The COVID—19 pandemic stopped world travel, closed borders, and severely impacted the movement of actual flights, which caused a knock-on effect on air cargo logistics and global trade. However, the air cargo industry adapted to a different landscape and returned to the skies once again. As the industry flew through the challenges and entered 2022-a year of hope & growth, the global macroeconomic pressures hit the sector, slowing down the air cargo business and registering turbulence as a characteristic of the air cargo industry after three consecutive years of challenges.
Despite this, while forecasting profitability in 2023 the International Air Transport Association (IATA) said in June that 2022 was shaping up as one of the industry’s strongest years ever with cargo revenues nearly double in comparison to the pandemic. The industry showing resilience and seeing a positive picture, completed its flight through 2022 and flew through quite a few air pockets, as all was not merry.
Come aboard as we hover around to see all that the air cargo industry experienced in the bygone year.
The War of 2022
Russia’s invasion of Ukraine, which soon turned into a war and now entering on the 313th day, was a major hitch for the air cargo industry, coming at a time when the world began to look up from the effects of the pandemic. As the world choose sides, western nations blocked access to Russian carriers and outlawed aviation technology exchanges. In retaliation, Russia closed its airspace to many airlines.
In the war, Ukraine’s Antonov Airlines lost its freighters to the fighting, managing to escape with five Antonov AN-124 extra-large cargo jets which are continuing operations from a temporary base at Leipzig/Halle airport in Germany. The cargo jets are carrying out missions for NATO, the Ukraine government, humanitarian organizations, and commercial customers.
Antonov Airlines officials shared their plans to rebuild the AN-225 Mriya, the largest commercial freighter which was destroyed by Russian forces in the initial attack on the Hostomel airfield outside Kyiv.
This limited the flying of jets for Russian all-cargo carrier Volga-Dnepr to a few Asian and Middle Eastern countries and forced affiliated airlines AirBridgeCargo, CargoLogicAir, and CargoLogic Germany, out of business.
As estimated by Cirium, the war knocked only 1% of global cargo capacity from the market. Yet, the effects were even more widespread because airlines operating between Europe and Asia had to detour around Russia, increasing flight times and fuel costs. The extra time in the air and the need to carry extra fuel or stop to refuel decreased aircraft utilization and effectively reduced cargo capacity.
As reported by Reuters, around 400 airplanes worth USD 10 billion, are trapped in Russia after airlines refused to return them to Western leasing companies. Lessors are now suing insurance companies to recover losses.
The blow from the pandemic, made many airlines realize the value of cargo operations and diversification of revenue between passenger and cargo flights. This pushed several passenger airlines to hop on to the cargo business- a trend that was first seen in 2021. Continuing the trend, 2022 witnessed an increase in freighter fleets following a surge in airfreight demand.
This year, ocean carriers eyeing a burgeoning logistics ambition, and some e-commerce companies looking to effectively manage demand and provide reliable services, launched cargo airlines.
Identifying air cargo as a reliable alternative to ocean freight during peak seasons, A.P. Moller-Maersk is emphasizing the expansion of its cargo airlines. The company, in October 2022, launched its U.S.- Korea Service intending to strengthen its integrated air cargo operations.
The container shipping line CMA-CGM which formed its new air cargo division in 2021, entered into a strategic partnership with Air France-KLM group in 2022, expanding its services from Paris to Hong Kong.
Mediterranean Shipping Co. also began offering air cargo services in December with a single cargo jet operated by Atlas Air. Boeing is expected to deliver three more 777 freighters to the venture in 2023.
Speaking of e-commerce companies, Amazon operating its cargo airline – Prime Air since 2017, hasted its plans to build fleet capacity amid the pandemic. The e-commerce giant added 10 planes to its cargo fleet in October 2022.
Chinese e-commerce logistics company Zongteng also launched its cargo airline by acquiring the Boeing 777 freighter to shuttle packages to Europe and the Middle East.
Passenger airlines that have added all-cargo operations, or expressed interest in doing so, in 2022 are impressive:
- Air Canada – Converted 3 Boeing 767 jets from its fleet into freighters.
- Air Explore – Slovakia airline picked up its first Boeing 737-800 modified freighter and is operating it on behalf of a logistics company.
- Amelia International – Slovenian subsidiary of the French Amelia Group began cargo operations with a leased ATR72 turboprop.
- CityWings – Lufthansa regional passenger carrier is flying new Airbus A321 converted freighters for Lufthansa Cargo.
- Georgia Airlines – The cargo carrier commenced operations in February. Now has three 737-800 converted freighters operating in the Baltics, Caucasus, and surrounding areas.
- GOL – Started flying 737-800 converted freighters in Brazil for online retailer Mercado Libre.
- Indigo – Indian carrier took delivery of its first Airbus A321 converted freighter.
- Japan Airlines – Plans to operate three A321 freighters for a parcel delivery company in Japan starting in 2024.
- Silver Airways – Small regional passenger carrier, based in Florida, is flying ATR72 turboprops to deliver packages for Amazon.
- TAP Air Portugal – Operating two Airbus A330 aircraft with the light-duty modification that allows packages to be carried on the main deck without full conversion.
- Vietnam Airlines – Making plans to invest in its first A321 freighter.
- Viet Travel – Plans to acquire a 737-800 freighter.
- WestJet – Another Canadian carrier betting on cargo. Delayed start with four Boeing 737-800 converted freighters because certification is taking longer than expected.
