Global Air Cargo market to grow to USD 130.12 billion by 2025

The air cargo market is expected to reach a valuation of USD 130.12 billion worldwide by the end of 2025.

During the forecast period 2020-2025, the global cargo market is expected to surge at a CAGR of 4.9%. Air freight segment is expected to account for the largest market.

Definition / Scope
Market Overview
Market Risks
Market Trends
Industry Challenges
Technology Trends
Pricing Trends
Regulatory Trends
Market Size and Forecast
Market Outlook
Technology Roadmap
Distribution Chain Analysis
Competitive Landscape
Competitive Factors
Key Market Players
Strategic Conclusion
References

Definition / Scope

Air cargo connects the world. It provides a vital bridge to global markets. Without air shipments, global supply chains could not function, and the availability of many time- and temperature-sensitive products, such as flowers, fruit, and life-saving pharmaceuticals, would be restricted.

The industry brings significant economic and social benefits to the global economy. Global air cargo enables delivering high-quality products at competitive price to consumers worldwide. Generally, global air cargo ships roughly USD 6 trillion worth of goods annually, representing 35% of the world trade in term of value.

The express delivery services (EDS) industry facilitates global air cargo by operation in both domestic and international market. EPS facilitators operate fleet of air cargos as well as land transports vehicles.

EDS comprises companies that provide expedited movement of documents, parcels, and other goods. Express delivery operators maintain control of the goods throughout the delivery process, often using tracking and tracing technology to monitor the location of each item.

Additional services and value-added elements include, for example, collection from a point designated by the sender, release upon signature, specific delivery time guarantee, and delivery confirmation.

Where items are shipped internationally, express delivery providers are involved in customs clearance procedures, including the payment of required duties and taxes. The predominant form of EDS firms’ participation in foreign markets is through the establishment of a foreign affiliate in the market to be served, and subsequent sales to local consumers.

Within geographic markets, ground transport is generally limited to deliveries of no more than 500 miles, while air transport is reserved for longer distances and “time-sensitive” deliveries.

Market Overview

Airlines transport over 52 million metric tons of goods a year, representing more than 35% of global trade by value but less than 1% of world trade by volume.

The value of goods carried by air is expected to exceed USD 7.1 trillion in 2020. That is equivalent to USD 6.8 trillion worth of goods annually, or USD 18.6 billion worth of goods every day.

In 2016, 57 million metric tons of goods were shipped globally. The shipment volume grew by 7.9% in the subsequent year.

The air cargo transported 63.5 million metric tons of freight in 2018 and 61.2 million metric tons in 2019.

Asia-Pacific is the big chunk of market for air cargo business, the market constitutes 35% of the total air freight worldwide. North America and Europe are other two large markets, combined they capture 47% of the global freight market.

Market Risks

Change in economic policies and condition

Air freights operate in over 220 countries and territories. Apparently, such operations are subject to cyclicality affecting national and international economies in general, as well as the local economic environments in which they operate.

In particular, global air cargo is affected by levels of industrial production, consumer spending and retail activity and operators could be materially affected by adverse developments in these aspects of the economy.

Brexit, UK’s decision to leave the EU, trade sanctions imposed by USA on China, nullification of bilateral agreements between trading states, etc. could result in, among other things, transportation restriction, fewer goods being transported globally, and volatility in currency exchange rates.

Pressure from unionization

Strikes, work stoppages and slowdowns by employees working in the value chain could adversely affect the freight operation. Many of U.S. employees hired by domestic cargo operators are employed under a national master agreement and various supplemental agreements with local unions affiliated with the Teamsters.

Airline pilots, airline mechanics, ground mechanics and certain other employees are employed under other collective bargaining agreements.

In addition, some of the international employees are employed under collective bargaining or similar agreements. Strikes, work stoppages or slowdowns by such employees could adversely affect operation worldwide.

Changing fuel price

Airline operators are exposed to the effects of changing fuel and energy prices, including gasoline, diesel and jet fuel, and interruptions in supplies of these commodities. Changing fuel and energy costs have a significant impact on their operations.

If the cargo businesses are unable to maintain or increase the fuel surcharges, higher fuel costs could adversely impact their operating results.

During the last two years, global crude oil market saw stiff fall in the price of fuel from USD 95 per barrel of jet fuel and USD 77 per barrel of brent crude oil in 2018 to USD 75/barrel and USD 60/barrel respectively, as a result of strong supply from US tight oil producers.

In 2020, the prices even tumbled, in April 2020, the crude oil price turned negative in the USA due to coronavirus pandemic.

Market Trends

Growth in e-commerce

Consumers worldwide spent roughly USD 3.5 trillion in e-commerce transactions. With the CAGR of 17.9%, the figure is projected to increase in the subsequent years. However, the year 2020 will see a short-term decline in the expected rate because of the global pandemic.

