Expert Column Global Air Cargo Market Trends and Response Strategies Based on Data

1. Air Cargo Increase Amid Global Risks Despite ongoing geopolitical instability such as the Israel conflict and the Ukraine war, as well as delays in China's domestic recovery and the sluggish semiconductor industry, the global market demand for air cargo transportation is on the rise.

In March 2024 alone, the total air cargo volume (CTKs) was 23.1 billion tonne-kilometers, which represents a 17.4% increase compared to the previous month and a 10.3% increase compared to the same period last year. This marks the fourth consecutive month of double-digit growth. ^[1]

According to a report by the International Air Transport Association (IATA), this surge in demand for air cargo transportation has been partly influenced by the rapidly growing e-commerce industry during the COVID-19 pandemic. There has been an increase in the volume of goods choosing international air cargo transportation to meet the requirements for fast and accurate delivery of cross-border orders, such as overseas direct purchases and buying agent services. ^[1][2]

Specifically, the demand for transporting perishable goods that require freshness maintenance, particularly flowers, is rapidly increasing. The demand for fresh flowers for weddings and outdoor events has significantly increased. Middle Eastern airlines, in particular, are focusing on establishing and investing in cool chain facilities for transporting perishable items that lose value over long periods. Major flower-exporting countries include the Netherlands, Colombia and Ecuador in South America, and Kenya and Ethiopia in Africa. The demand for cargo transportation from these countries is rising. ^[3][4]

When looking at the demand for international air cargo transportation (CTKs) by region, all routes have seen an increase compared to the previous year. Leading the way is the Middle East with a 19.9% increase, followed by a 14.3% increase in the Asia-Pacific region, a 14% increase in Africa, a 10.0% increase in Europe, a 9.2% increase in South America, and a slight increase of 0.9% in North America.

The unit for measuring the volume (demand) of air cargo transportation is Cargo Tonne Kilometres (CTKs), which refers to transporting one tonne of revenue-generating cargo over one kilometer.

The unit for measuring the transport capacity (supply) of air cargo airlines is Available Cargo Tonne Kilometres (ACTKs), which is calculated by multiplying the available tonnage by the transport distance.

The Cargo Load Factor (CLF) is a percentage that indicates how much of the available cargo space has been utilized with revenue-generating cargo. The CLF is a crucial factor affecting an airline's operational efficiency and profitability. Additionally, it serves as an indicator of the balance between the supply and demand of cargo space.

Looking by region, in the 2023 African air cargo market, demand (CTKs) held a 2% market share globally. As of March 2024, Available Cargo Tonne Kilometres (ACTKs) increased by 17.3% compared to the previous year. Notably, Ethiopian Airlines is a key player, managing flower exports worth approximately $3 billion. The region also exports large quantities of fruits and vegetables and imports various goods from Northern Hemisphere countries. ^[1][3][4]

In South America, the air cargo market held a 2.8% share in 2023. As of March 2024, ACTKs increased by 7.0% compared to the previous year. The market is valued at approximately $1.04 billion and is expected to grow to around $1.28 billion by 2029. With plans to expand supply through new route development and aircraft acquisitions, the future of the air cargo market in South America appears promising. ^[1][3][4]

In 2023, the Middle Eastern air cargo market held a 13.5% share of global demand (CTKs). As of March 2024, both demand (CTKs) and Available Cargo Tonne Kilometres (ACTKs) saw increases of 19.9% and 10.6%, respectively, compared to the previous year. Leading airlines in this region include Emirates (EK), Etihad (EY), and Qatar Airways (QR). These airlines are investing in cool-chain facilities at Dubai Airport for transporting perishable items and are pursuing strategic alliances and acquiring additional aircraft to expand their cargo capacity (ACTKs). Thus, the outlook for air cargo demand in this region is positive. ^[3][4]

In 2023, Europe accounted for 21.4% of global air cargo transportation demand (CTKs), benefiting from its geographic position connecting the Asia-Pacific with North American regions. As of March 2024, the region's ACTKs increased by 8% compared to the previous year. ^[1][3][4]

North America accounted for 26.9% of global air cargo transportation demand (CTKs) in 2023, and in March 2024, demand (CTKs) increased slightly by 0.9%, while available air cargo tonne-kilometers (ACTKs) decreased slightly. Cargo carriers and large airlines such as FedEx, UPS, Amazon Air, Atlas Air, and Polar Air Cargo are responsible for air freight transportation.

