2023 can be a rather bumpy ride for air cargo, warn experts

Supply chain leaders and air cargo experts had depicted a positive outlook for the industry in 2023, but also suggested to remain prudent when it comes to volumes, yields and revenue, in light of the existing global circumstances. They acknowledged that air cargo might not be able to achieve performance levels witnessed in the last couple of years. For instance, International Air Transport Association (IATA) predicts air cargo volumes to take a 4% Y-o-Y fall in this year. 

“The softer outlook for the global macroeconomy, along with international trade, is presenting headwinds to air cargo. Things that are exerting a bit of a drag in terms of cargo volumes include the conflict between Russia and Ukraine, global [economic] growth slowdown, higher inflation, higher interest rates, and the higher cost of living.”

Andrew Matters, IATA’s Head of Policy Analysis

According to Matters, a 22.6% fall is expected in air cargo yields this year, and though it may look like a a drastic one, it it pretty much “not unreasonable” in the context of the un-protractable trends witnessed in recent years. This is because of the decreasing demand and increasingly available air cargo capacity. However, he also added, “Even the sizable and expected decline leaves cargo yields well-above pre-COVID levels.” 

Talking about the global economy at large, the International Monetary Fund (IMF) projects that global growth will slow to 2.7% this year, and a third of the global economy will enter recession this year. Similarly, the World Trade Organization (WTO) forecasts that trade will slow sharply in 2023 to just 1 percent as a result of the various headwinds in the global economy.

The curious case of yield

According to IATA, there has been a considerable surge in freighter deliveries and the rolling 2-year average stands at its highest point since 2012. Suppliers delivered just over 50 dedicated freighters last year and IATA expects delivery of just under 50 this year. This is just the number of freshly manufactured freighters and not those converted from passenger airplanes. On the other hand, the P2F business has enjoyed surging demand for wide-body and narrow-body aircraft, and deliveries continue to grow at high rates. This has resulted and will keep continuing adding to the available air cargo capacity. Combine this with the declining demand, and you get considerably low yields. The same has been confirmed by The International Air Cargo Association (TIACA).

Also Read: Event timeline that defined air cargo in 2022

But on the other side of the coin stands the possible solution to the persisting supply chain disruptions and Matters, along with Lufthansa Cargo, consider it a potential ‘upside’ risk to the 2023 outlook. “Supply chain disruption, particularly as it impacts global shipping, could provide support for air cargo as businesses seek timely solutions to address any supply chain problems,” he said. 

The upside to the down

E-commerce demand will continue to present a source of growth for air cargo providers in 2023, according to TIACA, while IATA’s Global Head of Cargo, Brendan Sullivan, believes that Covid has delivered a structural upward shift in e-commerce, calling the market “unstoppable.”

Considering that a major chunk of cross-border e-commerce is transported using air cargo, one can expect a steady demand flow from that end of the tunnel. Matters says that even though there is a southern trend, most indicators will remain above pre-pandemic levels. IATA expects cargo revenues to decline to around USD 149 billion in 2023, from around USD 200 billion in 2022, but remain “about 50% higher than the pre-pandemic level of 2019,” he said.

Moreover, he noted, the forecast for 2023 includes “upside” risks. For example, should the Russia-Ukraine conflict be resolved, consumer and business confidence could rebound sharply, driving recovery in economic activity, spending, investment, and international trade. “All of this would be positive news for cargo volumes,” he concluded.

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