Amazon.com and JD.com are the major two ecommerce players in terms of GMV.

Increasing value-added services

Express delivery players have evolved their business models with deeper engagement to provide a varied range of value-added services to customers and consumers.

These include assortment and grading of products, order processing through storage, picking, packaging, management information systems (MIS) and analytics services in the logistics supply chain, mobile tracking applications, online tracking of parcels, SMS and e-mail alerts, hub-to-spoke collection centers, etc.

Changing consumer behavior

Driven by technology innovations, social media, ecommerce, smartphones and affordable data has provided consumers with greater buying choices, eliminated information asymmetries and has also reduced switching costs. T

his has increased their bargaining power, and led to a demand for greater convenience, more transparency and higher service levels.

Industry Challenges

Digitization of e-AWB

The major challenge remains in digitizing the supply chain. Trade lanes and airports in countries not signed up to MC99 face regulatory limitations in the transfer of digital data and are unable to adopt the e-AWB.

The industry will continue to address these challenges to further e-AWB penetration in 2020.

Global pandemic of coronovirus

The negative impacts of the Covid-19 crisis include slower production, lesser export, loss of cargo capacity utilization. During February and March in 2020, the global air freight market witnessed 1.4% decrease in Cargo Tonne Kilometers (CTKs) amid global pandemic.

Moreover, Available Cargo Tonne Kilometers (ACTKs) dropped by 4.4% during the same period. Overall demand for air cargo fell by 9.1% for the same period and is likely to affect throughout the year. The airlines is likely to face USD 252 billion in loss of passenger revenue in 2020, which would be 44 percent lower than 2019 figures.

Talent Gap

The industry has been struggling to attract new talent, which has resulted in a increased workforce churn rate. High-cost locations as a result of legacy operating structures, a large portion of the transportation industry’s workforce is located in high-cost developed economies.

Technology Trends

Digitization of the supply chain

The industry has been pursuing a transformation to a digital process known as e-freight for over a decade. A key element of e-freight is the market adoption of the electronic air waybill (e-AWB). In 2017, global penetration of the e-AWB surpassed the 50% barrier but fell short of the industry-endorsed target of 62%.

Last Mile Delivery

FedEx SameDay bot delivers on a same day. Its bot prototype, developed with DEKA Development & Research using its well-tested iBOT technology, innovative offering is the latest technology buzz in the cargo business.

The SameDay bot will allow FedEx to enter a substantial new market segment, enabling retailers to accept orders from nearby customers and make same-day and last-mile deliveries to their homes or businesses with speed and unprecedented low costs.

Other technological advancements that air transport industry has adopted include:

Data analytics
Enhancing customer experiences, improvements in operational efficiency
Autonomous vehicles
Increasing efficiencies in the delivery process
Drones for delivery
Achieving cost efficiencies with reference to inventory management, surveillance and delivery

Pricing Trends

The price per barrel of jet fuel dropped significantly in 2015, a reduction of 50% from the previous year’s figure. In 2016, the price leveled off before surging up for the two continuous periods reaching USD 95 at the fourth quarter of 2018. From then, the price kept on falling till the first quarter of 2020.

Regulatory Trends

In March 2018, the industry took a significant step forward in the digitization of the dangerous goods supply chain following the adoption of the e-Dangerous Goods Declaration (e-DGD).

The e-DGD is an electronic approach to managing the IATA Dangerous Goods Declaration (DGD) and leverages industry initiatives to digitize data and to embrace data-sharing platform principles.

The benefits of implementing the e-DGD with clearly defined data governance include improved transparency, traceability, and data quality. This, in turn, will improve process efficiency and reduce errors and delays.

Standard Language

A common language across platforms facilitates trade growth, improves security, and accelerates market access for air cargo. IATA’s Cargo-XML has emerged as the preferred standard for the electronic communication of air cargo data among airlines, other air cargo stakeholders, and customs authorities.

In 2017, IATA’s Cargo-XML messaging standard was integrated into two important customs systems: the World Customs Organization’s Cargo Targeting System (WCO CTS) and the Automated System for Customs Data World (ASYCUDA World), a system used by 90 countries.

The integration of Cargo-XML with the WCO CTS makes communication simpler and more effective and facilitates more accurate risk assessment by customs authorities using the WCO CTS application to capture advance electronic cargo manifest information.

The integration of Cargo-XML with ASYCUDA World standardizes electronic communications between airlines and customs authorities.

The new data standard reduces message duplication and simplifies communication across the supply chain, facilitating trade growth, improving cargo security, modernizing customs operations, and fostering participation in global commerce through advance electronic data submission for air cargo shipments.

Other Policies

Recent trade discussions and sanctions between the U.S. and several of its trading partners have been fluid, and existing and future trade agreements are expected to continue to be subject to a number of uncertainties, including the imposition of new tariffs or adjustments and changes to the products covered by existing tariffs.

