Daily Memo: 2023 Will Be The Year Of The New Normal For Air Cargo

As 2022 draws to a close, with what is traditionally the end-of-year peak season for air cargo underway, operators looking ahead to 2023 are expecting a landscape that more closely resembles business-as-usual than it has for some years. 

According to IATA, the dramatic highs of the pandemic—when grounded passenger flights led to an extreme capacity squeeze—are well and truly behind us. Volumes are expected to continue their decline into 2023, buffeted by headwinds including the Russia-Ukraine war, slowing global growth, and high inflation.   

The association predicts an 8% decline in volumes for 2022 as a whole and a further 4% decline in 2023, with many economic and trade indicators pointing to a period of softer demand ahead.  

“The decline that we’re seeing in cargo volumes is widespread. It’s happening across all regions. That’s not surprising when you think about the global headwinds ... that are driving developments,” IATA’s head of policy analysis Andrew Matters said Dec. 7 in Geneva. “But it’s important to note that it’s not all bad news. A lot of it is just coming back from unusually high or unsustainably high levels.” 

The variations between regions put Latin America with the smallest decline, while Europe, suffering from the effects of the Russia-Ukraine war, is showing the biggest dip.  

Load factor, too, is returning to more normal, pre-pandemic levels, Matters said. The industry-wide load factor is currently around 48.7%, down about 7.4 percentage points from a year ago.  

Revenues are also set to decline too after dramatic rises in recent years as operators scrambled to put on enough capacity to meet demand—but they will remain around 50% higher than pre-pandemic. Cargo revenue is forecast to be around $149 billion in 2023, down from around $200 billion currently, but will remain about 50% above pre-pandemic levels.  

“The exceptional period that we’ve had looks like it’s coming to an end,” Matters said.  

And unsurprisingly, as passenger networks continue their recovery, cargo’s share of total revenue is expected to decline. It peaked at about 40% in 2021, Matters said, and is forecast to reach 28% this year, dropping to 19% in 2023. “What’s interesting is that in a quick comparison back to 2019, cargo is about 12% of revenue in that pre-pandemic period, so although we’ve got a bit of an unwind, we’re still considerably higher.”  

A shift back toward more normal operating conditions for air cargo operators will allow them to refocus on other important priorities for their industry: increasing digitalization, making progress on sustainability, and making sure safety regulations adapt to evolving risks such as in the case of lithium battery transportation.  

When it comes to cargo yields, there has been an increase year-to-date, and IATA expects that to translate through into a 7.2% increase in 2022 as a whole. That will follow a 52% increase in 2020 and a 24% rise in 2021, but in 2023, yields are set to decline by 22.6%. That decline may sound “pretty dramatic,” Matters said, but in context of the huge increases in recent years it is not unreasonable.  

A recent flurry of freighter orders means that freighter deliveries in 2023 will lead to an influx of new capacity into an already-cooling market: the rolling two-year average is at its highest point since 2012.  

However, those commitments are still justified, Matters said. “There’s always a lag between ordering aircraft and having those aircraft delivered. The pullback in volumes is not the long-term outlook.” 

Part of the reason for continuing optimism in the long term is e-commerce. According to IATA, 80% of all e-commerce is transported by air, and e-commerce makes up 18-20% of air cargo. Worldwide, the association predicts e-commerce will reach $5.7 trillion in 2022 and expects that to grow steadily over the subsequent years, leading to strong demand for air cargo capacity.  

“The long-term outlook is a very different story, a much more positive story. For airlines that are putting orders in now, by the time they take delivery we might well be in that period of upswing,” Matters said. “The long-term outlook for air cargo is a lot more positive than we’re looking at for 2023.”