Consultant Insight: Shippers, forwarders anxiously await the return of passenger capacity

The air cargo market continues to make progress in adding capacity since losing at least 50% of capacity when passenger airlines were grounded in early 2020 due to the COVID-19 pandemic. But the progress is not coming fast enough as shippers are finding few options for international shipments.

[caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption]

"We need regular flights between the continents again, passenger flights, and if you remember, we had fifty flights alone from the West Coast U.S. per day to Europe. We see that coming back. It will take some time," Kuehne+Nagel’s CEO Detlef Trefzger told investor analysts on Oct 20 .

As ships accumulate along the U.S. West Coast waiting to unload thousands of TEUs, the ability to quickly shift modes to air cargo is limited due to capacity constraints. Indeed, when one part of the supply chain experiences a shock, it can have a significant impact on the whole supply chain no matter how much volume or value it contributes.

In the case of air cargo, while it moves a smaller amount of volume compared to ocean freight, the ongoing lack of available capacity in the air cargo market is deeply felt by many shippers and forwarders alike – and exacerbated by the current U.S. West Coast ocean freight congestion problem. Because of this gap in the supply chain, we are seeing higher airfreight rates and more air charters as shippers turn to airfreight.

Some shippers, for example, have noted on earnings calls that they are expediting seasonal inventories by air. Shoe retailer Crocs plans to spend about $75 million in airfreight ahead of its 2022 spring-summer selling season, CFO Anne Mehlman told investor analysts on Oct. 21. Typical airfreight spend for Crocs is around $10 million.

However, the full return of air cargo capacity is a struggle and will be a struggle for the foreseeable future. As noted in United Airlines’ recent press release, “the company’s recovery from the COVID-19 pandemic has not followed a linear path, and due to the significant uncertainty that remains, its future operating performance, particularly in the short-term, may be subject to volatility.” This is likely true for most, if not all passenger airlines.

Both United and American Airlines indicated that the COVID-19 delta variant delayed recovery during the third quarter.

However, despite the recovery slowdown, American Airlines reported that the number of aircraft at the end of the third quarter increased 2.14% year over year — a slow pace — led by regional aircraft increasing 4.5% while mainline aircraft increased 1.1%. Meanwhile, United Airlines expects Q4 capacity to be down approximately 23% from Q4 2019.

Air cargo capacity will continue to struggle as long as the virus sporadically closes or limits the availability of international borders and the need for workers intensifies.

“We expect air cargo capacity to remain constrained through at least the first half of calendar year 2022, a full recovery is not anticipated until 2024,” FedEx Chief Marketing and Communications Officer Brie Carere said during the company’s September earnings call. “Global air cargo capacity continued to recover in July. It is still down 10% compared to pre-pandemic levels. Capacity on international lanes remain scarce and we have seen European and APAC export demand recover to pre-pandemic levels.”

United Airlines is expected to provide a big shot in the arm for the international air cargo market in 2022 when it increases international capacity by 10%.

Delta Airlines reported that it has restored 80% of its capacity including international capacity. In its Q3 earnings Delta announced that it doubled flights from August to September to Canada's biggest markets following the country's reopening to fully vaccinated Americans and resumed nonstop service to Johannesburg, South Africa, restoring Delta service to all pre-COVID markets in Africa. In 2022, Delta will resume nonstop service from Boston (BOS) to Tel Aviv (TLV) and Athens (ATH).

Next year looks to be an improvement for the air cargo market and hopefully the anticipated increased international air cargo capacity will also help loosen ocean freight congestion.

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