How do you think air cargo is going develop short, medium, and long-term? In the first of a STAT Trade Times trilogy on “Air cargo in the time of a pandemic” the focus was on “the now, the next and the new normal”, and looked at challenges, outlooks, and creating opportunities in an uncertain, unexpected situation.
Arranged and moderated by STAT Media Group Editor, Reji John, and co-hosted by Messe Munich and TIACA, the 2-hour webinar featured a keynote from Michael Steen, Executive Vice President &
Chief Commercial Officer, Atlas Air Worldwide, and the discussion panel included Steven Polmans from TIACA; Emir Pineda from Miami International Airport; Neel Jones Shah from Flexport; Christos
Spyrou from Neutral Air Partner; and Lionel van der Walt from PayCargo.
“Let’s be proud of what we did and be ready for what comes!”
In his introductory words as TIACA Chairman and co-host, Steven Polmans commented on the NOW: “Find any graph on air cargo, and you will see that the NOW is disruptive, challenging, interesting – exceptional times. We will look back at this for many years to come,” urging for even more “collaboration and cooperation […] to be able to face the NEXT,” which could include a second wave and economic crisis. As for the New Normal? “And it gets even worse if we look at the new normal…” which he left for Michael Steen to elaborate on, not before reminding participants that in the face of the crisis “air cargo did a great job, showing resilience, agility, flexibility, strength. Let’s be proud of what we did and be ready for what comes!”
The Now – Ugly?
Michael Steen opened his keynote by reminding everyone that “We are in a globalized, completely integrated supply chain environment, so all sectors were affected by COVID-19 in many different ways,” and that 50% of all air cargo, since the past 20 years or so, has travelled in the bellies of passenger aircraft. With up to 90% of widebody passenger planes being grounded, this obviously created a major capacity problem which “was impossible to cope with in an efficient way,” especially exacerbated by the extraordinary demand for PPE, which are products that normally travel via surface-freight. From an air cargo perspective, demand had remained relatively solid: 2019 had been a weaker year, and with the corona outbreak and shutdown of factories in China, there was very little commercial cargo at the start of the year, but “the reduction in demand was not as big as the reduction in supply,” and this was a factor that will continue to affect the industry going forward.
Echoing Steven Polmans, he agreed that in “all these challenges, we have been great as an industry working together, being innovative, creative, flexible and we made sure that cargo literally saved lives and kept the economy going.”
Capacity challenges until well into the future – definitely ugly
“The pandemic will have lasting impact until a vaccine is in place”. With travel restrictions, grounded flights, passengers nervous about flying, the impact is that 77% of passenger planes currently remain grounded. In addition, passenger airlines are looking to retire widebody aircraft such as the freight-friendly 747s, the A380 are out, and in many cases, “relatively young 777 aircraft, too, simply because demand is not there.” Significant numbers of jobs are being cut across the aviation industry. Pilots not flying need to be kept proficient, and stored or parked aircraft need to be kept serviceable.
On the cargo side, “freighters are being more and highly utilized both across general cargo and express,” here the emphasis on “most serviceable freighters.” Going forward, however, Michael Steen underlined a serious risk of ongoing and future cargo capacity shortages, looking at the development of aircraft orders in light of the uncertain situation: “Long-term is really important here, since we invest in assets that have a 30-year lifespan, so we need to understand all the key drivers in the market to make the right investments. [..] We are all in this together and need to share our intelligence as an integrated industry to position ourselves in the new normal.” Showing a slide illustrating orders as they stood in 2019, he pointed out that “72% of new capacity going into air freight between 2020-2023 was belly passenger capacity” and that many of these orders are being cancelled or delayed. There were very limited freighter orders and deliveries in the short-term – much of these on the integrator side. “This impacts the next 20 years: assuming that the global economy will grow on an average basis from 2022, (when things are possibly normalizing), by 4%, we will need a significant amount of capacity.” This creates real challenges when it comes to capacity versus demand.
The Next – Bad?
What comes next? “The jury is out – none of us have a crystal ball.” Michael Steed outlined the open questions - how long would the pandemic last? What profound impact would it have on the global economy? The effect on consumption? The negative geopolitical situations that were happening… He expects the medium-term, the next 2-4 years, will still be affected by the pandemic and illustrated IATA’s forecast that passenger demand would return sometime in 2023/24, which is still a “long way out in the planning cycle.” From a cargo point of view, there were great differences in future predictions. “It will take time,” he stated, yet expected that supply chains will soon be up and running again since consumer behavior is “still relatively solid.”
What is definitely important is that the air cargo industry actively works on shaping its future: “we need to share our voice with lawmakers and regulators that impact the business” working together to get to the level of “success in 2016-18, when global economy was going full-swing. I am confident we will get there again, but there are rough seas to go through going forward.”
The New Normal – Good
Turning to the new normal, Michael Steed said: “We are extremely important to the global economy. The world will definitely come back. It is our human nature to explore and be inquisitive, and the megatrends that we have seen will continue. Globalization will continue, and that will impact us. Manufacturing will move away from traditional passenger hubs. Consumers are global, so agile, global supply chains are required, but we need to work on improving efficiencies in our processes on ground, in partnerships and with lawmakers.”
He pointed out that the growing shift from B2B to B2C would definitely continue: “eCommerce has grown significantly over the past 4 months, yet still only represents 16% of global sales, and half of that is electronic, so not flying,” with the ecommerce retailers looking to satisfy customer expectations on speed, and promising 48-72-hour delivery times. This is a “challenge that we need to live up to.”
That would best be done through a significant improvement in digitalization when it comes to processes and information flows.
“There are 7.8 trillion people in the world and many of them will look for vaccines as soon as these are available.” Michael Steed brought one topic to table that was much discussed across the panel. Alongside the normal cargo peaks, which many of the panelists expected would still come in the last quarter of this year, there was agreement that the production of a COVID-19 vaccine is going to pose an incredible challenge to air cargo, and one that very few, if any, of the players are really prepared for, and many are nervous about.
Initial talks were being held with some, but how do you prepare for something when you do not know where it will be produced, in what quantities, where it needs to go to, how it needs to be transported and in what time-frame, and, and, and?
For certain, capacity constraints were going to be one of the biggest challenges in the unprecedented vaccine peak. “Maybe we can lift this to a higher level as TIACA,” Steven Polmans agreed, “to show the importance of air cargo for the well-being of everybody. Together we will be better prepared than individually.”
“Never waste a good crisis!”
Steven Polmans repeated a message that he had started out with “There are always opportunities in a crisis. […] I believe digital will be one of the winners of this crisis,” given that the virus had created “extra reasons to embrace digital: working from home and working contactless. [It was a] big enabler to embrace digital” and led to a “boost in applications and operational benefits.”
That same attitude he applied to the upcoming first TIACA cargo forum together with Messe Munich later this year. The pandemic was posing difficult challenges here, too. “How will we turn this into an opportunity?”
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