Are the skies full of black swans or is there some kind of stability on the horizon? This was the general discussion thread throughout the CargoFacts EMEA conference in Dubai, 10-11MAY22, which took a whirlwind tour look at the future of air cargo, as well as the main learnings and developments resulting from the pandemic. Resilience, ecommerce, sustainability, were recurring buzzwords, along with views on the risk of overcapacity when and if the world returns to “normal”.
The fourth CargoFacts EMEA conference, held for the first time in Dubai, after two Frankfurt events and one obligatory online version during the pandemic, saw its best turnout yet: more than 250
attendees joined the evening registration reception and subsequent one and a half days of panel discussions interspersed with networking breaks. The conference’s predominant focus is on
innovation in air freight, and therefore attracts aircraft and aviation equipment manufacturers, financial institutions, lessors, maintenance and conversion specialists as well as airport
authorities and airlines.
Scrambling for space
Speaking in the first session which looked at the future of mega hubs and spokes, Leonard Rodrigues, Head of Revenue Management and Network Planning at Etihad Cargo, in answer to the question as to whether there would be enough cargo to go around for everybody, summarized what other airlines and lessors speaking over the two days echoed in various versions: “We are still living in the present, where we are trying to find capacity solutions for cargo that has to move and cannot move. We cannot get new aircraft fast enough for what the supply chain requires, and there is a risk that we might overcorrect as an industry.”
In general, cargo forecasting by Seabury for example, had calculated that 2021 would still be at 10-20% below 2019 levels, yet in fact 2021 saw almost +20% growth, and the ongoing tight capacity situation has triggered at least four effects: a) CFG spoke to 3 potential new leasing companies during the event all looking for AOC certification, but still missing aircraft to commence operations, b) freight forwarder and shipping companies have mutated into multimodal, sourcing or leasing their own aircraft, c) there has been a definite shift of cargo previously travelling by sea moving to air, and d) there is a trend towards combining sea and air freight.
Coming to Africa by sea and flying inland
On the current sea freight to air freight move, Daniel Randig, Senior Vice President Air Logistics, Middle East and Africa at Kuehne+Nagel, opined that rate levels could push cargo back to sea freight, and that in the long-run, things would go back to how they were pre-pandemic, just that it was hard to say how long this extraordinary period would last. He also pointed out that, likewise, some perishable air freight had shifted to sea freight both because of the lack of capacity or too high air rates. “After three years of high costs, some shippers are now used to multimodal solutions, so one change of pandemic is that cargo will be based on multimodal transport,” he concluded.
A change that both Sanjeev Gadhia, Founder and CRO of Astral Aviation, and Betelhem Abel, Cargo Manager in the Gulf for Ethiopian Airlines, agreed is here to stay on the African continent at least. Hardest hit by the pandemic, both in groundings affecting the major southern and west African air cargo hubs the most, and extortionate sea freight rates almost levelling out with air freight, the continent began organizing a sea hub and air spoke system to ensure affordable cargo transportation going forward: Africa’s first sea-air terminal was set up in Mombasa last year, and “we will see more sea freight coming in via Mombasa, Durban, and other African hubs and then flying on domestically,” Sanjeev Gadhia predicted, adding that he was also “optimistic about the Middle East air connections,” expecting daily flights from Dubai to Nairobi, Johannesburg, and West Africa from SEP22 onwards.
Death of a preighter
That optimism was shared by Betelhem Abel who forecast that cargo volumes will increase in future with the return of passenger flights coming in the summer which would be carrying the growing amounts of e-commerce. Also, 5 B777F are due to enter the Ethiopian fleet in 2023. Until then, the airline will still be making use of its many preighters for the domestic onforwarding of freight on the continent. Yet, elsewhere preighters have or are coming to an end as various governments are retracting the authorization to operate them. Within the EU, this will happen in JUL22. According to Betelhem Abel, Ethiopian was strategically planning “to hold on to these preighters for next year as well, though after 13JUL22, EU will be difficult, so we are planning for Africa still. Next year, 50% of preighters will return to passenger operations,” she stated. Leonard Rodrigues confirmed that Etihad will cease operating them in the next few months, “not that there is no cargo,” but because passenger demand was coming back at a phenomenal rate and therefore required the aircraft again. Also “high fuel prices will push out preighters quicker,” he predicted.
For Henrik Ambak, SVP, Cargo Operations Worldwide at Emirates, Preighters were a prime example of what can be achieved if the industry sets its mind to it and mobilizes the authorities. “Pre-pandemic, the idea of preighters would have been impossible and taken years for authorization. Here it took 2.5 months,” he pointed out. “When we have to, we can,” he said, “We should also can when we want to,” was his plea. “Let us keep this agility! This should be a key takeaway to keep from this pandemic.”
The risk of over-capacity
5 years ago, 1% of global freight was carried by air. This is now touching 2%. Both Boeing and Airbus forecasts agree, that of the roughly 20,000 commercial aircraft in operation today, 2,000 are freighters, and this number will increase to 3,500 by 2035. “There are more freighters in operation right now than we would have in normal situation,” Frederic Horst, CargoFacts Consulting, illustrated, pointing to “Overhang” and that many more freighters were coming online which is “out of whack with predictions. Some general cargo airlines are getting into narrow-body freighters,” he said, opining that this could work for express fleets especially, but that the risk of creating a bubble and overcapacity is there – in particular with passenger operators beginning to add freighters.
On various panels, the consensus was that though passenger networks returning would help combat the capacity crunch, a passenger network alone was not enough to cover the required cargo demand. For this, an airline requires a certain number of freighters to compensate. Jim Morrison, Head of Portfolio Management at Avolon pointed out an “interesting fact: since Covid, the number of pax airlines operating dedicated cargo aircraft, has increased by 50%”, and that cargo traditionally made up around 10% of an airline’s revenue, but that this has now grown to around a third of its revenue. There has never been such an array of freighter aircraft types to choose from today, but there are also long delays in conversion for most, with the earliest free slots starting in 2025 for some. By the time these freighters and conversions are delivered, what will the world look like in terms of cargo capacity and demand?
What does the future hold?
How cargo develops depends on a number of variables: the end of the pandemic, the effects of geopolitical situations such as the Ukraine invasion, the influence of fuel prices (which were predicated to continue being volatile in 2022, but with stability starting in 2023), a move to near-shoring, as well as spreading the logistics network risk over a greater number of locations, delays in conversion and freighter production due to supply chain shortages, also - with the ongoing operation of all freighters, old and new, many of these are due to come out for maintenance now and next year, this, too, will stretch capacity. Cargo is predicted to double over the next two decades, according to experts. As for now, Boeing’s Tom Crabtree, Regional Director – Airline Market Analysis, Marketing & Business Development, pointed out that traffic turned negative in MAR22 (relative to MAR21) and that “a recession is on the way. Air cargo rates average 3-4 USD/cargo right now, so I am not terribly concerned for outlook of air cargo in 2022,” he said, “not just yet… Things are not going back to the way they were,” however. “Sustainability and new equipment will shape the industry going forward,” he is convinced.
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