By Tim Hepher, Lisa Baertlein, Allison Lampert and Valerie Insinna<\/p>\n\n\n\n
(Reuters) – Air cargo enjoyed record demand when COVID-19 closed borders and snarled supply chains. Now, it is reeling from overcapacity and tumbling freight rates as the freight boom makes a hard landing.<\/p>\n\n\n\n
Consumers who had the means to spend the lockdown shopping online for goods needing to be delivered, diverting budgets from restaurants and leisure, are travelling in ever-rising numbers.<\/p>\n\n\n\n
The result? Passenger jets grounded during the health crisis are flying again and bringing their lower-deck cargo space, which competes with dedicated air freighters, back into play.<\/p>\n\n\n\n
The switch in demand from goods back to services and the abrupt expansion in belly capacity on passenger planes have sliced about a third off cargo rates in the last year.<\/p>\n\n\n\n
Some pilots are leaving to fill passenger airline vacancies.<\/p>\n\n\n\n
And shipping is flowing again after congestion sent goods as mundane as jeans and bathtubs into the air during the pandemic.<\/p>\n\n\n\n
It’s a perfect storm for the roughly $200 billion air cargo industry, which handles a third of global trade by value, industry executives and analysts say.<\/p>\n\n\n\n
Looking forward, shippers whose freight bills climbed in 2021, will have more bargaining power in upcoming winter price negotiations, Norwegian cargo analytics firm Xeneta said.<\/p>\n\n\n\n
That should ease inflationary pressure on high-value lightweight items from electronics to luxury goods that traditionally go by air. But it is bad news for cargo operators.<\/p>\n\n\n\n
“(They) are in for a rough ride. Shippers are spoiled with capacity, but they’re not really utilising it because demand is not really there,” Xeneta Chief Analyst Peter Sand told Reuters.<\/p>\n\n\n\n
The scale of the industry’s problems is laid out in filings by Western Global Airlines, which asked a Delaware court for Chapter 11 protection last week.<\/p>\n\n\n\n
The Florida-based carrier cited “the unyielding and rapidly mounting macro-economic headwinds that plagued the entire air cargo transportation sector starting in late 2022”.<\/p>\n\n\n\n
Western Global’s fortunes are emblematic of the risks and rewards in the volatile global freight business.<\/p>\n\n\n\n
The airline expanded as contract customers including Japan Airlines, once a dominant power in air cargo, stopped operating freighters following its own bankruptcy in 2010 – though it has since announced a limited return to cargo.<\/p>\n\n\n\n
Now Western Global has itself fallen victim to the market’s swings, despite relying on outsourced U.S. military work.<\/p>\n\n\n\n
According to data supplied by Xeneta, it cost around $2.30 to air-freight one kilogram in early August, based on global average spot prices. That is down 35% since the same period of last year and down by more than half from a late-2021 peak nearer $5.<\/p>\n\n\n\n
True, rates remain 36% above pre-pandemic levels. But costs of fuel and scarce labour are also up sharply.<\/p>\n\n\n\n
FREIGHTER STORAGE<\/p>\n\n\n\n
There are some positive signals.<\/p>\n\n\n\n
In June, air cargo experienced the slowest contraction since February 2022, the International Air Transport Association said.<\/p>\n\n\n\n
Cargo rates from China or southeast Asia to the United States have risen 5%-7% since mid-July, according to Xeneta. Yet that may in part be due to China’s difficulties in rebooting its internal economy, which tipped into deflation in July.<\/p>\n\n\n\n
“If you look at it from a global perspective, we’re definitely still seeing a tendency of rates falling for this year, as well as next year,” Sand said.<\/p>\n\n\n\n
The downturn comes at a tricky time for planemakers who have invested in developing new freighter versions of widebody jets.<\/p>\n\n\n\n
Demand for the windowless aircraft rose during COVID-19 lockdowns as airlines rushed to expand or modernise fleets.<\/p>\n\n\n\n
Since May 2019 the active freighter fleet has grown by 22%, said Eddy Pieniazek, head of advisory at consultants Ishka. But the proportion of stored or idle freighters is rising again.<\/p>\n\n\n\n
After months of falling yields, “it’s not a good time to buy freighters,” an airline expective said, asking not to be named. Yields measure average revenue per tonne adjusted for distance.<\/p>\n\n\n\n
Cathay Pacific, the fifth-largest cargo carrier, has postponed final decisions on a potential $2 billion order, industry sources said.<\/p>\n\n\n\n
Cathay said in an email it would continue to evaluate what freighters it may need and remained “open to all possibilities”.<\/p>\n\n\n\n
Boeing (NYSE:BA) and Airbus said separate 20-year demand forecasts for well over 2,000 new or converted planes remained intact.<\/p>\n\n\n\n
But the number of investors willing to convert old passenger planes to freighters is also dwindling, Pieniazek said.<\/p>\n\n\n\n
That restores calm to a speculative corner of the jet market specialising in regenerating planes after carrying passengers.<\/p>\n\n\n\n
“We see people slowing down orders, people deferring, planes not going to customers as soon as they are converted,” Robert Convey, senior vice-president at Miami-based Aeronautical Engineers, told Reuters.<\/p>\n