2024 may herald beginning of new economic growth cycle for air cargo after past year ended with a positive 9% YOY rise in demand and general air cargo spot rate reached its highest level in nine months; wars, recession are likely to impact shipping trade, which may influence air cargo rates and demand, say experts.
CT Bureau
Ongoing global economic slowdown and crises such as Red Sea conflict, Ukraine-Russia war, global recession have put air cargo stakeholders under pressure, as upholding seamless and efficient supply chains has become a challenge. The crises have impacted international trade resulting in high air freight charges, low tonnages, cargo volumes and capacity. However, the Red Sea conflict has urged the sea freight operators to move to air to continue with movement of goods worldwide, giving a sense of relief to EXIM
traders, despite high rates and low volumes.
According to the latest figures from WorldACD Market Data, “Global air cargo tonnages have surged in the second week of 2024 following their slowdown in the second half of December 2023 and the first week of January 2024. The increase includes double-digit percentage increases in demand to Europe from APAC and from the Middle East and South Asia, which reflect some modal shift to air because of disruptions to shipping in the Red Sea.”
There have been anecdotal reports in the recent days of cargo owners switching some cargo from sea to air because of delayed ocean voyages caused by disruptions in the Red Sea. “It is unclear as to what extent this has contributed to air cargo demand. The elevated tonnage figures to Europe from APAC and from the Middle East and South Asia contribute from modal shift on these lanes from sea to air and to sea-air,” the report highlighted.
Niall van de Wouw, Chief Airfreight Officer, Xeneta, gives an overview of how the ongoing global economic slowdown and crises impact air cargo growth. “While the geopolitical environment and cost of living pressures continue to present hurdles to global trade, the predictability of air cargo means the industry stands to benefit from escalating disruption, albeit producing modest gains in volumes. To say this year is a ‘new dawn’ is a little too optimistic, but I think it is the start of a new cycle for the airlines and freight forwarders.
The shippers are likely to appreciate stability returning to the market so they can forecast the transportation costs for the products they are selling. Our market outlook forecast for 2024 remains unchanged with an anticipated growth of 1-2 per cent in demand, and a 2-4 per cent rise in supply.”
With rising expectations of market normalisation, the shippers preferred to commit to longer-term, fixed rate contracts in the past quarter of last year (2023). Over six-month contracts accounted for 45 per cent of the total contracts signed, up 5 percentage points from the previous quarter. Six-month contracts amounted to another 28 per cent of the total market. This was in stark contrast to COVID era when most shippers had to manage rates valid for up to one-month only. By the fourth quarter, the share of up to one-month rates was 14 per cent.
Wouw added, “There is a lot of friction in the global supply chain market, which means there will be opportunities for some sectors. If big ocean carriers are not passing through the Red Sea, it might delay a million containers, with all the knock-on effects. Some shippers will pay for predictability of air cargo to lessen the impact of the current ocean freight disruption, in case you do not know how long this situation will continue. In contrast, air cargo industry seems to be in a more ‘steady state’. It is important for the airlines and forwarders to focus on the elements they can control, such as cost and reliability, and be ready when the opportunities arrive.”
He also questioned whether the ocean carriers will continue to invest profits from COVID to get a foothold in the air freight market. “The overall outlook for the supply chains in this year (2024) is difficult to forecast amidst the market uncertainty. This is not good for investments and the shippers, but it might be good for the share of air freight of international trade.”
The Indian air cargo industry, which is not majorly impacted, is showing signs of improvement. Acknowledging, Tushar Jani, Group Chairman, Cargo Service Center, emphasized, “India showed marginal growth last year in the increase of air cargo throughput of 6.5 MMT. However, the growth has not been significant due to recession in Europe coupled with a slowdown in the USA. India’s major trade partners are EU and the USA. Indian imports from China have reduced by 18 per cent. Indian exports to Africa have reduced slightly. Overall, it has impacted the growth of air cargo throughput. The distribution between belly and freighters has now stabilized at 70 per cent belly and 30 per cent freighter. The current trouble in the Red Sea will increase some air cargo volume and if the airlines increase freight rate, then it will become counterproductive.
The industry must work towards keeping a reasonable rate to achieve good growth and allow the supply chain to remain productive and stable with air cargo compared to increased sea freight cost, provided air cargo remained affordable. We must hark back to the lessons learnt during COVID when the air cargo rates became so exorbitant that some commodities had to be moved through maritime shipping. This is a golden opportunity for air cargo to convert those lost tonnages from maritime shipping back to air cargo, provided we keep the air freight rates stable, keeping in mind the long-term advantage of growth.”
Ashwani Nath, CCO, Logistics, DP World Subcontinent, said, “In 2023, global supply chains faced disruptions due to geopolitical tensions, inflation, and reduced international demand, causing a slowdown in global economic growth. Despite these challenges, growth in India was projected at around 6.3 per cent in 2023 and 2024, according to International Monetary Fund (IMF). Showcasing resilience, the country has emerged as one of the fast-growing major economies. Fuelled by a strong domestic demand, infrastructure investments, and a robust financial sector, the country’s economic growth trajectory continues to stay positive.
Technology adoption, guided by NLP and the Unified Logistics Interface Platform, played a key role in strengthening logistics ecosystem by simplifying logistics processes and bringing transparency to the logistics sector. With a focus on Free Trade Agreements, India is well positioned to become an enabler of trade and one of the leading players in the global supply chain. In pursuit of our ambition, DP World is dedicated to supporting businesses explore new markets, domestically and globally.
