EXTRANS GLOBAL - Air Freight News - Week 27 2024

Air Cargo General 

1)  East Midlands Airport in the UK - Expected 50% Increase in E-commerce Volumes Over the Next 20 Years

• David Craig, the aviation director of East Midlands Airport (EMA), the second busiest cargo airport in the UK after Heathrow, recently stated that "while it is true that Heathrow Airport handles more cargo, most of it is through belly freight. This is a considerable advantage for EMA, where cargo-only flights are increasing. Ultimately, EMA, which prioritizes cargo aircraft over passenger flights, is preferred by many cargo carriers as it actively supports pure cargo transportation."

• Over the next 20 years, EMA's cargo throughput is expected to increase to 570,000 tons. This growth is due to the continuous increase in e-commerce demand, as the UK's e-commerce sales, which accounted for only 3% of total retail sales in 2004, have now reached 27% as of 2022.

• While Heathrow Airport has focused on belly freight operations, the rise of new e-commerce platforms like Temu and Shein, which have become market leaders, has benefited airports like EMA that have more freedom to operate cargo flights.

• According to an industry source, e-commerce platforms looking to supply large volumes of goods to the UK and Europe can realize this through EMA's existing facilities. This demand is expected to further increase as it is more cost-effective and less constrained than the more expensive and limited belly freight solutions.

• EMA already has dedicated warehouse facilities operated by express delivery companies like DHL, UPS, and FedEx alongside its runways. Earlier this year, the UK cargo airline One Air also began operating 747-400 freighter flights from EMA.

2)  Air freight rates from HKG and PVG have slowed down a bit

• Freight rates are expected to continue rising.
• As of June 24, global air freight rates declined 0.2% week-over-week. However, this is a temporary adjustment, as rates are still 9.2% higher year-over-year. E-commerce volumes continue to flow into the air cargo market, and emergency shipments have shifted from sea to air due to the Suez Canal incident.
• According to the Baltic Air Freight Index (BAI), rates from Hong Kong (HKG) declined 1.6% week-over-week, but are still 17% higher year-over-year.
• Rates from Shanghai (PVG) also slipped slightly but are 36% higher year-over-year, with particularly strong demand for Europe routes recently.
• Demand from Vietnam to the Americas and Europe continues to increase as well.
• Some changes are being seen on Europe origins - rates from Frankfurt (FRA) have declined slightly after a recent spike, and are 22.1% lower year-over-year. Rates from London (LHR) are also seeing an adjustment and are 30.1% lower year-over-year.
• Rates from Chicago (ORD) jumped 84% week-over-week, but are still 9.9% lower year-over-year.
• Overall, demand is expanding for North America to Europe and China routes, while demand for South America routes has slowed somewhat.

3)  "Cumulative general cargo surpasses growth rate of specialized cargo in May" - Caused by large e-commerce demand

• An analysis of the global air cargo performance up to last May by WorldACD shows that the tonnage growth rate of general cargo has surpassed that of special cargo, which airlines prefer.

• Contrary to the market players' perception that the demand for special cargo requiring specialized handling and transportation has greatly outpaced the traditional demand for general cargo in the post-pandemic period, the analysis based on tonnage growth rate indicates that special cargo is leading the way.

• Specifically, the total global air cargo volume in May has increased by 12% year-on-year, with general cargo demand rising 13% and special cargo increasing by only 10%. This contrasts sharply with the trend in the first 8 months of last year, when general cargo declined by 12% year-on-year while special cargo grew by 3%.

• Analysts attribute the rising share and growth rate of general cargo mainly to the rapid expansion of cross-border e-commerce movements, which are transported in the form of general cargo. The diversion of some sea freight demand to the SEA & AIR market and the consequent shift of cargo to air transport due to the Suez Canal incident have also contributed to this trend.

• As a result, Asia-Pacific and Middle East/South Asia air freight rates have increased by 20% and 22% year-on-year respectively in the cumulative May period.

