Market Update
The first half of 2020 was a wild ride for the air freight industry. Due to passenger flight cancellations and capacity restraints, volumes fell harshly. However, industry-wide revenue was actually up because rates skyrocketed when capacity became so scarce. But, how did things turn out in the third quarter?
Situationally, not much changed. Capacity remained in a crunch, as did volumes. Due to the lingering effects of the pandemic, passenger airlines have been very slow to return to standard operations.
When compared to the same time last year, air freight volumes (in cargo tonne kilometers) were down almost 17%. This was, however, an improvement over the low point seen in April. In terms of capacity, the numbers were down 24.2% year-over-year, according to IATA. This is heavily due to the fact that the freight industry relies so much on the belly capacity of passenger flights for international shipping. And, when passenger flights are grounded, so is the cargo.
To combat this capacity issue, some airlines are working to repurpose passenger aircraft for cargo transport. Several months ago, DHL began the process of converting three Boeing 767 passenger planes into dedicated cargo vessels. According to DHL, these converted planes will be a part of the company’s 2025 strategy, which centers around global e-commerce and intercontinental delivery.
So, how is all this affecting passenger airlines? United Airlines saw a 50% increase in Q3 air cargo revenue, when compared to the third quarter of 2019. Only time will tell if this will be enough to counter their 84% decrease in passenger revenue in Q3. Needless to say, without cargo revenue, passenger airlines would have little hope.
Not all freight lanes are seeing low volumes, however. Asia to North America freight volumes are actually up by about 7%. This is driven by the strong demand for Asia-produced goods in the United States. But, inventory–to–sales ratios have reached some of the lowest numbers since the market crash of 2008. In other words, sales and demand are up, but inventory levels are low.
With the close of the third quarter comes the start of the peak season. Booming e-commerce sales, growing goods demand, and COVID restrictions will undoubtedly contribute to a holiday season unlike any other. As we’ve said before, it would be very wise to take care of your Christmas shopping sooner rather than later.
How is your supply chain looking as we enter into the peak season? Are you confident that you can count on your logistics partners? If not, reach out to our team today to see how we can best serve your needs!
Contact us on our website or call (901) 362-5152.