Air cargo at the crossroads? The demand vs capacity conflict

Air Cargo, as an industry, plays a vital role in the global economy, and more so in a fast-growing one like India. Moving a wide range of products and commodities out of the country and across the globe, air cargo was in fact the lifeline of the world during the COVID period and even during the recovery phase. The “Air Freight State of the Industry” report for June 2023 provides valuable insights into the current state of the global air cargo industry. In this detailed analysis, we will break down the key themes of the report and focus on the central theme: the conflict between demand and capacity in the air cargo sector.

The world of air cargo has long been an essential component of global trade and commerce and plays a pivotal role in connecting businesses to their consumers across the globe. With time, the demand for air cargo has only increased, however, in recent years, this industry has found itself at a critical crossroads, facing a growing conflict between soaring demand and constrained capacity.

The DHL ‘Air Freight State of the Industry’ report for July 2023 discusses the state of demand for air cargo. Demand is influenced by various factors, such as the overall health of the global economy, manufacturing output, and consumer spending. In simpler terms, when economies are doing well, people buy more, and companies produce more, which leads to an increase in the need for air cargo services.

At its core, the ‘Demand vs. Capacity Conflict’ encapsulates the perennial struggle within the air cargo sector. It revolves around the intricate equilibrium between the volume of goods requiring air transport (demand) and the available resources and infrastructure to facilitate this transport (capacity). With this story, we strive to shed light on the same

Air Cargo Demand

The demand for air cargo services has been on a steady upward trajectory for decades, and several key factors are driving this growth. As supply chains get increasingly globalized, the need for rapid and efficient cargo transportation has been amplified quite a lot. For instance, the just-in-time manufacturing processes and the sourcing of raw materials from distant locations have increased the reliance on air cargo to keep production lines running smoothly. Moreover, when passenger flights were grounded during the pandemic, it was air cargo that became the lifeboat for many carriers.

Secondly, there has been an unprecedented rise in e-commerce activity across the globe, which brings with it a transformed consumer expectation around fast and reliable delivery. Customers now expect products to arrive at their doorsteps within days, if not hours and air cargo is often the only viable option to meet such demands.

The report also highlights a variation in demand across regions. To explain, regions like the emerging markets in Asia (referred to as ASPA), have seen higher export orders, contributing to increased demand for air cargo services. In contrast, Europe (EURO) has experienced a slowdown in growth, impacting demand. So, the demand-capacity conflict is not a global issue – it varies from place to place.

A few more points highlighted in the report include –

  • Volumes continued to remain low; MoM increase observed
  • Fluctuating PMI Index across countries higher export orders from emerging markets
  • High inflation continues to affect the world economy and trade
  • High inventories and lower purchase power contribute to comparatively low demand
  • Major economies expected to show more resilience against high inflation towards H2’23

“With the subdued global demand and increased capacity, yields came under significant pressure although we have seen year-over-year reductions slowing in recent months with the anticipation that demand will recover in 2024. From the Indian perspective, we see a slightly different picture. China plus one strategy employed by major global manufacturers has resulted in GDP growth prospects for India, according to S&P Global Ratings, remaining strong with expectations of greater than 6% expected for the next 2-3 years. With the expected increase in many areas of India’s manufacturing sector, air cargo demand can also be expected to rise over the next few years.”

Glyn Hughes, Director General, TIACA

“There is always going to be a bit of a gap between demand and supply depending on seasonality, certain geopolitical occurrences or even a natural calamity that might happen anywhere in the world. Air freight is not purely determined by general factors so the demand can never be forecasted with 100% accuracy. Currently, there is enough capacity available around the world compared to the current demand and a 5-10% increase in demand can also be met by the current capacity by a small fine tuning of network. The demand was a bit soft during February to July this year and the capacity continued to go up in this period. The demand has started to come back and September was definitely a better month than what we have seen in the year gone by. The demand will continue to go up from here over the next 6-7 months. It is never a conflict between demand and capacity. One always follows the other.”

Yashpal Sharma, Managing Director, Skyways Group

This is an abridged version of the feature story published in the October edition of the Logistics Insider Magazine. To read the complete story, click here.

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