In the US, the air freight industry had a rocky year full of ups and downs as it worked to recover from the COVID disruptions, but it is now facing challenges from sluggish global demand and stagnant growth.
According to the International Air Transport Association (IATA), cargo volumes for North American carriers declined by 3.4% in August 2022 compared to the same month in 2021.
Comparing this to July’s 5.7% decline was better. A significant increase in demand is anticipated in the upcoming months due to China’s limitations being lifted. Compared to August 2021, capacity increased by 5.7%.
A problematic year for air cargo
With the expansion of e-commerce, embracing sustainability, talent retention, and digitalisation emerging as the industry’s megatrends, 2022 saw several significant advancements for air cargo.
The National Customs Brokers and Forwarders Association of America (NCBFAA) and the Air forwarders Association (AfA) had called for a State or Federally supported “Air Cargo Support Fund” that can inject up to USD 5 billion to address the infrastructure crisis faced by the US air cargo industry in October.
Following a comprehensive nationwide survey of 400 air cargo stakeholders to identify difficulties for the industry, the recommendations to Washington are included in a whitepaper.
“The situation is growing grave with potentially serious effects on the economy and jobs across the nation as a result of airports and airlines having significant revenue shortfalls over the previous two years. Airports will be devoting the Infrastructure Act funding to passengers, security, and safety due to the slowing financial situation, leaving insufficient funds to support air cargo operations. There is an urgent need for additional finance, specifically designated for air cargo,” AfA’s Executive Director Brandon Fried remarked.
To guarantee that warehouse and logistics workers’ salaries and working rights are maintained, the US Department of Labor’s Wage and Hour Division established a “Warehouse and Logistics Worker initiative” in February 2022. These actions signalled airport overcrowding, labour shortage and unrest, along with airlines facing revenue shortfalls. They also highlighted the growing pressure on the air cargo industry working with outdated facilities.
Airlines exhibit a strong interest
Despite limited capacity, heavy traffic, COVID-led trade restrictions in China, and a severe labour shortage, US airlines demonstrated a demand for air freight, and 2022’s volumes reached pre-pandemic levels. In addition, many carriers have chosen to modernise their fleets and many others have added extra freight routes. However, the cargo markets have come under pressure due to inflation, declining consumer confidence and geopolitical factors.
Air freight volumes throughout the industry are down roughly 14% YoY as capacity recovered, avoiding the peak season bump typically anticipated at this time of year. These patterns also matched some US carriers’ most recent third-quarter financial figures. Due to fewer miles flown and poorer yields, American Airlines recently reported a 16% fall in cargo income to USD 279 million for the third quarter that ended on September 30, 2022, compared to Q3 2021.
Cargo yield per tonne mile fell more than 10% to 58.30, while cargo tonne miles fell more than 6% to 478 million.
Despite a 9% reduction in cargo revenue tonne miles to 733 million from 804 million in Q3 2019, United Airlines reported a 77% growth in cargo revenue to USD 498 million for the third quarter that ended in September 2022 compared to USD 282 million in Q3 2019. Cargo revenue for the first nine months of FY2022 was USD 1.7 billion, nearly (97%) double ($863 million) that of the same period in 2019. Compared to the same period in 2019, cargo revenue tonne miles decreased by 7% to 2.3 billion from 2.4 billion.
Revenue from cargo in the third quarter of 2021 decreased by 4% and climbed by 4% for nine months.
United Airlines announced operating revenue of USD 12.9 billion, up 13% from 2019, and a net income of USD 942 million. For the third quarter that concluded on September 30, 2022, Delta Air Lines reported an increase in cargo revenue of 27% to USD 240 million from USD 189 million in Q3 2019. In addition, revenue from cargo increased 41% to USD 801 million during the first nine months of 2022 from USD 567 million in 2019. For Q3 2022, total operating income increased by 11% to $14 billion. For the first nine months of the current fiscal year, it increased by 4% to USD 37 billion.
In Q4 2022 compared to Q42019, Delta is forecast to post a 5–9% increase in total revenue and a 9–11% increase in operating margin. In addition, UPS stated that their consolidated Q3 2022 revenue increased by 4% to USD 24.2 billion due to higher revenue per piece in both the local and international markets.
