“Speed ​​of drop in air freight rates depends on China” – Flows

Shipping companies establishing an air freight company, price drops and protests from action groups were a common thread through air freight in 2022. Professor Wouter Dewulf (UA) talks about the challenges in that sector, which can also be read in December’s Flows magazine.

Freight tonnes have been at roughly the same level for years: around 22 billion tonne kilometers per month. “In November and December we see an increase to 24 billion due to Singles Day, Black Friday and Christmas, before falling to 18 billion before Chinese New Year,” says Wouter Dewulf, associated with the Department of Transport and Spatial Economics at UAntwerp and Antwerp Management School. “What varies a lot is the supply. Half were transported before corona by cargo plane, the other half by passenger plane.”

Price level

Due to corona, demand has temporarily decreased. The sharp decline in passenger aircraft was partially offset by bringing cargo aircraft out of the desert. “This imbalance led to a sharp increase in prices in 2020, which continued into 2021. From the beginning of 2022, we will see the available capacity in passenger aircraft increase again, while the demand remains roughly the same. As a result, we have had a lower price level since May/June 2022. Prices to the US are about the same as before covid because restrictions have been lifted more quickly there. Prices from Asia are still between 8 and 10 dollars per kilo,” explains Dewulf.

Action groups

In their own country, Liege Airport, Ostend and Brussels Airport had to deal with action groups protesting noise nuisance and environmental pollution. “It’s not bad to respond, but people have a lower tolerance for airports than for other forms of transport. Trains are noisy too, but I never see objections to that. It is important that the airports find a balance between people, society and the economy.”

The big problem is always the night flights, but regional cargo airports need them, says Dewulf. “In order not to lose time for e-commerce or medicines, the planes in Liège must land or depart at night. For now, it’s still freedom and happiness at Liege Airport. It is a popular airport due to its location and available staff, hardly any restrictions on night flights and no slots.”

Dewulf does not expect night flights to be abolished. “Perhaps they will adjust the number or the noise standards so that, for example, you can only land at night or have limited take-offs.”

Air freight companies

Another striking phenomenon is the entry of the shipping companies Maersk, MSC and CMA CGM into the air freight market. Dewulf is surprised that they all follow the same strategy: “They buy or lease all new aircraft, which they pay dearly for, and poach people to set up the air cargo divisions. With four aircraft, it is difficult to establish a profitable network. And if you base the decision to deploy aircraft on current prices, your business case won’t make sense because prices will fall anyway.It’s not a bad strategy to establish a logistics ecosystem, but I wonder why they don’t position themselves more with low costs or certain specializations that traditional freight companies do.”

Question about a million

Dewulf sees two phenomena emerging in 2023. The first is nearshoring. “Companies are focusing on a plan B because of the risks, and they are increasingly producing partly in Eastern Europe, Turkey and North Africa. It is more expensive, but they are less dependent.” Another phenomenon is ‘offshoring’ from China. “We see that China itself outsources a lot to Vietnam, Indonesia and Malaysia instead of exporting directly to Europe itself.”

The rate of price decline will depend on a number of parameters. The million dollar question is what China will do. “The country is a major exporter. When China opens its borders, airliners will return and prices will drop even more,” says Dewulf. But he doesn’t see the complete lifting of restrictions happening anytime soon. “China is increasingly turning its back on the West.” Another question is what will happen to the price of fuel. “For freight transport, petroleum accounts for between 30 and 45% of costs,” says Dewulf. “On the other hand, current aircraft are increasingly ‘fuel efficient’. Not only do they use less fuel, they also have less on board, which means they can take more cargo on board. New aircraft types such as the Boeing 787 and Airbus 350 are also more cargo-friendly, which means that cargo capacity is sometimes doubled.”

Sustainability

And thus the word: sustainability. Air transport is responsible for 2% of global CO2emissions. “It doesn’t seem like much, but the percentage increases every year. You are here with two speeds. There are already many initiatives, just think of the famous SAF (Sustainable Aviation Fuel), but it is still not used enough. SAF is much more expensive and only available in limited quantities. Technological alternatives, such as flying electric or on hydrogen, are still a long way off. Due to technological innovations, aircraft will use between 20 and 30% less fuel each time a new model is launched. But one must not forget that the planes that are now being delivered last for 25 years. Even if there are more innovations, those aircraft will not be replaced before that time,” concludes Dewulf.

Melanie De Vries

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