E-commerce fuelled capacity crunch to continue in 2024

Air cargo looks set to continue its precedent-setting volume growth driven by booming e-commerce and have a long-term bright future despite a looming capacity crunch, a keynote speaker at the EU Cross-Border E-commerce Forum, held in Liege, Belgium on September 10, said.

“We had eight straight months of double-digit growth,” Ryan Keyrouse, co-founder and chief executive of the Rotate consultancy, told the conference, adding that in the year-to-date air cargo has grown globally by 14%. “It’s quite a run,” he added.

Much of this is because of the growth in e-commerce out of China whose exports to the US rose an average of 22% each year since 2022 to 2.8m tonnes. Nor is this isolated.

Keyrouse’s presentation listed six big markets the EU, Saudi Arabia, South Korea, Malaysia, Mexico and Taiwan where January to July of this year volumes are between 14% and 73% higher than the same period in 2022.

E-commerce volumes out of China are also spreading, said Keyrouse. Previously growth was largely confined to the southern province of Guangdong (up 15% this year), but has now spread to ‘other provinces’ which are up 37%.

However, he also pointed out that the general air cargo market had been flat and much of the growth in numbers was down to e-commerce.

Hosts Liege Airport illustrated much of this neatly. The airport’s volumes are just ahead of the global figure increasing its year-to-date tonnage by 15.31 % to 661,558 tons, Torsten Wefers, vice president of sales and marketing for Liege Airport told another session.

“We are very strong in the China market,” he said. This has helped it break by leaps and bounds its e-commerce parcel total. Last year it was 330m.

Even now, in early September, that figure is dated, according to Wefers. “We have already reached this year half a billion,” he said.

Despite the global boom, there are some big differences between trade lanes and some very unbalanced trades.

Transpac is “quite profitable one way while not the other way because of the imbalance” Keyrouse said.

Load factors are high with his presentation showing Asia to North America and Europe with cargo load factors of 87% and 86% respectively vs 63% on North America to Europe.

That’s for the summer period too so the traditional end-of-season rally is already shaping up to be strong.

The biggest problem the industry could face going forward is the sheer lack of capacity with figures from Keyrouse’s presentation showing only a 4.4% increase in new capacity as just 22 new planes will join the 482-strong fleet.

Relocating planes from other areas of the world is easing the pressure on some trade lanes but the basic issue next year might be a lack of space.

Keyrouse’s views are not an outlier and are shared by the top levels of the industry.

“An extreme peak,” was the view of the end of the year according to Asok Kumar, head of global airfreight for DB Schenker in a typical comment representative of a much more confident industry despite the challenges it knows it has.

On top of the China-led e-commerce boom, Stefan Krikken, head of airfreight, global, for freight forwarder DSV pointed out the final quarter of this year has a number of online events including, 11-11, Black Friday and the launch of the new i-phone.

Not mentioned formally but part of the conversation in Liege was the possibility of the US east coast ports being closed – another potential strong fillip for the industry.

However, the growth of e-commerce also presents problems for the air cargo industry.

“Maybe e-commerce requires a fleet of 800 freighters, but they are not coming,” said Peter Scholten, chief commercial officer for Air One Aviation, a capacity provider.

Also, “it increases the imbalance”, which makes creates a longer term problem for the industry’s viability. “It has to go back empty and it’s not sustainable,” Scholten said.

The second is the deep concern this is sparking among existing clients about what will happen to them and their contracts.

Some companies are already moving to allay fears. “We will protect those commitments to our existing customers,” said Kumar.

However, in a telling comment about the kind of pressures emerging it was reported there is a serious movement towards longer contract periods – suggesting as well it’s not just air cargo companies who are aware of what the future holds and are planning for.

“Even during covid we don’t talk about six year deal, eight year deals now we do. Some of the carriers insist on that as a minimum otherwise you won’t get the plane,” Kumar said.

This new business model, which is what it effectively is, brings with it a brighter context for some of the shorter term problems the industry has. Some did report a lack of sleep over the capacity issue though.

Tax and customs issues remain things to watch, especially in an American presidential election year when protectionism is heavy in the air.

“It won’t be a very popular measure,” acknowledged Richard Broekman, chief commercial officer for Atlas Air if proposed US tax changes go through, adding quickly, “it maybe won’t change the growth trajectory very much.”

This was also true of the potential lowering of the de minimis threshold in the US, something the industry currently frets over – although less so seemingly than capacity. Only 17% of industry participants who took part in a survey conducted by Keyrouse at the event expect “large declines” in volumes should the US (and Europe) tighten rules.

Delegates that took part in the survey were split between e-commerce continuing its aggressive growth and maturing to more moderate growth, while a small minority thought e-commerce volumes had peaked.

This positive outlook would put the industry in uncharted territory – setting records for consecutive months of growth – but also leaving the industry wondering how much the available capacity will constrain demand growth given deliveries and conversions are limited and the utilisation of freighters is still near its peak.

The survey also revealed the biggest risks to e-commerce growth were not changes to De Minimis thresholds, but rather security concerns from misdeclarations and politically motivated policies.

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