Air market insights – May 2021

With air freight capacity reductions in H2 2020, demand exceeded supply on the Far East to Europe trade lane

Worldwide lockdowns in spring 2020 caused a dramatic reduction in air capacity worldwide, as a result of reduced passenger travel.

• Reduction in flight routes dropped 33% by the end of Oct due to limited demand for passenger air travel further dampening bellyhold capacity.
• Increasing demand for PPE, pharmaceuticals and e-commerce were key contributors to limiting capacity in 2020, even as airlines adapted their fleets to maximise cargo space.
• However, due to seasonal peaks (Black Friday, Chinese Singles’ Day) and Covid outbreaks at Shanghai airport, demand continued to overtake capacity. Rates rose by 24% at the end of 2020.

Air freight rates continue to rise in 2021 caused by difficulties in controlling virus variants and slow vaccine rollouts

At the beginning of 2021, passenger numbers were expected to rise, and cause rates to decrease. This hinged on renewed hope of restrictions in Europe easing.

• However in Q2, recovery in cargo capacity stagnated, due to spikes in Covid-19 cases. Asia Pacific airlines indicated capacity is 30-40% down compared to pre-Covid period.
• Feb 2021: Air freight volumes expanded by 9% above pre-covid demand, showing signs of global recovery.
• ‘V-Shaped’ economic recovery pushed rates 74% higher in Feb 2021 than Feb 2020.

H2 2021 and 2022 forward planning is essential to build a resilient supply chain in a volatile environment

• Increasing demand & limited capacity: A change in consumer behaviour, and passenger demand will drive the capacity-demand imbalance further. Increased online shopping caused by Covid restrictions have resulted in customer expectations for faster delivery times. As a result, competing demands alongside an expected long-term change in passenger travel1 (less business travel), will constrain capacity.
• Higher rates: We expect freight rates to remain high in Q2-Q3 due to limited travel during the summer season. With new Covid variants and varying vaccine rollout initiatives, airlines have forecasted a road to recovery by mid-2022, with elevated rates continuing beyond that point.
• Planning ahead: strategic planning and flexibility is key in managing risk in an ever changing environment, as airlines look beyond the pandemic and adapt to long-term changes in consumer behaviour.

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