Our Free Trade Warehousing Zones in Nhava Sheva and Chennai, located near ports, facilitate EXIM activities, offer foreign businesses a seamless entry into India and an opportunity to diversify their supply chains. The upcoming greenfield terminal in Kandla, Gujarat, developed in partnership with Deendayal Port Authority, will have a cargo handling capacity of 2.19 million TEUs annually. Aligned with the Amrit Kaal Vision 2047, we are committed to quadrupling the port handling capacity and developing multimodal logistics infrastructure to foster economic growth in India and beyond. DP World arranged digitalisation such as visibility to support end-to-end inventory tracking at SKU level.
With our extensive rail freight network of our own assets of rolling stock and inland container terminals, we are focused on increasing the share of domestic rail freight services to minimize road transportation and drive sustainability. This will help customers unlock the competitive advantage offered by multimodal networks, while reducing their carbon footprint. Bringing in the convenience of free trade zones, cold chain and 3PL logistics connected to first, middle and last-mile FTL & Express B2B logistics, DP World offers its customers a range of solutions from warehousing to delivery fulfilment. In addition, freight forwarding services and coastal shipping create the bridge to our vast global network across 75 countries.”
According to C.K. Govil, CMD, Activair Airfreight, “The Indian economy does not operate in silos, so it is affected by the global slowdown. In fact, our goods exports declined by 12.7 per cent on YOY basis to US$34.66 billion in April this year, the lowest in six months. Our merchandise imports dived by 14 per cent to land at US$49.90 billion in the same period. Geopolitical tensions, war, and inflation prevented global trade from bouncing back this year. With dependence on the Chinese economy declining and ‘friend-shoring’ on the rise indicate that countries with matching political values and views rely on each other to boost EXIM trade.
Amit Maheshwari, CEO and Co-founder, Softlink Global, explained, “The Israel-Gaza war is a stark reminder that our global supply chains, as strong as they may seem, are not immune to geopolitical events. These situations can have ripple effects that span continents. Considering this, the shippers need to be ready to adapt and be proactive in their planning. One smart move is to diversify the supplier base. Putting all your eggs in one regional basket is a risky game. Also having solid relationships with logistics partners and well-thought-out contingency plans such as backup routes and transportation methods is key. And do not forget the power of building up inventory buffers and considering near-shoring to lessen risks. Being proactive in assessing and managing risks is what is going to make your supply chain robust and ready for whatever comes its way.”
On a similar note, Yashpal Sharma, MD, Skyways Group, asserted, “The world is inter-connected today. Any event or a crisis in any part of the world impacts almost all the nations. India cannot be alienated from the ongoing crisis in Central Asia. But the impact is not major here. The Indian supply chains have become highly resilient post-COVID, and the logistics firms have adopted contingency plans to deal with any future crisis. The so-called global slowdown was not a big one. Though the slowdown was expected post-COVID and the supply chains re-corrected and the demand, which came down initially, is already showing signs of improvement. India has had little impact of this due to a robust domestic market and better spread of international markets too.”
David Shepherd, CEO, IAG Cargo, remarked, “On a global basis it has. Not only have we seen interest rates grow across the globe, which has dampened business capability as well as consumer demand, but we have seen big shocks with what is happening in the Middle East, with the continuing Israel-Gaza conflict, and the Russia-Ukraine war. The supply side of the air cargo industry has never been this high: in terms of the amount of available cargo tonne kilometers in the global market. The airlines are moving towards achieving carbon neutrality by 2050 and adopting SAF. This is good news.”
Mark Sutch, CCO, CarGo, IndiGo, concluded, “The global air cargo market is undergoing a correction post-pandemic and that is seeing severe pressure on yields and a real decline in cargo carried. IATA forecast that global uplift of air cargo in 2023 will decline by 3.8 per cent chargeable weight versus 2022. As per IATA, part of this slowdown in cargo is due to the ‘negative effects on international trade of economic cooling measures introduced to fight inflation’. For IndiGo, the decline in uplifted air cargo is more structural based
around our fleet, and specific COVID-related measures enabled us to carry increased cargo volumes.
There are two factors for the decline in uplifted cargo by IndiGo. ‘Cargo on Floor’ aircraft were withdrawn from operations in July 2022. During COVID, IndiGo operated ‘CarGo on Floor’ aircraft under agreed terms from the DGCA. This was done to enable the movement of air cargo at a time when passenger flights were grounded due to COVID travel curbs. During FY22, IndiGo carried 45,000 tonnes of global air cargo, which was split 50 per cent—on pax aircraft bellies and 50 per cent on ‘CarGo on
Floor’ aircraft. In FY23, IndiGo carried 35,000 tonnes of global cargo which, when you factor in the cessation of ‘CarGo on Floor’ aircraft operations and look at the pure pax belly cargo, there is a growth of 20.3 per cent in cargo carried. It is important to factor in the impact that ‘CarGo on Floor’ aircraft had during FY22.
Uplift air cargo capacity has a direct correlation to passenger load factors. This is the case with narrow-body operations where increased load factor leads to an increase in the passenger baggage of a flight and thus limits the capacity available for air cargo. As travel curbs lifted post-COVID, there has been an increase in passenger load factor.
IndiGo through a wet lease pact with Turkish Airlines has added two daily wide-body passenger flights (B777) on DEL-IST and BOM-IST. They have higher cargo capacity than a narrow body one. Through our partnership with Turkish Airlines, we are linked to many European lanes via Istanbul. IndiGo has
announced new flights this year to Nairobi, Jakarta, Tbilisi, and Baku. With rise in pax aircraft capacity and increased utilisation on the freighter aircraft, IndiGo is expecting to grow its cargo volumes, although it will not be able to replicate the capacity that was available during the pandemic.”
