Global air cargo volumes paradoxically declined in November amid intense shipping demand during the height of the preholiday peak shipping season, yet freight rates jumped higher and planes were more full.
Blame the disconnect between a red-hot airfreight market and less cargo moved on extreme congestion at major airports, where a shortage of labor among airline service providers is slowing aircraft loading and unloading as well as freight deconsolidation of imports for pickup.
Analytics firm Clive Data Services on Monday released figures showing that air cargo volumes last month dipped 1.2% compared to October and were 3% below the pre-pandemic benchmark of November 2019. Even as capacity remained flat on a monthly basis, the average spot rate increased 8%. Rates are up 160% compared to two years ago, but on major trade lanes such as China and Vietnam to North America, rates are five to seven times higher than normal, according to companies that track rates and logistics providers.
November is traditionally the busiest month of the year in terms of tonnage and transactions. With cargo owners scrambling to book transport space this year because of ocean shipping backups and factory slowdowns in Asia, industry professionals expected airfreight demand to continue rising to make up for time lost. The amount of cargo moved by air climbed 10% from September to October. And planes are well filled because cargo capacity remains 12% below pre-pandemic levels due to the slow recovery of passenger flying, according to Clive.
The global load factor — a measure of how full planes are — was 2 points lower than in October, a highly unusual occurrence as shipment volumes ramp at year's end. Still, at 67%, the load factor was equivalent to what it was during the same period in 2018, a strong year for air cargo.
Clive, which tracks the airfreight market by collecting data on widebody passenger and freighter flights from many airlines, takes the weight and the volume utilization into account when measuring cargo carried because planes typically fill up before they reach the maximum payload.
Despite the demand from retailers and manufacturers to stock up in time for the holidays, less cargo moved through the system because of worsening backlogs at large gateways. The result is that airlines are leaving cargo on the ground to maintain their schedules, said Clive Managing Director Niall van de Wouw during a virtual briefing for reporters.
"In no way do we see signals of a slump. It's just that we found a new bottleneck," he said.
Ground handling companies have been overwhelmed by cargo since the pandemic last year, especially with so much concentrated volume coming on giant freighters instead of in more manageable chunks spread among multiple passenger flights. Many of them terminated workers as airline customers reduced passenger flying and have had trouble attracting labor ever since for reasons such as low wages, the physical nature of the work, and government relief payments to individuals. Quarantines and other restrictions have also slowed cargo terminals.
At the same time, cargo-only flights operated by passenger airlines as a stopgap way to make up for lost passenger flights have increased workloads because more people are needed to load and unload when boxes are placed in the upper cabin.
The staff shortages have made it difficult to build the last pallets with cargo before a passenger plane or freighter has to take off to meet its deadline. Some cargo that would have gone by air is likely being diverted to the long-haul truck or freight rail, where possible, contributing to the lower November figures, said van de Wouw.
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Those types of conversions are possible between parts of Asia, Russia, Turkey, and Europe, for example. Logistics companies this year have offered more block train service between China and Europe as an alternative to ocean and air transport. And many logistics providers are sending chartered cargo jets they control to secondary airports to avoid the congestion that has plagued big hubs such as Chicago, Los Angeles, New York JFK, London Heathrow, Amsterdam and Shanghai.
Crowding is so bad at many airports that cargo terminals have restored to storing cargo outside in parking lots until it can be sorted for local delivery. Truck drivers often wait hours in line to pick up a load. Logistics providers are encouraging customers to book shipments as early as possible because of excess dwell times at many airports.
At the biggest U.S. airports, ground handlers are increasingly using off-airport facilities to process the wave of inbound cargo, which in turn impacts exports. Freight forwarder Flexport said many airline service providers have shortened free time for storage and have implemented earlier closeouts for exports to accommodate longer throughput times and security screening requirements.
The situation resembles the gridlock at ports around the world that have roiled ocean shipping and created huge backlogs, with vessels sometimes waiting for weeks to access a berth.
Europe travel pinches cargo
The U.S. reopening of passenger travel with Europe in early November actually was counterproductive for cargo, according to Clive Data Services. Although airlines began to deploy more aircraft on trans-Atlantic routes, passenger bookings were so robust that baggage consumed more space in the lower hold and left less for cargo. Air cargo capacity per passenger flight from Europe to the U.S., measured in cubic meters, fell across all widebody times, especially for the Airbus A350-1000, Clive reported.
Load factors above 80% signal a seller's market. From Europe to the U.S., load factors in late November were at 85% and even higher for major destinations such as San Francisco, Los Angeles, Chicago, and New York, pushing rates up about 10%.
(Source: Clive Data Services)
"The opening of the U.S. did not provide relief and is actually putting more pressure on the supply chain because capacity is being taken up by luggage," van de Wouw said.
The COVID omicron variant could scare people into traveling less, which could open up belly space for cargo in the coming weeks, he added. But industry experts say there won't be much incremental capacity added to the market between now and early next year in terms of additional aircraft. One reason is that Hong Kong's strict COVID restrictions are forcing hometown carrier, Cathay Pacific, to cancel flights. Conditions are expected to remain tight in the westbound trade lanes from China through the Lunar New Year in early February.
Westbound transatlantic load factors went from 81% in late October to 85% the last week of November. (Source: Clive Data Services)
IATA cargo readout
Meanwhile, the International Air Transport Association's trailing analysis of the air cargo market, showed air cargo demand increased 9.4% in October — the same rate as the prior month — and 10.4% in the all-important international sector, compared to 2019. Air cargo throughput has remained fairly constant for the past six months but close to all-time highs.
IATA uses a different methodology that measures volume in cargo-ton kilometers. With the distance part of the equation, cargo can be counted twice if an aircraft makes an intermediate stop or the volume can look greater if more kilometers are logged.
The trade association said capacity remained 7.2% below pre-crisis levels, an improvement from the 12% deficit in September.
Conditions remain favorable for air cargo demand in the months ahead. The global Supplier Delivery Time Purchasing Managers Index reached an all-time low of 34.8 in October. Values below 50 indicate shippers are looking for faster transport, like air. Export orders and industrial production have slowed since May but are still growing, inventories are low and air has become more affordable compared to ocean because sea freight rates have exploded tenfold, or more, in many regions compared to 2019.
The U.S. inventory-to-sales ratio is 8.8% below 2019 levels in October, indicating companies still don't have sufficient stocks for manufacturing or retail sales.
A European Commission survey of assured production shows manufacturers in the region have close to five months of production covered by current orders, indicating manufacturing activity in the EU will remain supportive of trade and air cargo in the near future, IATA said.
Asia-Pacific airlines enjoyed a 7.9% increase in international air cargo volumes in October, nearly double the growth from the previous month. The improvement was partly driven by increased capacity between Europe and Asia as several key passenger routes reopened. Belly capacity between the continents was down 28.3% compared to 2019 and better than the 37.9% gap in September.
North American carriers posted an 18.8% increase in international cargo volumes, on par with September's performance. Demand for faster shipping times and strong U.S. retail sales underpinned the growth, IATA said.
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