meeting demand without belly capacity continues to be an enormous challenge. “As countries strengthen travel restrictions in the face of new coronavirus variants, it is difficult to see improvements in passenger demand or the capacity crunch. 2021 will be another tough year.”

The COVID-19 pandemic continues to disrupt air cargo logistics chains, with measures to curb the infection rates affecting the availability of airline crew and ground staff. 

New 14-day quarantine measures for pilots and crew in Hong Kong is having a significant knock-on effect by limiting crew availability, with Cathay Pacific calculating that the new quarantine rules may result in a reduction of current passenger capacity of around 60% and a reduction of current cargo capacity of around 25%.

The whole of the global aviation industry has been impacted and there are few routes, if any, where costs have stabilised and we continue to manage and monitor our partner airline relationships, to ensure that we are in the prime position to deliver express cargo and our commitments.

Metro continue to monitor turbulent air capacity issues, to identify potential volume opportunities, as well as developing and offering alternative services and multimodal services to ensure that the best options are made available to meet deadlines and expectations. 

We work closely with the world’s largest scheduled and charter cargo airlines to offer consistent and reliable transits at market competitive rates. 

If you have any questions regarding these developments or would like further information, updates, or the latest market pricing please contact Elliot Carlile or Grant Liddell.