The impact of new laws, regulations and policies or decisions or interpretations by authorities applying those laws and regulations, cannot be predicted. Compliance with any new laws or regulations may increase freight’s operating costs or require significant capital expenditures.

Increasingly stringent regulations related to climate change could materially increase the operating costs. Regulation of greenhouse gas (“GHG”) emissions exposes transportation and logistics businesses to potentially significant new taxes, fees and other costs.

For example, in 2009 the European Commission approved the extension to the airline industry of the European Union Emissions Trading Scheme (“ETS”) for GHG emissions.

Under this decision, all of the flights operating within the European Union are covered by the ETS requirements, and are required annually to purchase emission allowances in an amount exceeding the number of free allowances allocated to under the ETS.

Similarly, in 2016, the International Civil Aviation Organization (“ICAO”) passed a resolution adopting the Carbon Offsetting and Reduction Scheme for International Aviation (“CORSIA”), which is a global, market-based emissions offset program to encourage carbon-neutral growth beyond 2020.

A pilot phase is scheduled to begin in 2021 in which countries may voluntarily participate, and full mandatory participation is scheduled to begin in 2027.

In November 2019, the U.S. began the process to withdraw from the Paris climate accord, an agreement among 196 countries to reduce GHG emissions.

The effect of that withdrawal on future U.S. policy regarding GHG emissions, on CORSIA and on other GHG regulation is uncertain. Nevertheless, the extent to which other countries implement that agreement could have an adverse direct or indirect effect on air cargo business.

Market Size and Forecast

The global air cargo made a profit of USD 28 billion in 2019, a decline of USD 2 billion from the previous year while the total revenue recorded was USD 102.3 billion in 2019.

The deterioration came from the rising fuel prices and a substantial weakening world trade. Total cargo volume shipped was 63.1 million tonnes in 2019. North American carries represented the largest share in the revenue allocation, around USD 15 billion.

European airlines delivered a net profit of USD 8 billion on average, Asia-Pacific airlines represented roughly USD 5 billion. Net profit generated by aircrafts domiciled in Middle East, Africa, and Latin America was just above USD 1 billion in 2019.

Market Outlook

The global air cargo market is expected to reach a valuation of USD 130.12 billion by the end of 2025. During the forecast period of 2020 and 2025, the global market is expected to surge at a CAGR of 4.9%.

Air freight segment is expected to account for the largest market. At the end of 2020, the market was likely to reach USD 111 billion based on the forecast not covering the impact of Covid-19.

In addition, with air cargo traffic more than doubling by 2033, the world freighter fleet will grow by more than half, from the current 1750 airplanes to 2,730 airplanes by the end of the forecast period.

By the same period, the global sky will see 1100 (40%) standard body cargo airplanes, the number of medium body aircrafts will be 440 (16%), wide body aircrafts will hit 390 (14%), and large production will reach 800 (30%) by the projected period.

Technology Roadmap

Block Chain

Block chain is a decentralized distributed technology designed specifically to transform business operations, records transactions track assets and create a transparent and efficient system for managing all documents involved in the logistics process.

According to one analysis, improving communications and border administration using block chain could generate an additional USD 1 trillion in global trade.

A single shipment requires hundreds of pages that need to be physically delivered to dozens of different agencies, banks, customs bureau and other entities, the biggest burden. Block chain as an integrated system could solve this huge logistic pain and companies are already working on its implication.

Artificial Intelligence

AI helps lessen carbon emissions, and also minimizes the overall financial expenses.

It is useful mainly for:

Traffic management
Determining hazardous travel locations
Designing or assessing the structural integrity
Planning construction activities
Scheduling maintenance

Recognizing driving pattern, real time tracking, sensor and monitoring, vehicle diagnostic issues could be solved with the application of AI and machine learning.

Types of AI used in Transportation

Knowledge-based systems (KBS), which are rule-based inference engines such as expert systems, case-based or agent-based reasoning systems.
Neural networks (NN) or systems of artificial neurons with learning methods such as back propagation.
Fuzzy systems (FS), defining set membership as a degree of membership rather than a binary in/out the distinction.
Genetic algorithms (GA) or random methods of combining and testing solutions to determine the fittest solution in several generations of attempts.
Agent-based methods (ABM), a new way of modeling complex systems with interacting parts that seems to fit transportation problems quite well.
Drones Delivery

Drones and self-driving delivery trucks will start to be mainstream, making a tremendous impact on improved traffic safety, keep roads safer and on-time delivery, reduced car accidents as a key benefit.

Distribution Chain Analysis

The core service provided by an air cargo is the movement of documents, parcels, and any sort of freight, legally allowed with guaranteed transit time. Air cargo operators further provide augmented services to their customers to choose how quickly they wish to have goods reach their destinations.

