E-commerce: Ready for renewed lift-off?

E-commerce is big business for the air cargo industry, with IATA figures showing that 80% of cross-border e-commerce is now transported by air and the sector represents 20% of the industry.

At the 2022 IATA World Cargo Symposium (WCS), Brendan Sullivan, the trade association’s global head of air cargo, stressed the industry was “the enabler of e-commerce” during the pandemic.

And the IATA E-Commerce Monitor noted last year how airlines were “adapting to the e-commerce model to ensure longevity and to diversify their revenue streams” by cooperating and partnering with logistics companies.

However, the global economic downturn has resulted in a reduction in consumer spending and dampened e-commerce demand, although industry analysts predict the e-commerce market will recover and thrive this year.

Analyst Transport Intelligence’s (Ti) ‘Global E-commerce Logistics 2023’ report suggests the global e-commerce logistics market shrank by 5% in 2022. The report says this decline was due to slowing demand, the effects of the war in Ukraine, inflation, disrupted global supply chains and depressed consumer spending. New entrants to the market were also hit by the economic constraints, as start-up funding slowed in 2022.

But the e-commerce logistics market remains larger than it was pre-pandemic, points out Ti. Growth of 7.9% is expected in 2023, which would see the market reach a value of €451bn. This compares with 28% growth in 2020 and 19.9% in 2021, although there is no cause for alarm, according to Ti.

“The e-commerce logistics market experienced a significant spike in growth during (the) Covid lockdown. These figures should therefore be viewed as a rebalancing of demand, as opposed to anything negative,” says Paul Chapman, Ti’s senior editor. “Indeed, the e-commerce logistics market is ahead of where it was in 2019 by some measure.”

North America has become the largest regional e-commerce logistics market, taking the top spot from Asia Pacific, says the report.

Domestic e-commerce has a larger market share than international e-commerce but the latter is growing, Ti’s research concludes.

Technavio’s ‘E-Commerce Logistics Market 2023-2027’ report also includes positive predictions. This valued the market at $113.4bn in 2017, and forecasts that the size of the global e-commerce logistics market will increase by $404.8bn between 2022 and 2027.

Technavio says the Asia Pacific region will account for 57% of the market growth during this period.

“The e-commerce logistics market in APAC has been growing because of the growing e-commerce industry in countries such as China, India, and Japan,” says the report.

In particular, the e-commerce industry in China is “expected to grow by more than 63% during 2018-2023”.

North America and Europe hold the second and third biggest market shares respectively.

The currently fragmented market will stay competitive due to investment in fulfilment centres closer to customers, and merger and acquisition activity, finds the report.

It says e-commerce challenges include the high cost of logistics, infrastructure issues in emerging economies, and stringent regulations for e-commerce logistics.

E-commerce players

The picture for e-commerce operations presents a more mixed outlook, as some of the main air cargo stakeholders in the vertical have demonstrated.

A study published by the Chaddick Institute for Metropolitan Development at DePaul University in Chicago shows that Amazon Air’s flights have increased in the last six months but the rate of growth has slowed from previous levels.

The carrier’s flight activity grew 5.8% between August 2022 and March this year, compared to a 3.8% increase in the previous six months. Yet these two periods lag well behind the 14% growth rate of 2021.

Meanwhile, a fleet outlook from Air Transport Services Group (ATSG) in February this year indicates that both Amazon and DHL will scale back US freighter operations with the lessor due to the e-commerce slowdown.

ATSG says it expects to “operate 767 freighters dedicated to principal customers DHL and Amazon for reduced schedules and fewer block hours per aircraft across the US in the first half of 2023 versus 2022”.

The lessor says that the US e-commerce giant and the German logistics company are acting in response to economic constraints and reduced e-commerce spending in the US.

ATSG adds that Amazon may also reduce the number of Boeing B767-200 freighters it leases from 12. It says it expects to continue leasing four aircraft, while three will be retired, and that Amazon “may not extend” leases for the remaining five.

In January, Amazon Air also reportedly began looking to sell spare backhaul capacity in aircraft operating to Hawaii and Alaska.

Elsewhere, DHL Global Forwarding’s November 2022 ‘Air Freight State of the Industry’ report painted a bleak picture for volume growth in the first two quarters of 2023 but highlighted that e-commerce movements were expected to increase around the end of November and December last year.

FedEx is also taking a cautious outlook on demand and last year announced cost reduction actions including structural air network changes and the temporary parking of aircraft.

UPS, on the other hand, hasn’t yet showed signs of reducing its fleet, ordering eight Boeing B767Fs, due to be delivered from 2025, which will take its B767F fleet to 108 aircraft.

German airline Lufthansa also shows no signs of scaling back. Last year, Lufthansa Cargo took delivery of two converted A321Fs which are operated by sister airline CityLine on intra-European services for e-commerce customers. Two more A321Fs are due for delivery this summer.

Lufthansa Cargo chief executive Dorothea von Boxberg says the airline is further considering more freighters.

“These aircraft are meant to cater for the demand in e-commerce, but also customers in e-commerce want to have a reliable solution, which is not so easy to do if you only have two aircraft,” she says.

Speaking about e-commerce’s influence on air cargo, she adds: “E-commerce is one of the big drivers for airfreight demand – there is no doubt about that.”

She adds that the e-commerce air cargo sector is “definitely increasing”, and in long-haul as well as short- and mid-haul.

The German cargo airline’s Frankfurt Airport-based e-commerce logistics startup heyworld is also thriving and recently invested in parcel sorter operations for online retailers, digital marketplaces and freight forwarders.

Future challenges

While e-commerce air cargo operations are widespread, advances in digitalisation and automation are expected to further facilitate productivity and efficiency.

In its February 2021 ‘e-Commerce Strategies for Air Cargo Airlines’ publication, IATA says digital integration with business partners and customs authorities will help speed up e-commerce operations within airlines.

Additionally, Ti’s report says automation is helping e-commerce logistics accelerate by “enabling increasingly quick fulfilment and distribution”.

Reducing plastic use in e-commerce operations has also been identified as key to industry sustainability efforts.

IATA’S ‘2023 Trends: Cargo operations’ report highlights the importance of developing environmentally friendly packaging materials, such as biodegradable film that some companies are beginning to use.

“The e-commerce packaging market was valued at $43.1bn in 2021 and is expected to reach $75.1bn by 2025,” it states. “The rapid acceleration of e-commerce has led to a significant increase in packaging consumption, amplifying the need for materials and production processes that minimise impact on the environment.”

IATA also notes that a particular compliance issue remains safe transport of the lithium batteries that are included in many electronics consumer goods now.