In a meeting with investors and analysts, Carol Tomé, CEO of United Parcel Service (UPS), said, “Our operating margin for the third quarter as a whole was the highest it had been in 15 years. We are more agile than ever in the face of a highly volatile macro environment.”
Alaska Air Group reported that cargo revenue grew 14% to USD 67 million and was up 19% to USD 190 million for the first three quarters, marking a significant rebound since 2020. In addition, the parent company of Alaska Airlines reported operating sales of USD 2.8 billion, a new high, and a net income of USD 40 million overall.
US airports ‘invest in expansion’
The Federal Aviation Administration (FAA) of the US Department of Transportation awarded more than USD 31 million in grants in October 2022 to increase cargo infrastructure at nine national airports, bolster supply networks, and finance significant airport cargo projects.
The programme provides funding for developing new and enhanced airport facilities, the upkeep of airfield components like lighting and signs, repairs to runways and taxiways, and acquiring equipment required to run and maintain airports. As a result, several American airports have accelerated their expansion projects with an eye on modernisation, increasing freighter activity, and easing congestion problems. The expansion of air cargo facilities began at major hubs like Los Angeles, Dallas/Fort Worth, Miami, and Chicago, as well as at cargo-specific and secondary airports.
While secondary airports like Philadelphia and Pittsburgh are also catching up, major US gateways like Miami, Dallas/Fort Worth, and Chicago have built or are developing their cargo infrastructure. Additionally, in 2021 August, Cincinnati/Northern Kentucky International Airport served as the terminal for Amazon’s USD 1.5 billion air hub in northern Kentucky. This hub has been acting as the nerve centre of Amazon’s US air cargo operations and boosting its one-day and same-day delivery service even though Amazon Air operates out of 40 US airports.
The expansion brought on by the advent of e-commerce, a movement that gained steam after the pandemic and improved the fortune of secondary airports, has given US airports more wind in their sails. Second-tier air freight gateways have expanded due to increased congestion at major hubs. For instance, the 17th largest cargo airport in North America is Chicago Rockford International Airport (RFD), which is situated 68 miles northwest of Chicago O’Hare Airport (ORD). Currently, fifteen foreign airlines operate RFD as a network of freighters serving international locations.
RFD is also the location of the second-largest UPS hub in North America and a significant hub for Amazon Air, the cargo-only airline operated by e-commerce behemoth Amazon. Amazon Air recently finalised a contract with Altavair to lease 10 A330-300P2F aircraft to fulfil its one-day delivery commitment to Prime subscribers. Amazon’s A330s will be maintained and flown by Hawaiian Airlines with its FAA air carrier certificate. In 2023 and 2024, the first ten aircraft are anticipated to go into service. In addition, the Philadelphia International Airport is exploring a project to more than double its cargo building area from 600,000 to 1.4 million sq ft to establish itself as a central East Coast cargo hub.
A USD 1.2 billion cargo expansion scheme for the airport has been announced for 2021. Washington provided roughly USD 31 million to the City of Philadelphia Division of Aviation for the expansion during the current fiscal year. In addition, Pittsburgh International Airport broke ground in September on a cutting-edge 77,000-square-foot cargo facility that will debut in 2024 as part of its vision to become a global logistics hub. It is anticipated that the “Cargo 4” facility will have a warehouse, offices, and 14 loading docks that can accommodate extra equipment for special cargo and temperature-controlled commodities.
The cargo expansion project, supported by federal funds, is anticipated to have a USD 229 million yearly economic impact on the area. Los Angeles World Airports (LAWA) recently invited bids for upgrading its cargo facilities at LA International (LAX), which will undergo a significant renovation. This vast project is necessary because LAX handles more than twice as much cargo as John F. Kennedy International Airport in New York and because most of the cargo infrastructure there needs to be updated. The airport receives service from 23 cargo airlines and handles over 3 million tonnes of cargo annually.
The region’s air freight is anticipated to grow at a 2.6% CAGR, reaching 7.7 million tonnes in 2045. Miami International Airport (MIA), which chose a vertical concept and is the first in North America, is also expanding due to growing problems. Miami is now a central international hub for the transportation of machinery, hi-tech goods, textiles, and perishable goods. In 2020, MIA set a record for air freight volume; in 2020, it was surpassed by 18%; in 2021, 2.49 million tonnes; so far, in 2022, numbers are marginally higher than in 2021.
