By Ludwig Hausmann, Matthieu Pélissié du Rausas, and Mathieu Weber
Global trade-to-GDP ratios have crashed to 1980s levels in recent years, while capital flows have fallen by half since the crisis of 2008. International air freight has directly reflected these problems: growth is down to 1 or 2 percent a year, from 4 to 6 percent before the crisis. Meanwhile, belly-cargo capacity is growing by 3 to 4 percent a year, almost as fast as the number of air passengers (about 5 percent). In other words, belly capacity alone has increased faster than cargo volumes, and that has sent yields south and created difficulties for full freighters. Going forward, the air-cargo industry is set to experience continued pressure from three forces: demand, disruption, and supply.
Although some uncertainty now surrounds the future of international trade flows, demand for air cargo has been set for change, above all, because shippers are redesigning their global production networks (exhibit). These companies are now ready to take full advantage of advanced robotics: from a network of central manufacturing plants, they will ship semi-finished goods to locations near their end customers, where they will finish or customize these products. Their new networks will introduce automated warehouses, predictive shipping, and drones for deliveries. Powerful forecasting algorithms will manage and monitor end-to-end performance in networks. All players in the supply chain will need very strong IT backbones to enable this new transparency and these big, continuous data flows.
In a world where data and connectivity are the keys to the kingdom, new entrants could easily disrupt an air-cargo sector that all too often clings to legacy technologies. The disruption could well come from e-commerce players, with their strong data-handling capabilities. Consider the case of Amazon. Ten years ago, the company was known for shipping books and other kinds of media. Then it created an additional business by selling its spare computing capacity and eventually became the leading provider of computing power in the cloud, with a market share bigger than its nearest three competitors combined.
Now Amazon is making moves in logistics. Three years ago, it announced a new venture called Global Supply Chain by Amazon, providing a “one click-ship for seamless international trade and shipping.” Since then, the company has continued to expand its warehousing capabilities a million square feet at a time. In late January, Amazon revealed plans to move its air-cargo hub to the Cincinnati region, where it will set up a new three-million-square-foot facility. This will have more than 100 aircraft-parking positions, which suggests that the company intends to acquire even more capacity than it has so far announced—up to 60 air freighters. Such efforts raise the prospect that Amazon will create another business selling spare capacity to a wider market, this time to shippers, disintermediating forwarders and air-freight carriers at a single blow. Similarly, though on a smaller scale, YTO, which is backed by Alibaba, is expanding its freighter fleet in Asia.
As for supply, the introduction of long-haul services from secondary cities has accelerated with the expansion of the Middle Eastern hub carriers and new aircraft designs2with large belly-cargo capacities. (Last year, the belly capacity of Middle Eastern hub carriers flying into Europe equaled the capacity of more than 100 weekly Boeing 777 freighter flights.) Cargo formerly had to be trucked to main hubs (Amsterdam, Frankfurt, or Paris) from secondary cities, where Middle Eastern hub carriers now give shippers and forwarders direct access to cargo capacity. This evolution hasn’t affected all markets equally, however: the impact on India-to-Europe routes is significant, but full freighters retain a core role on trans-Pacific routes.