Tomorrow’s Value of Air Cargo

The neglected child

Air cargo has been quietly delivering value to businesses and economies, without the due recognition for too long. Before 2020 hit us with COVID-19 which brought aviation to an almost complete halt, the passenger side of air traffic dominated the conversation. Air travel had become accessible to people with lover income and living in remote corners of the world. The globalization and ever-increasing connectivity led to forecasts touting doubling of air travel in the upcoming 20 years*. While on the air cargo side, the slower pace of growth, operational complexity and less visible customers hindered industry’s recognition in spite of the immense value this business has been delivering.

And it took a global health crisis to highlight its importance and systemic and operational complexity. Could COVID-19 crisis be the opportunity to re-envision a more efficient, profitable and sustainable business of air cargo?

Delivering behind the scenes

In the pre-COVID-19 world, few knew, that air cargo transports 35% of world trade in value, delivering perishables and pharmaceuticals, electronics and powering e-commerce that are a natural element of our modern lives. To address this issue, in my past role working for IATA, we proudly launched the Air Cargo Makes It Happen campaignexplaining the immense value that air cargo generates to specific industries including flowers, watches, IT, automotive, perishables and pharmaceuticals.

Then the coronavirus came and put air cargo transport in the spotlight - delivering life-saving medical equipment and medicine, food, and supporting stay-at-home policies.

The air travel has stopped almost completely, but the much-needed time sensitive delivery by air continues. Suddenly the world realized that many jobs, industries, local economies and health systems are at risk if the air transport stops. I was fascinated to see the previously unknown air cargo jobs gaining recognition and attractiveness. People working in the front line are now being called the “supply chain heroes.”

The hidden complexity

The pandemic has also put a light on the nature of global supply chains. Nearly all sectors, from electronics, pharmaceuticals, medical equipment to consumer goods, rely on China as the dominant global manufacturer of intermediate goods. This dependency on China has been putting national industries at risk. Some governments, namely in Japan, have been financially supporting their national manufacturers to shift production outside of China.

As part of a broader cultural shift in the consumer behavior, general public has been raising their voice in calling for near-shoring of essential production pharmaceuticals and medical equipment and a shift toward shorter and more environmentally friendly supply chains.

And finally, in the future, investors are likely to prioritize companies with greater supply chain resilience, hedging their risks in case of another black swan event.

So what does tomorrow look like for air cargo? We ran a short online survey in April to see what air cargo professionals think.

A long overdue incentive to transform?

1. Manufacturing and sourcing need to evolve

Our first Pulse Survey shows 85% of the air cargo professionals surveyed think companies will revise their manufacturing and sourcing strategies to be more local and regional:

• 60% think it means slight adjustments

• 25% think it will bring drastic changes

Relying on a single country for manufactured goods is also likely to be put to test. 90% of the respondents think companies and countries will challenge their over-reliance on China.

There are uncertainties and mixed feelings on whether companies will challenge their reliance on aviation. We cannot know how future corporate and national strategies will affect air cargo trade lanes in medium and long term or if supply chains will get shorter and more resilient post-COVID-19. Such transformation is easier said than done, but it is likely the air cargo route network will look different.

2. The shift in commodities

In the Pulse Survey, we asked about how cargo volumes might evolve per commodity post-COVID-19 crisis. And to the majority of respondents, parcels, e-commerce, vaccines, pharmaceuticals and medical equipment are with no surprise the winners. 

The continuous rise of e-commerce

Stay-at-home policies worldwide have boosted the online shopping, as consumers have turned to e-commerce giants like Amazon and Alibaba for their shopping needs. As an example, Home Depot’s digital business jumped from approximately 30% growth in early March to triple-digit increase in early April.

Many brands continue to see the success of their online businesses and plan to make this channel a priority after the lockdown. Brands are confident that changes in consumer behaviour will be lasting, especially in grocery online commerce. And air cargo professionals who participated in the survey count on cross-border e-commerce volumes to boost their business:

• 85% still think cross-border e-commerce will continue to be one of the drivers of air cargo growth

• Only 25% anticipate a large boost in volumes after COVID-19

• 60% anticipate a slight increase

Leveraging the momentum created by pharma

Pharmaceuticals, vaccines and medical equipment are in the spotlight right now. Regular freighters, special cargo charters, “preighters” (passenger aircraft converted into freighters) are all flying the life-saving and COVID-19 related goods.

The demand is likely to continue growing even once the pandemic is over. Many pharma shippers had to postpone non COVID-19 related shipments due to the drop in capacity and a surge in air freight rates. With the lift of travel restrictions and the increase in belly capacity, vaccination programs that were put on hold will resume. And hopefully, once the COVID-19 vaccine is available, there will be a high demand for air cargo capacity. 

3. Customer’s choices might change

Long term, shippers might shift from air to surface modes of transport by choice, aiming at reducing costs, for environmental reasons, or imposed by a long-lasting cargo capacity crunch giving less opportunities to certain commodities to fly.  

Interestingly, 93% of the respondents think their own behaviours as consumers will change: either in the short term due to financial constraints and restrictions or in the long run treating this crisis as a wakeup call for profound transformation. Most of the respondents explained they will make “more conscious choices,” with “environmental considerations,” they will “focus on better quality, rather than quantity” or “only on essential goods.”

More than ever I think sustainability will be high on consumers, politicians, and investors’ agendas. If the aviation wants to be attractive to shippers, it will have to deliver more than speed:

1. Embrace (and invest in) modern technologies

2. Be agile, less complex, responsive and reliable

3. Demonstrate its environmental and social responsibility

If cargo wants to be attractive to the broader aviation decision makers, it needs build on the current momentum, be proud about its contribution to the bottom line, innovative and profitable in the long term.

And I hope this will lead to a much louder call for aviation leaders to give higher priority to cargo business and accelerate the sustainable transformation of air cargo!

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*Source: IATA