The airport has recorded an increase in air freight tonnage of +3.25% year over year halfway through the year, and it is in an excellent position to have a third consecutive record year for cargo.
Increasing benefits of e-commerce
Since COVID, e-commerce has emerged as a crucial growth driver for air freight.
Anecdotal data at MIA indicates a rise in e-commerce air freight even though the US government does not track its numbers. At MIA, integrated aircraft carriers carry the majority of e-commerce cargo, and DHL has seen an increase in its cargo volumes of +38.19% (from 2019 to 2020), +68.62% (from 2020 to 2021), and +5.04% growth (CYTD August 2022 vs CYTD August 2021). Similarly, UPS reported increases in cargo volumes of +6.33% from 2019 to 2020, +6.44% growth from 2020 to 2021 and +6.52% growth from 2019 to 2020 (CYTD August 2022 vs CYTD August 2021).
This represents a shift in consumer behaviour towards making purchases more quickly online than at conventional brick-and-mortar retailers. Before the pandemic, MIA had a direct cargo service with six airlines serving four Asian regions in the fourth quarter of 2019. Currently, MIA offers a direct cargo service to seven Asian locations serviced by seven airlines in the fourth quarter of 2022.
While the MIA-NRT (Tokyo-Narita) freighter route was terminated, service to four new Chinese cities, Shanghai, Shenzhen, Wuhan, and Xiamen, was added.
“Inflation, increased inventory, changing consumer behaviour, lower-than-expected e-commerce volumes, etc., have all contributed to the often buoyant e-commerce market also exhibiting symptoms of cooling. The e-commerce industry has experienced rapid growth in recent years. Keep in mind that Amazon now runs its own business. E-commerce, in my opinion, is essential for a prosperous Christmas season,” TAM Group’s VP for the Americas, Fernando Garreton said.
The labour market still needs to be solved. While the summer of 2017 in Europe was among the most tumultuous in aviation history, American aviation also saw severe labour shortages in the same year.
Many US airlines reportedly cancelled more than 21,000 flights this summer, or about 2.7% of the total scheduled flights, amid pilot shortages, a wave of layoffs, air cargo workers moving to other industries and a slower rate of training and licensing.
Many experts think that the fact that several American airlines started hiring again in the middle of 2021 may have saved the sector. Will this be sufficient, though, as the holiday season approaches its peak? According to the US Department of Transportation, the employment of the US airline industry increased to 769,106 workers in August 2022, 1,334 (0.17%) more than in July 2022 (767,772) and 26,780 (3.61%) more than in 2021 August, before the pandemic (742,326). In August, American freight airlines employed 274,966 people or 36% of the whole business.
Further, In August, US cargo airlines employed 246,660 FTEs, a decrease of 1,203 FTEs (0.49%) from July. On the other hand, since pre-pandemic August 2019, US freight carriers have expanded FTEs by 17,124 (7.46%).
On firm ground
Chris Gregg, SVP of Global Airfreight at SEKO Logistics, said, “It is undeniable that, as compared to the same period last year, demand in the US has decreased over the past several months. Nevertheless, with 68 million tonnes of worldwide air cargo predicted by IATA (published in June), 2022 will still be a growth year overall for the market. This covers all of the market’s challenges. Even with a 10% decline from 2019 to 2020, the market is expanding at a CAGR of about 3.5% from 2019 to the current 2022 projection. This tendency will likely continue even with the recent slowness because the uncertain service levels influence the other modes.”
Even with the current minor downturn, Gregg continued, e-commerce is expected to have a double-digit CAGR over the coming years, even though the market holiday season is likely to remain subdued compared to typical holiday seasons.
He said, “While it is true that the rates have decreased, they are nevertheless maintained in the majority of lane pairings at levels that are higher than pre-pandemic. Belly capacity plays a significant role in the transatlantic cargo market, and there are two typical seasons for that capacity. There are lower frequencies for the more significant hubs and fewer minor city pairings operated in the winter when fewer visitors travel back and forth between Europe and North America.”
“More capacity will go online during the summer (usually from the end of March to September or October). Except for the summer of 2020, when there was little to no business or leisure travel, this occurs yearly. These summer flights resumed in 2021 and 2022, albeit not at pre-pandemic levels. As more individuals venture out and explore, 2023 will likely follow a similar trajectory. When this occurs, more belly space becomes available on the market, and air freight rates do not always determine it,” he concluded.