August figures show the importance of cargo to airlines

Thelma Etim
5 min readSep 4, 2020
A chart showing air cargo volumes in August collated by business analysis software company CLIVE Data Services

GLOBAL air cargo is incrementally ‘narrowing the gap’ to its 2019 performance figures — unlike its passenger counterpart which is much slower to lift itself out of the Coronavirus mire, writes Thelma Etim.

Air cargo’s gradual ascent to pre-COVID-19 market conditions is continuing across the industry, reveals the latest data collected by analysts. This is spawning new attitudes and observations about the airfreight business whereby some airlines can now be described as those that also carry passengers.

For the fourth consecutive month, August’s volume and yield data, collated by business analysis software company CLIVE Data Services and air cargo pricing specialist TAC Index, has confirmed the improving trend reversal.

Of note are the better than expected cargo traffic flows from China. Previous predictions and concerns about demand for capacity on those routes plummeting once the personal protective equipment (PPE) peak subsided have not materialised, CLIVE’s latest findings show.

In fact, volumes from China in the last week of August were only four per cent down on the same week in 2019 — “not great, but by no means a disaster” — observes Niall van de Wouw, managing director of CLIVE Data Services.

“Our August data shows that the year-over-year decline in [cargo] volumes is decreasing. The capacity crunch is still there, but it is becoming slightly less and, as a result, load factors and yields are going down and becoming closer to pre-COVID levels, even though they are still elevated,” he reveals.

Airline cargo departments have never been in control of their own destinies, and they’re still not, he adds. “But they are in control of the present and short-term in deciding where to place their cargo capacity,” van de Wouw points out.

“Whereas cargo has often been regarded as the ‘freeloader’ of the airline industry because it has always been a by-product of far greater passenger revenues, right now it is passengers who are the ‘freeloaders’ because cargo is the main source of revenue for many airlines and [this is] helping to get passenger flights back into the air,” he asserts.

Immense uncertainty surrounds what will transpire if and when passenger demand returns in the future, thus reversing the tables. “The huge idle fleet of passenger aircraft needs to start flying again but no one is expecting that to happen soon in terms of great quantities of capacity,” Van de Wouw asserts.

“In the meantime, air cargo will continue to have its day in the sun and combination carriers will have to hope that this can sustain their slimmed down operations until passenger confidence and bookings return.”

Year-on-year (YOY) growth for the full four weeks of August showed a further narrowing of the gap in international air cargo volumes to minus 17 per cent in comparison with the same period last year. Since the 41 per cent drop in April, month-on-month demand has improved.

Surprisingly, airfreight prices remain significantly elevated on some important trade routes, despite the drop in demand for PPE shipments. Market intelligence from TAC Index shows that with capacity ex-China around 19 per cent less than in August last year, air cargo yields on this trade lane have remained at an elevated level — approximately 25 per cent higher than a year ago and about 35 per cent in the same period on the transpacific.

The general pricing difference on the two compared trade routes more than doubled YOY. In August, the price decline over July 2020, was five per cent on transpacific trade lanes and 2.5 per cent on routes from Hong Kong/China to Europe (HK/CN to EU), outlines TAC.

“The weekly fluctuations become visible when observed at a more detailed level. For example, Shanghai Pudong to Amsterdam (PVG-AMS) in the period 29 June-31 August shows prices rose by 22 per cent, peaking on 3 August at 10 per cent higher than on the last day of the month,” says the pricing analyst.

“Data for the Atlantic trade lane reflected the pressure on the dynamic load factor — based on both the volume and weight perspectives of cargo flown and capacity available — of additional capacity entering the market,” it adds.

Whilst the westbound load factor remained strongest but dropped from 88 per cent in early July to 82 per cent by the end of August, the eastbound load factor over the same period reduced from 72 per cent to 65 per cent — “but, because of the reduction of capacity relative to last year, these figures are still 20 per cent points higher than in 2019,” the statement explains.

The latest capacity and load factor developments are clearly reflected in the still elevated but declining yields across the Atlantic, whereby eastbound yields have taken the greatest ‘hit’.

“The timeliness and the accuracy of the August data is a true reflection of market performance,” insists TAC, noting that differences within the same month can be quite substantial — up to 25 per cent, in some cases. “Consequently, relying only on monthly averages can be misleading or risk growth opportunities being missed,” underscores the pricing analyst.

Robert Frei, director of business development at TAC Index, observes: “When looking at the general pricing trends, we are seeing the reaction to supply and demand happening more swiftly. This obviously has also to do with most carriers and forwarders breaking their contracts during the crisis and the fact that procurement is now done on a shorter-term basis.”

In April, Freight Investor Services (FIS), a leading freight and commodity derivatives inter-dealer brokerage, reported that the global travel bans had led to the collapse of thousands of blocked-space agreements (BSAs) and many interline deals formally agreed between airlines, freight forwarders and shippers.

“With shippers also finding forecasting even more difficult during the present conditions, this situation may continue for some time,” Frei estimates. “All parties are currently looking at new ways of negotiating contracts, possibly using Index Linked Agreements (ILA) or new risk management tools outside of the physical market. Such instruments are well-known and successfully practiced in other industries but are new to the air cargo market.

“For many carriers and forwarders airfreight has been the main source of revenue over the last couple of months, which also shows in [carriers’] results. The importance of air cargo to the recovery of global trade has become very visible and recognised,” he concludes.

A TAC Index chart illustrating yields from China to Europe

Originally published at https://aircargoeye.com/ on 3 September, 2020.

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Thelma Etim

I am the editor of air cargo industry news website aircargoeye.com, an alternative news and comment outlet for the global airfreight business.