These choices are generally categorized as next day, second day, or deferred delivery, with several time deadlines available within each category. Consumer prices depend on delivery speed, delivery distance, and shipment weight.

Air cargos process items for shipment through a network of operating centres and airport hubs. Items are first retrieved by the operator provider at the sender’s location, or are brought by the sender to a drop-off location, and are then transported in bulk by truck to an operating centre, where they are sorted.

Items that are carried over short distances are transported from the operating centre by truck and delivered to their final destinations. Items that are transported over large distances are carried from an operating centre to an origin hub, where they are again sorted.

These items may travel further through one or more intermediate hubs before they reach another operating centre near the recipient’s location. There, items are once again sorted, loaded onto trucks, and delivered either directly to the recipient or to a pick-up location.

Competitive Landscape

The express package and freight markets are both highly competitive and sensitive to price and service, especially in periods of little or no macroeconomic growth.

Competitors include other package delivery concerns, passenger airlines offering express package services, regional delivery companies, and air freight forwarders.

They also compete with startup companies that combine technology with crowd sourcing to focus on local market needs. In addition, some high volume package shippers, such as Amazon.com, are developing and implementing in-house delivery capabilities and utilizing independent contractors for deliveries, and may be considered competitors.

For example, Amazon.com is investing significant capital to establish a network of hubs, aircraft and vehicles. Other international competitors are government-owned, -controlled or -subsidized carriers, which may have greater resources, lower costs, less profit sensitivity and more favorable operating conditions.

Competitive Factors

The ability to compete effectively depends upon price, frequency, capacity and speed of scheduled service, ability to track packages, extent of geographic coverage, reliability, innovative service offerings and the fit within the customer’s overall supply chain.

Competition may also come from other sources in the future, including as new technologies are developed. Competitors have cost and organizational structures that differ from each other and from time to time may offer services or pricing terms that one may not be willing or able to offer.

Additionally, to remain competitive, from time to time one may have to raise prices and so customers may not be willing to accept these higher prices.

Key Market Players

DHL Aviation

DHL is a German based service provider of letter and parcel dispatch, express delivery, freight transport, supply chain management, and e-commerce solution.

The Company’s express services include shipping, tracking, export, import, optional and small business solutions, and logistics services include freight transportation, warehousing and distribution, customs, security and insurance and supply chain solutions.

The revenue in 2019 was USD 78,819 million and net income was 5,137 million.

FedEx Express

FedEx was incorporated in 1997 to provide a broad portfolio of transportation, e-commerce and business services through companies under the respected FedEx brand.

FedEx Express including TNT Express is the world’s largest express transportation company, offering time-definite delivery to more than 220 countries and territories, connecting markets that comprise more than 99% of the world’s gross domestic product.

FedEx Ground is a leading North American provider of small package ground delivery services. FedEx SmartPost is a FedEx Ground service that specializes in the consolidation and delivery of high volumes of low-weight, less time-sensitive business-to-consumer packages primarily using the U.S. Postal Service (“USPS”) for last-mile delivery to residences.

FedEx Freight is a leading North American provider of less-than-truckload (“LTL”) freight services across all lengths of haul, offering.

The revenue in 2019 was USD 69,693 million and operating income was USD 4,466.

UPS Airlines

UPS was founded in 1907 as a private messenger and delivery service in Washington. Currently, it is the leader in the U.S. It delivers packages each business day for 1.6 million shipping customers to 9.9 million delivery customers on average in over 220 countries and territories.

The revenue in 2019 was USD 74,094 million and net income was USD 4,440 million. Majority of its revenue came from the US market representing 79.2% while the remaining 20.8% revenue came from the international operation.

Cathay Pacific Cargo

Cathay Pacific Airways Limited with its subsidiaries Cathay Dragon, HK Express and Air Hong Kong operated 236 aircraft at the end of 2019.

The Cathay Pacific Group is the world’s eighth-largest carrier of international passengers, and the third-largest carrier of international air cargo. Cargo revenue in 2019 was USD 2729.19 million (HKD 21,154 million) with USD 0.24 (HKD 1.87) cargo yield.

Strategic Conclusion

China holds more than 40% global share in manufacturing and more than 13% share in worldwide trade. Unlike, the previous outbreaks like SARS when China had significantly less representation in global manufacturing and trade.

However, today, China has dominated the world of manufacturing and trade and such disruption from global pandemic will negatively impact global air cargo business.

Nevertheless, this will have short-term impact and apart from the pandemic, the air cargo business is lucrative despite being a capital-extensive business where new entrants will have difficult to enter the market.

References

Appendix

Express Delivery Service (EDS)
AI (Artificial Intelligence)
CAGR (Cumulative Annual Growth Rate)