Air cargo rates slump but some companies see long-term strength

The cost of shipping air freight around the world is slumping, but some companies say the world’s shift to flying goods around the world will keep the market attractive for years.

“I don’t think it’s going to give back share to other forms of transportation,” Boeing
CEO Dave Calhoun told reporters at an industry conference in Washington, D.C., last month. “I think that it will get back to its earlier pace of growth.”

Air freight is a tiny part of the overall cargo market, but supply chain problems, travel restrictions and voracious consumer spending pushed the niche to the forefront during the pandemic.

Boeing and Airbus
are both selling freighter versions of their newest wide-body planes, which are more fuel-efficient than older cargo jets, and demand to convert older passenger planes into freighters has been so strong some slots are booked up for years.

Traditional ocean freight companies like Maersk have recently gotten into the air cargo market. And passenger airlines have reaped the rewards of strong cargo demand during the Covid pandemic to supplement traditional revenue streams.

Air freight’s recent cost declines are a departure from a year ago when frantic companies around the world drove air freight rates to record highs ahead of the year-end holidays as they paid up to fly and avoid chaos in ocean shipping like clogged ports.

Now concerns about the economy, shifts in consumer pandemic spending habits — e-commerce binges this summer gave way instead to a stampede of vacation travel — and an increase in capacity are pushing air freight rates downward.

Belly cargo carried in passenger planes has added to the world’s capacity as travel demand, particularly long-haul international, has returned.

FedEx
last month shocked investors by pulling its guidance and announcing major cost cuts, including removing air capacity. Its CEO forecast a global recession.

“The largest single expected contributor in fiscal ’23 will be the changes we are making to our express air network as we cut global flight hours,” FedEx CEO Raj Subramaniam said on an analyst call in September.

Consumers may have eased off of their cooped-up shopping frenzy during the height of the pandemic, but they aren’t likely to become much less demanding.

“If you look at the e-commerce segment of air cargo, that has grown significantly and that’s probably not going to cycle back because we’ve all learned to acquire things in a different way,” said Rob Morris, global head of consultancy at Ascend by Cirium, an aviation data firm.

By: Leslie Josephs

Source: https://www.cnbc.com/