The Vital Role Freighters Play in the Airfreight Industry
It’s a debate that has stirred since the passenger and airfreight industries inception; the argument between utilizing belly hold space and dedicated freighters for air cargo. By surveying logistics professionals or making the rounds at the various conferences and events around the industry, you may come away with a feeling of apathy towards the freighter market. Many would likely cite that in weak markets freighters have become too expensive and are not needed.
In terms of raw numbers, passenger aircraft definitely have an advantage with a disproportionate amount of aircraft in the skies. However, this is a narrow-minded view into the true value and flexibility that freighters bring to the high value air cargo industry.
For a deeper insight, we spoke with Mr. Thomas Crabtree, Boeing Airline Market Analysis – Cargo Marketing & Business Development Commercial Airplanes. His decades of experience in the air cargo industry helped to shed light on the misconceptions that some may have on the health and vitality of the freighter market.
Finding Your Niche
Mr. Crabtree has been involved with air cargo market research for over 20 years now, and through his time at Boeing, he has had a front row seat to witness how the industry has formed and grown over the years. He said, “Up until 2006, the long term annual growth rate averaged was about 6%, however, over the last decade it’s been at 2%. The global economic downturn in 2008 was a shock for industries around the world and was the start of this downturn, and the world economy is still reeling from that event. It affected us, but we were blessed at Boeing with very good passenger growth rates, because there’s so many people in the world who are becoming just affluent enough to buy their first plane ticket. Every year, 100 million additional human beings buy their first plane ticket. That’s not insignificant and is good news for the industry as a whole.”
While the growth of the passenger side is a welcoming sign, the truth of the matter is that air cargo is a niche industry. According to IATA, over 52 million tons of cargo was moved in both belly’s and freighters combined in 2015. Comparing that to the 1.7 billion tons that was moved on container ships in the same year, and you can see that air cargo is roughly 3% the size of the containership industry.
“We live in a bubble thinking people want to use air cargo,” said Mr. Crabtree. “The reality is when talking to shippers, they often use air cargo as a way to recover from unforeseen circumstances or emergencies. The planned use of air cargo is the exception not the norm for most shippers. I don’t mean to discourage people from using air cargo, but that’s the nature of capitalism; maximizing revenue and minimizing cost. For those of us who work in the air cargo industry, we need to understand that anything we can do to make air cargo more affordable only helps to make the industry grow.”
Value to the Industry
The numbers don’t lie, and while the share of what’s moved by plane may be smaller in comparison to ocean freight, it gets more interesting as you consider what’s being shipped on each service. While containerships are great for moving bulk and low value items, where air cargo truly shines is in its ability to safely and quickly transport high value items.
Mr. Crabtree said, “Air cargo is a high value industry with 35% of world trade value carried by air. Of the roughly 23,000 jet transports in the world, only 1,800 are freighters, which is about 8%. It’s not a big portion, but that 8% of freighters carry about 54% of the total air cargo traffic. Because if you think about it, passenger airplanes exist to serve one principal revenue stream, that’s people in the seats and their bags. While there are air carriers that do work very hard to serve the air cargo customers with belly capacity, at the end of the day, cargo is not their main focus. The needs of the customer are secondary to the passengers and their bags. Also, most of the jet transports that serve both passenger and cargo are single aisle airplanes, which do not have palletized lower hold space. Forwarders who are the principal drivers of air cargo want lower hold space that allows them to put goods on a pallet, build it up, shrink wrap it, net it, put the documentation on it, chip for tracking, and get it out. If you try to bulk load it, things can disappear or get lost, and it’s not as efficient. The more you handle it the higher the costs and the lower the margins that you have in actually moving it as a forwarder.”
A Driving Force
With e-commerce continuing to fundamentally alter global retail consumption, air cargo has quickly become the defacto method of quickly and securely moving these goods. This industry has the potential to further bolster air cargo growth, and freighters will play a vital role in this. Express carriers in particular play a substantial role, and according to Boeing, they fly nearly 60% of the widebody freighters on the market and generated 40% of the air cargo industries revenue in 2015. The use of freighters is key to linking their door-to-door network that is tailored to delivering goods directly to customers, something that would not be possible using only belly hold capacity.
In fact, fulfillment is becoming such an important part of the e-commerce cycle that retailers like Amazon are seizing control and investing in freighters of their own to optimize their supply chain. While their fleet is relatively small compared to the other long established carriers, it’s a promising sign that e-commerce will continue to fuel the need for freighters, as they play an important role for supply chains throughout the world.
Worldwide, e-commerce is projected to more than double over the next five years, and the Asia-Pacific region continues to be the fastest growing area for e-commerce. China leads the pack, but the whole of Asia continues to be ideal for the utilization of freighters with the amount of manufacturing in the area. Boeing reported that on the important Asia-North America and Asia-Europe routes, more than 70% of total air cargo traffic is currently carried by freighters. Especially in some areas of Asia, a limited number of passenger frequencies serve these high demand cargo markets, and this makes freighters essential; offering control over timing and routing that is unmatched by only utilizing belly hold capacity.
“The demise of freighter capacity has been greatly exaggerated,” said Mr. Crabtree. “Our models for both passenger and cargo traffic, show that more than half of air cargo should remain on freighters over the next 20 years. With air cargo traffic looking to more than double by 2035, the world freighter fleet is estimated to grow by more than 70%. Currently, 90% of all air cargo revenues are earned by airlines that operate freighters as well. It’s plain to see that a majority of the players in the industry will continue to rely on and augment their cargo operations by flying freighters to leverage all the advantages that these airplanes bring to the table.”