The air cargo industry has finally seen a resurgence, with demand booming to transport everything from fish to pharmaceuticals and from iPhones to fresh berries, expediently around, across and between continents. 

But freight operators are keeping a close eye on the trade tensions that could slow down the economy and the global air cargo business. 

IATA director general and CEO Alexandre de Juniac noted the concerns as the organization released figures for August that showed 2.3% growth in demand for air cargo measured in freight tonne kilometres (FTKs), less than half the five-year average growth rate. 

“Order books are weakening and supply delivery times are lengthening. And the growing trade tensions are a spectere over the industry,” he said. “The early focus of tariffs was not on products typically carried by air. But as the list of tariffs grows, so does the air cargo industry’s vulnerability. And, we can expect souring trading relations to eventually impact business travel. . . . There are no winners in trade wars.”

According to IATA figures, the picture was mixed across the main regions during August, but capacity grew faster than demand across the board. 

North American airlines’ freight volumes rose by 2.8% in August, helped by the momentum of the US economy and solid trade flows across the Atlantic. Europe saw the fastest growth of all, with a 3.7% increase, lifted by a strong transatlantic market and growth in demand between Europe and Asia. Asia-Pacific airlines saw demand for air freight grow by 1.6% in August over the same period last year, an increase over July, but a marked slowdown in growth from the previous year, IATA said. 

The outlook for the region is still good, Association of Asia Pacific Airlines (AAPA) director general Andrew Herdman said. “Global economic prospects remain positive, anchored on expectations of firm domestic demand across regions, despite some concern over the possible adverse effects of trade tariffs. The general outlook for further long-term growth in demand for air cargo remains positive, and this confidence is reflected in the number of orders being placed for new freighter aircraft by both integrators and leading international airlines.”  

E-commerce has had a strong impact on Asian airlines, Herdman noted, with China already the world’s largest market for e-commerce services. 

“Asia, in addition to being the preferred location for many of the world’s major manufacturing centers, is also home to a rapidly growing market of middle-income consumers. The modernization of retailing and logistics services within the Asian region reflects these major shifts in consumer demographics,” Herdman said.

DHL Global Forwarding Americas head of air freight Andreas von Pohl sees the last few months making for a strong 2018, although he expects to see a less pronounced peak in the traditional end-of-year peak season for air cargo than in previous years—a development he puts down to increased efficiency in supply chains that spreads the transport of goods more evenly over the year, leading to smaller backlogs. 

E-commerce boost

The generally optimistic outlook is partly underpinned by the huge rise in e-commerce, which is driving demand for parcel shipments and shows no signs of slowing.

In 2017, retail ecommerce sales worldwide reached $2.304 trillion, a 24.8% increase over the previous year, market research company eMarketer estimates. 

The boom in online shopping is not only fueling air cargo growth, but also some more profound industry shifts, with retailers such as Amazon, which operates its own cargo airline, Amazon Air, shaking up the supply chain. 

This phenomenon is likely to continue in the coming years. Von Pohl sees the potential for the air freight industry to become more efficient and competitive as it invests in ground handling improvements, speeds up deliveries and is more transparent—all key factors in keeping up with e-commerce growth. 

“For us at DHL, the e-commerce business is an important sector that we expect to continue to grow—and it’s also a challenge in regards to our infrastructure. As an industry, Amazon has helped us to recognize the importance of the last mile. Amazon really has shown us that speed is of the essence,” von Pohl said.

Volga-Dnepr Group VP-sales and marketing Robert van de Weg agrees. His company owns all-cargo airline AirBridgeCargo Airlines.

 “In 2018, cross-border e-commerce sales have continued their growth throughout the whole world, for example from Asia, where the middle-class population is becoming more demanding and internet-savvy. This is just the beginning, as e-commerce will embrace more product categories, the likes of heavy and hard-to-handle, and niche or oversize items such as furniture and household appliances, rather than concentrating on ‘traditional’ fashion garments, electronics and high-tech,” he said.

AirBridgeCargo, which operates a fleet of Boeing 747 freighters, saw an overall 4% tonnage increase for the first eight months of 2018 and boosted volumes on most of its routes, especially to and from the US, from the US to Europe and from China to the US, van de Weg said.

The airline also expects to see strong demand for transporting fresh produce—mainly fresh fish and seafood from Europe to Asia—in the coming months. 

Industry-wide, as technologies such as digital tracking for cold-chain shipments make headway, van de Weg sees a greater proportion of fresh produce—anything from fruits and flowers from Africa to Latin American berries and Norwegian salmon—traveling by air. 

Pharmaceuticals

AirBridgeCargo has also been increasing its pharmaceutical transport business rapidly, developing a dedicated service to convey sensitive drugs and other medical products that need constant monitoring and stable temperatures. 

“The volume of pharmaceuticals and medicine-related products continues to increase as more patients need the latest medicines, vaccines and other healthcare products,” van de Weg explained. “With medicine products becoming more sophisticated, manufacturers set a high level of demands for their transportation. For example, they want temperature control throughout the whole journey and real-time information to monitor the status of the shipment as a confirmation of the medicine’s integrity and consistency.”

In recent years, the cargo industry has been trying to reverse a decline in its share of this lucrative sector. The pharmaceutical industry moves over $1 trillion worth of cargo each year, including via IATA’s Center of Excellence for Independent Validators (CEIV) Pharmaceutical Logistics, which guarantees certain standards for shippers. 

In the US, Delta Air Lines Cargo has invested heavily in pharma, and its investments paid off with the award of CEIV certification for its Atlanta operations in 2017. 

Delta, which also has a network of pharma-approved stations around the world, is looking to expand its facilities at other North American hubs, including New York JFK, as well further enhancing the temperature-controlled facilities at its Atlanta hub, Delta Air Lines Cargo managing director-commercial Lindsey Jalil said. 

“The safe and efficient transportation of onward products for the healthcare and pharmaceutical industry is a key priority for us, as is the health and safety of the patients who depend on them. So we have made a lot of investments in our facilities, equipment, operations and staff to comply with all standards, regulations and guidelines expected from pharmaceutical manufacturers,” Jalil said.

The arrival of Delta’s Airbus A350s—it has 11 in operation of the 25 ordered—is also contributing to cargo gains, Jalil said, enabling Delta to carry up to 80% more cargo and helping support Asia-Pacific market growth.

But for the air cargo industry at large, the question is whether the increasingly tense trade rhetoric between the US and China will harm business.

“The political rhetoric over trade relations and the threat of new tariffs are certainly a cause for concern, but have not yet had any visible impact on actual trade flows or consumer behavior,” Herdman said, adding that air cargo has so far not suffered because the types of products subject to tariffs so far are usually transported by sea. “Nevertheless, the risk of tit-for-tat reactions may see a further escalation, spreading to a variety of sectors, with potential adverse impacts on trade flows, including disruptions to long-established global supply chains,” Herdman noted. 

The cargo operators, for now, remain cautiously optimistic.

“China continues to be an important market for Delta's long-term growth,” Delta’s Jalil said. “We currently are still seeing strong demand for shipping in line with what the industry is seeing and so we'll continue to monitor the bilateral discussions.”

Volga-Dnepr’s van de Weg sees it similarly. “We do not see any visible effect or evidence right now. However, in the case of a deterioration in relations between the US and China, we will likely see supply chains changing.” 

There could even be a dividend, albeit short-term, for the air cargo industry if the prospect of tariffs stimulates a desire to move some goods more quickly. “If supply chains are disrupted in the short-term as businesses rush to deliver goods before tariffs come into play, or if they need to rearrange production because of differences in relative prices, we may see more demand for air cargo,” Herdman noted.