Ageing freighters face fallout from reduced air cargo demand

Older freighters are being grounded as a result of ongoing reduced demand and increased capacity.

Sander Schuringa, manager market intelligence, Seabury Cargo said that as a result of falling demand and increased capacity, yields and freighter utilisation have dropped.

Older freighters tend to be more expensive to operate and are therefore taken out of operation first when margins are squeezed by lower market rates.

“What we see now, is that older freighters are being grounded in relatively greater numbers than younger aircraft,” he said during the opening plenary ‘Air cargo market dynamics’ session of IATA World Cargo Symposium (WCS) 2023.

Comparing the first quarter of 2022 to the first quarter of 2023, Seabury’s data shows that in terms of widebody international air cargo capacity utilisation, the B777-200LRF is up 6% year on year, while the B747-8F is up by 5%.

This is compared with a capacity utilisation drop for older aircraft of 43% for the MD1-11F and 18% for the Boeing 747-400F.

Future freighters

Looking at the trajectory of freighters, Schuringa said: “In the years prior to the pandemic the output of the aircraft manufacturers has always been relatively stable. Obviously during the pandemic these numbers drastically reduced by a third due to production stops at the factories.

“What we expect to happen in the next few years is that recovery will happen. However, when looking at longer term we do expect that where passenger capacity is roughly at 51%, we do expect that number to increase to over 60% in the next 10 years.”

Focusing on regions, he said in the year to date most of the air cargo capacity is in North America “which is obviously caused by the integrators who fly the majority of freighters”.

He added: “We do see that despite this imbalance between North America and the rest of the world, we do expect that orders are distributed relatively evenly across the world.”

Longer term, Middle eastern carriers are expected to increase their capacity – taking on more freighters.

Tough road for demand

Having analysed the market in general, Seabury Cargo said air cargo demand has significantly declined for more than a year, while cargo capacity continues to recover.

“As a result of falling ocean cargo yields, we not only see that certain products are shifting towards ocean, but we also see that air cargo yields are further being eroded,” said Schuringa.

In the first quarter of last year there was moderate air cargo growth of almost 5%. But the first signs of decline were visible and this continued throughout the year, with Asia suffering in particular.

“If we compare the data from January this year, it’s fair to say that the changes have been quite dramatic in terms of accountability for the decline.

“All trade lanes that are either starting or ending in Asia have all seen quite a dramatic decline at the start of this year compared to the start of last year.”

This also applied to intra-Asia, he said.

“Recovery in the Asia Pacific region has been quite modest while the rest of the world’s recovery has been progressive,” said Schuringa.

Adding to an already mixed outlook for air cargo, he warned the decline in demand is not a correction to pre-pandemic levels.

“If you look at the -13% decline (in demand) from the record month of January 2022, unfortunately our data shows that January this year has fallen back to pre-pandemic 2017 levels.

“That means that the anticipated recovery will likely take a little bit longer.”

Sector shift

The fashion, chemicals, pharma, raw materials, high technology and automotive industries are largely responsible for the demand decline and shift back to ocean, explained Schuringa.

Some of these products saw a major uptick at the start of the pandemic, he said, explaining the decline that we see is partly caused by the “reduced Covid affect”.

Lower ocean cargo rates have caused “mode shift sensitive products” to transfer to sea.

“At the moment we are still in the white zone where there is a relative balance,” but he added this could change.

Using the fashion industry as an example, he said there used to be a balance of shipments between ocean and air but this balance is gone – in favour of ocean shipping.

“We definitely see that fashion is more favourable of being shipped by ocean than by air.”

The same trend is happening with high tech products.

There is some cause for optimism regarding a number of verticals though.

“That being said there is still room for optimism because some product groups mainly between Europe and the Americas have seen quite an interesting uptake – for example perishables,” he said.