• WorldACD's categorization of cargo types shows that high-tech goods grew by 25%, meat by 25%, fruits/vegetables by 10%, and valuables/flowers by 6%, while dangerous goods and pharmaceuticals saw more moderate growth of 2% and 1% respectively.

• The differences in growth rates between general and special cargo are more pronounced in the Asia-Pacific region, where general cargo grew by 18% while special cargo increased by 24%. This high special cargo growth was seen across almost all categories except pharmaceuticals and temperature-sensitive goods.

• The MESA market, influenced by the sea container market, recorded 31% growth in general cargo and 8% in special cargo.

4)  Why are Asiana Airlines employees opposing the acquisition of Air Incheon?

• As Asiana Airlines' cargo business unit was selected as the preferred negotiation partner for Air Incheon, the discontent of Asiana Airlines' employees has been growing.
  The pilots' union and the general union of Asiana Airlines have recently issued a joint statement again opposing the acquisition of Asiana Airlines by Korean Air.
• This statement mentions the handover of air traffic rights, monopoly, etc., which will harm the public, as well as concerns about Air Incheon, the candidate for the acquisition of Asiana Airlines' cargo business unit.This is the first time the Asiana union has officially commented on the Air Incheon acquisition.
• The union pointed out that "Air Incheon, which has been selected as the preferred negotiation partner for the cargo business unit, is a small cargo airline with about 170 employees, far less than the 800 employees in Asiana Airlines' cargo division."
• They also criticized that "Air Incheon's sustainability is unclear, and there is a high risk that the air cargo business will eventually become a monopoly of Korean Air."
• At this stage of preferred negotiation partner, the specific details such as the number of employees to be transferred to Air Incheon have not been determined yet. However, if the plan goes ahead as planned, the pilots who used to operate B-767 and B-747 cargo aircraft at Asiana Airlines' cargo division are likely to become Air Incheon employees.
• It is known that Asiana's employees are expressing discontent with this affiliation change. Some argue that Korean Air chose the smaller Air Incheon over other candidates like Eastar Jet or Air Premia in order to expand its influence in the cargo business.
• Going forward, the Asiana pilots' union and the general union plan to submit opinion letters and statements to the world's largest airline alliance 'Star Alliance' that Asiana belongs to, and the European Commission (EC), to persistently call for stopping the unreasonable merger.

5)  E-commerce demand has significantly increased cargo supply to North America - Airlines focus on routes with a stop in Europe

• The transpacific route is primarily recognized as a route that connects the Asian and American markets, but as the physical supply expansion on China-origin and Northeast Asian transit routes seems to have reached its limits, major airlines are actively pursuing the connection to the North American market through Europe.

• Despite concerns that e-commerce demand will be dampened by regulatory and restrictive measures from the US and European governments, it continues to show strength.

• However, despite the huge demand, it is difficult to physically match the supply of flights departing from China, and the supply of transit routes via countries like Korea and Japan is also struggling to keep up with the demand.

• Especially if the peak season arrives soon, when traditional peak season air cargo items flow in, the e-commerce demand is expected to be absolutely short of supply, regardless of freight rates.

• Accordingly, in addition to the supply for existing Europe-bound e-commerce demand, some are expanding routes to enter the North American market via Europe and the Atlantic.

• Etihad Airways of the Middle East, for example, currently provides 500 tons of space per week to the market, and plans to increase this further. Etihad plans to add an additional 250 tons of space on its flights to the US (New York, Chicago, Washington, Boston) and Canada (Toronto), via European gateways like Lisbon, Barcelona, Madrid, and Rome.

• An Etihad representative said that in response to the surging e-commerce demand to the US, they will provide space above the passenger belly capacity, with 30 weekly flights to the US and 7 weekly flights to Canada.

• The recently announced block space agreement between AF-KLM and China Cargo Airlines is also related to this, as the Chinese cargo airline now uses the belly capacity of passenger flights from CDG to South America.

• Meanwhile, China's air cargo has maintained double-digit growth for 14 consecutive months due to the expansion of e-commerce volume. In May, Chinese airlines handled 735,000 tons of air cargo, up 24.4% year-on-year. This double-digit growth has continued since April 2023.

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