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Air Cargo Becomes a Lifeline for Global Trade

July 18, 2020
Air Cargo Becomes  a Lifeline for Global Trade

Under pre-pandemic circumstances, airline companies transported large volumes of freight in the cargo compartments of aircraft while conducting passenger flights. This was one of the easiest methods for airline companies to boost their bottom line, earning extra revenue.  With the outbreak of the pandemic the aviation industry took a swift and deep slice to the jugular, immediately the impact was felt across the globe.  

Air Cargo is an important part of the global supply chain and airlines all around the world suddenly cancelled their flights to a large extent and grounded all the aircraft in their fleet. This meant a financial crisis for the airlines and it was like a nightmare for global trade and logistics networks in terms of sustainability. Grasping at a chance for survival airlines started to compete for cargo transportation with passenger aircraft to minimize the negative impact of the painful process, because cargo transportation suddenly turned out to be the only source of income for many airline companies. Unlike most traditional side income, it is completely independent of passenger demand, and the demand for cargo transportation has not been affected by social distancing rules or other health-related restrictions that have drastically impacted demand for passenger transportation. Airlines that were generating almost no income due to the lack of passenger flights found a solution by carrying cargo with passenger aircraft to overcome the liquidity crisis.

However, another important point is Air Cargo’s role in logistic activities carried out across the world and, accordingly, in ensuring the continuity of global trade. According to IATA reports While passenger aircraft in Asia constitute around 45% of air cargo capacity, this rate can go up to 80% on transatlantic routes. Nearly half of the total air cargo capacity throughout the world, from electronic products to seafood, is carried in the freight compartments of passenger aircraft, right next to the passenger baggage compartment.

Who has managed to turn this crisis into an opportunity?

The halt of passenger flights due to the pandemic created an extraordinary capacity issue for cargo transportation and consequently affected global trade severely. Therefore, air freight companies have taken their place amongst the few winners of this unprecedented pandemic. Compared to the pre-pandemic period, air cargo carriers increased transportation fees by an average of 30%, Brandon Fried (Executive Director of the Air forwarders Association, who coordinates the shipment of goods on passenger jets) says the prices have even quadrupled in some cases.

However, the number of cargo aircraft was insufficient to ensure the continuity of global logistics activities. Airlines almost generating no income due to the lack of passenger flights found the solution to carry cargo with passenger aircraft in order to overcome the liquidity crisis.

The resulting picture creates a complete win-win situation. It leads to a slight improvement in the global economy, global trade is not interrupted as much as it would have been otherwise, and it provides liquidity to the airlines so that they can heave a small sigh of relief during the crisis.

If we take a look at the revenue breakdown of airlines under normal circumstances, the ratio of the revenue obtained from first class of total revenue is 4%, business class is 16% and the revenue from cargo carried on passenger flights is 12% according to Air Carrier Traffic Statistics from US Civil Aeronautics Board.

Last year, airline revenue throughout the world from belly cargo was recorded at US$ 2.8 billion. However, Shawn Cole (Delta Vice President of Cargo) announced in April that 55% of Delta`s total revenue was derived from cargo transportation. This is a clear indication of why airlines became so enthusiastic about taking advantage of providing cargo transportation.

According to the IATA Cargo Reports all North American airlines combined, only 3% to 5% of the total revenue came from cargo transportation in 2019, while it exceeded 10% for European airlines. For airlines in the Middle East, it varies between 15% and 25% and for Asian carriers it is over 20%.

During the pandemic, while some airlines chose to place cargo on the seats in the passenger cabin and hence increase the cargo capacity, some others preferred to remove the seats in order to use the cabin much more efficiently. Some companies have launched various solutions with innovative products and projects, which allow for the transformation of passenger cabins into cargo cabins to increase the cargo transportation capacity. In other words, the crisis and difficulties encountered have become an opportunity for some, as always, and have created new business areas and projects.

Why is it difficult to transport cargo with passenger aircraft?

One of the main differences between passenger aircraft and cargo jets is that passenger aircraft do not have large door that are specifically designed to facilitate cargo loading and unloading. In this respect, it is a huge challenge for airlines carrying cargo in passenger cabins to take in large-size cargoes from the narrow passenger door.

Another key difference between passenger and cargo jets is that they do not have the same type of fire detection systems. For this reason, airlines carrying cargo in the passenger cabin are required to have a crew in the cabin in order to respond in case of fire or other unexpected problems early.

Air cargo transport in figures during the pandemic

Commercial flights decreased by 74% globally in April 2020, compared to April 2019. 16 thousand aircraft, corresponding to 55% of total commercial passenger aircraft worldwide were grounded. This resulted in a 45% decline in global cargo capacity compared to April 2019.

As of January 2020, Airports Council International (ACI), which is an organization serving 1,979 airports in 176 countries, issued a report and compared the passenger traffic, cargo volume and aircraft movement figures of 2019 with those in the first quarter of 2020. The dramatic impact of COVID-19 on airports is clearly revealed.

ACI World estimates a reduction of more than 4.6 billion passengers and a loss of more than US$97 billion in revenue for 2020.

Comparing 2019 and 2020 data illustrates the dramatic decline in air travel in the first quarter of 2020. In the top five, Beijing Airport notably experienced a 62.6% decline in passenger traffic, but large decreases were also recorded across the other top 20 airports in the Asia-Pacific region as the COVID-19 outbreak began to take hold in that region.

As for cargo, against a global economic backdrop that has remained quite challenging, air cargo volume experienced a decline of 3.9% at the world’s top 20 airports as they handled a combined 48 million metric tons of cargo. Hong Kong Airport remains the largest air cargo hub, handling 4.8 million metric tons of cargo in 2019, but it experienced a decline in volume of 6.1% compared to 2018. Memphis Airport came in second place on the list and Shanghai Airport came in third.

All three experienced considerable declines in the first quarter of 2020 while Louisville Airport and Incheon recorded growth in cargo during the first stages of the COVID-19 outbreak. 

Air cargo is a trade facilitator that contributes to global economic development and creates millions of jobs. Air cargo transports over US $6 trillion worth of goods, accounting for approximately 35% of world trade by value. 

The activities performed in the field of air cargo transport have also accelerated in Turkey recently.

Ranking 8th in the International Air Transport Association`s (IATA) Freight Ton Kilometers (FTK) program in 2019, Turkish Cargo rose to 5th place in February, when the global air cargo industry shrank by 2.6%, and its global FTK market share reached 4.4%. Having the 6th largest air cargo carrying capacity in the world, Turkish Cargo became the first air cargo airline to concurrently achieve all three CEIV Pharma, CEIV Fresh and CEIV Live Animals certifications, under the IATA CEIV (Center of Excellence for Independent Validators) program. 

Cargo transportation activities at Istanbul Airport have continued uninterruptedly during the pandemic. The capacity of Istanbul Airport Cargo City, the construction of which is still ongoing, is 1.5 million tons. This capacity will reach 5.5 million tons in the coming years. If the decision makers define air cargo transport as a strategic priority, it seems that the economic added value created by forming a critical flexible framework for airlines and airports in the foreseeable future will reach much higher levels 

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