Frankfurt Air freight traditionally also benefits from the boost in the Christmas business. Companies stock warehouses and shelves with goods and parts that often have to be brought in by plane. It’s the busiest business week of the year. But not in 2022.
This is shown by data from the analysis company World ACD from the Netherlands. The experts compared the global loading volumes in the two weeks from November 21st to December 4th with the value of the two previous weeks. Instead of an increase in the so-called tonnage, there was a minus of four percent. The drop is even clearer compared to the same period last year: 17 percent.
The lack of high demand is a clear sign: the super cycle in air freight is slowly coming to an end. According to the World ACD report, the trend of falling freight volumes in the second half of 2022 has also continued in the important Christmas season.
Since the beginning of 2020, air freight has ensured that aviation had at least one source of income in the worst of all crises. The pandemic had disrupted supply chains at sea and on the road, and cargo space on planes was in great demand and paid for handsomely. That’s about to change.
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“The days of the dream margins that some providers have earned in the past three years are over,” says Andreas Jahnke, Managing Director at the consulting firm Accenture. This is due to the moderately declining demand and the rising costs, which the airlines can no longer pass on to customers one-to-one.
Freight rates on planes are falling
Air cargo providers had flown in results during the pandemic that exceeded all expectations. Lufthansa Cargo, the freight subsidiary of the Lufthansa Group, achieved an adjusted earnings margin of almost 37 percent in the first nine months of 2022 – an unprecedented figure.
Lufthansa had raised the earnings forecast for the group again shortly before Christmas, among other things with reference to the very good business development at Cargo. But there are growing doubts that this level can be maintained.
According to the World ACD, the average freight rate for transport by plane at the beginning of December was $3.34 per kilogram. That was 25 percent less than the record value a year earlier. After all, the rate is still well above the pre-crisis level in 2019.
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Experts are certain that the demand for air freight capacity will remain high. “There will also be an increased demand for air freight in the coming months,” says consultant Jahnke. There are still goods that are not sufficiently in stock and have to be delivered to the consumer quickly. “Many companies are still under the pressure to deliver worldwide very quickly. A good example is the fashion industry.”
The urgency of certain goods also meant that they would continue to be transported by plane. “This applies, for example, to medical products, but also to perishable goods or live animals.” After all, there are expensive products that are very popular and therefore continue to be transported by plane – for example semiconductors.
Usually, high-value products in particular are transported in the bellies of airplanes, because air freight is expensive. The previous calculation is: Two to three percent of all goods are transported by plane, but based on the value of the goods it is 30 percent. “This relation will not change any time soon,” believes Jahnke.
However, because of the sharp rise in energy costs, customers are now looking very closely to see whether goods must be delivered by plane. This is reflected in figures from the airport association ADV. According to this, 431,756 tons were handled at German commercial airports in October 2022, 8.3 percent less than in the same period last year. One reason: the waterways are free again.
“Ship rates have fallen significantly and the traffic jams have cleared up,” says Jahnke. For example, at the beginning of 2022 it still cost 8,000 dollars to ship a standard container (20-foot steel box; TEU) from Shanghai to Northern Europe, by the end of November the sea freight rate had dropped to just 1,479 dollars. Goods that were not time-critical and were transported by ship anyway before the pandemic would be transported by sea again in the future, said Jahnke.
There is another problem. In the boom caused by the pandemic, both shipping companies and airlines have expanded their capacities. Now there is a risk of oversupply, depending on how much demand will fall in 2023, for example due to a recession.
Shipping companies set up their own cargo airlines
If the shipyards work off their order books as planned, additional sea transport capacities for 7.3 million TEU will come onto the market by 2025, which would be 28 percent of the world fleet. In air freight, on the other hand, new providers are trying their luck.
The Swiss shipping company MSC recently launched its new MSC Air Cargo. Atlas Air flies the first freighter, a Boeing 777, on behalf of MSC. Three more are to follow. The shipping company CMA CGM and its subsidiary Air Cargo had already flown in February last year. The competitor Maersk also has an air freight branch, currently with 15 machines.
At the same time, Lufthansa Cargo is trying to enter a new market: short-haul air freight. The company flies through Europe with two Airbus A321s that have been converted into freighters. LH Cargo not only wants to benefit from the booming online trade, but also wants to close gaps in the supply chain, for example in the direction of Great Britain or Ireland. Two more A321 Freighters will enter service in the coming months.
In the opinion of consultant Jahnke, a worthwhile attempt – despite the deteriorating environment: “There is a need for air freight on short and medium-haul routes. I see new business opportunities for the industry here.”
More: Container shipping company on a shopping spree: CMA CGM becomes an anchor shareholder in Air France