What appeared to be a positive start to the year, soon turned upside down for the air cargo industry after the invasion of Ukraine. Since April, rates trembled due to war, high energy prices, inflation, high retail inventories, and renewed consumer focus on services. Once again the widespread lockdowns in major Chinese manufacturing hubs curtailed factory production and depressed exports moved by air and ocean carriers.
In March, capacity dropped by 20%, load factors reached 84%, and short-term rates increased by 10% within a week. By August, air rates had sagged by 32%, their lowest level since April 2020. Towards the end of December, the cargo volumes by some accounts were nearly 20% below last year’s level. Tonnage out of Asia and North America in the past two weeks dropped 25% year over year. Global freight rates were 30% to 40% less than a year ago.
As per IATA, the cargo capacity is still about 8% below 2019 levels because passenger airlines haven’t fully resumed all the flights they were operating before the pandemic. The express delivery traffic is also on a downward trajectory. FedEx, UPS, DHL, and Amazon reported slower growth. FedEx had chopped 40 flights per day and grounded 16 widebody aircraft by the first quarter of 2023. Amazon Air also is planning to carry third-party cargo for the first time.
Although the market conditions aren’t very good, business is still looking up.
It is expected that the full-year demand will probably end the year about 6% less than in 2019, but reduced passenger belly space coupled with airport congestion and industry labor shortages have propped up prices. Rates are still about 80% better than pre-COVID.
As forecast by IATA air cargo revenues for airlines will reach USD 201.4 billion. That is an improvement compared with the June forecast, only 1.5% off from 2021, and more than double the USD 100.8 billion earned in 2019. The airline group, however, projects cargo revenue next year to fall by USD 50 billion.
The right time for conversions and new orders
The aviation industry, during the pandemic capitalized by converting their passenger fleet and on-boarding freighters, filling the bags of Boeing and Airbus with a large number of orders. The headline for this was the new 777-X and A350 that wouldn’t be available until the second half of the decade.
According to Cirium, 115 total freighter orders to date have been placed, including for Boeing 767 and 777 aircraft, versus about 95 last year. With a build rate of about 40 per year, it will take roughly five years to complete a backlog of 220 aircraft.
A major spike was reported in the P2Fs- the conversion of used passenger planes into heavy-cargo containers.
Since the start of the pandemic, more than 700 P2F conversions have been ordered due to the shortage of cargo capacity, projections for future cargo growth, lower values for some aircraft, and an influx of leasing companies looking for alternatives for surplus passenger aircraft and maximizing returns for investors.
Cirium mentions that in the first 10 months of the year, companies announced nearly 200 orders for converted freighters after a record 370 orders in 2021. They also recently forecast about 165 converted freighters would be delivered in 2022, up significantly from the record 120 conversions the prior year. Conversions usually hover at about 65 to 70 per year. The number of rebuilt freighters would have been even higher, were it not for supply chain issues with labor and components that slowed production for many overhaul facilities.
The greatest level of activity involves standard, narrow body conversions for the Boeing 737-800 and the newer Airbus A321, which are being snapped up by airlines to replace aging 737 models and the popular 757, as well as for expansion.
To meet the demand, engineering firms with approved designs for freighter modifications aggressively added new production lines this year, with new facilities sprouting up in the U.K., Serbia, Turkey, China, and Costa Rica.
New conversion programs are also coming online: A320 production began last summer, two companies are expected to deliver the first 777 converted freighters in 2023, and Embraer has targeted 2024 for converting small E190/195 jets.
In late December, Elbe Flugzeugwerke GmbH delivered its 10th A330-300 wide body conversion to DHL Express, with eight more firm orders in the pipeline. It is the youngest A330 converted by DHL so far. DHL, along with partner airlines ASL and Air Hong Kong, is operating the A330s between Europe and Asia, as well as from Leipzig, Germany, to the States. Several analysts have predicted too much supply within three years and that orders will moderate.
Supply Chain delays
The supply chain challenges have resulted in delayed production. Aerospace companies including Boeing, Airbus and conversion houses such as EFW, 321 Precision Conversions, Aeronautical Engineers, and their suppliers have found it difficult to file assembly lines, especially after many older workers retired during COVID, and new hires require extensive training. They also experienced long lead times for raw materials and critical parts.
The tension between U.S. and China and the lengthier reviews by authorities also added to the slowdown in production rates. It appears Boeing and Airbus will produce about 1,150 aircraft this year, 15% fewer than their original target and about 240 units below annual average delivery rates between 2012 and 2019, according to analysts.
As per experts, one will have to go through 2023 to get past the supply chain hurdles.
In 2022, the large drones for middle-mile transport made strides toward becoming commercially viable.
Sabrewing Aircraft Co. successfully conducted a test flight with its RH-1-A Rhaegal vertical takeoff cargo drone carrying an 825-pound payload. And Dronamics became the first cargo drone company to obtain an operational license in the European Union. After years of anticipation, Amazon commenced limited drone delivery in Texas and California.
Garuda Aerospace, KL Tech City, and Jedsy signed an MoU to facilitate drone delivery in India. India post, in a pilot run, delivered a parcel in the Kutch district of Gujarat, covering 46 kilometers between Habay village in Bhuj taluka to Ner Village in Bhachau Taluka of Kutch district in 25 minutes. Swiggy began trials for grocery delivery and partnered with 4 startups to facilitate the same.