Lastly, the Asia-Pacific region represented a 33.3% share of the global air cargo transportation market in 2023, with March 2024 figures showing a 14.3% year-on-year increase in cargo transportation demand (CTKs) and a 14.3% increase in available cargo tonne-kilometers (ACTKs). The region is mainly dominated by consumer goods, such as electronics and home appliances.

Additionally, the global cumulative air cargo performance (CTKs) up to March this year totaled 63.6 billion tonne-kilometers, marking a 13.2% increase compared to the same period in 2023 and 0.6% higher than the same period in 2022. When comparing quarterly performance, the transportation volume for the first quarter of 2024 is 0.4% higher than that of the first quarter of 2021. This indicates an overall increase in demand for air cargo transportation.

The industry's Available Cargo Tonne Kilometers (ACTKs) reached 48.9 billion ACTKs in December 2023. Afterward, following the normalization of international routes, the supply of belly cargo space in passenger aircraft continued, contributing to a 7.3% increase compared to the previous year. Although this is a modest increase, the ACTKs for the first quarter of 2024 have also risen compared to the same period last year.

In March 2024, the yield in the air cargo transportation industry increased by 5.0% compared to February. This rise is attributed to an increase in the Cargo Load Factor (CLF), which is a crucial element directly linked to the profitability of cargo airlines.

The global CLF for March 2024 was 47.3%, which is 2.2% higher than the previous month and 1.3% higher than March of the previous year. ^[1] 2. Increasing Air Cargo Demand, but Declining Revenue in the Air Cargo Market During the COVID-19 pandemic in 2021, the air cargo industry's revenue reached an astonishing $210 billion. The reduced Available Cargo Tonne Kilometers (ACTKs) due to international travel restrictions made it difficult to book air cargo transportation, leading to high yields and record revenue. However, with the easing of travel restrictions and the return to pre-pandemic levels of air travel, the supply of ACTKs has increased. As the air cargo market shifts to a competitive landscape among airlines, revenue is gradually decreasing.

In 2021, the air cargo revenue, which was $210 billion, is expected to decrease to approximately $134.7 billion in 2023 and around $111 billion in 2024. Considering that the cargo revenue scale in 2019, before the COVID-19 pandemic, was $101 billion, the projected air cargo revenue in 2024 still exceeds the 2019 performance by a slight margin. ^[5]

From a medium to long-term perspective, while global air cargo demand is gradually increasing with the recovery of the international economic situation, it is expected that the profitability of air cargo will decrease due to the increase in cargo supply and the competitive environment in the cargo market. Therefore, it is considered necessary for cargo airlines to reassess their revenue management strategies at this time. 3. The Need for a New Technology: Data-Driven Revenue Management The COVID-19 pandemic has led to an increase in online cargo sales through non-face-to-face methods, resulting in a significant digitalization of many aspects and the accumulation of data. Digitalization of air cargo capacity has increased from 3% in 2019 to approximately 38% in the first quarter of 2022 and around 57% in the first quarter of 2023. Now, digitalized data is being accumulated across the entire air cargo industry, leading to the emergence of the need for revenue management based on new technologies such as Artificial Intelligence (AI) and Machine Learning (ML). ^[6]

The pricing policies and revenue management of air cargo heavily depend on how accurately the demand and supply relationship can be predicted.

Given the characteristics of air cargo, where demand decisions often occur at the last moment (with less than 40% of reservations made within two weeks of departure) and with its integration with various industries and thousands of products, accurately predicting demand volumes and timing from these sources is challenging. However, reports have shown that using machine learning (ML) based on accumulated data has reduced demand prediction errors from 20% to 14%. This is achieved mainly by managing and analyzing the 'No-Show' ratio after booking on a route-by-route and customer-by-customer basis, providing accurate predictions for allowable overbooking rates and thus, maximizing cargo load factors. This, in turn, enhances the profitability of cargo airlines. In addition, it is possible to predict seasonal and industry-specific demand. ^[6]

Furthermore, real-time monitoring of air cargo booking demand is necessary to maximize air cargo prices and load factors. To understand and respond quickly to the constantly changing market dynamics, it will be essential to have internal processes and decision-making frameworks that utilize high-quality analysis data provided through data-driven digital technologies for accurate and timely decision-making.

Lastly, prioritizing customer value and providing differentiated tailored services to enhance customer satisfaction will be crucial for building a loyal customer base, thus contributing to profitability.

The global air cargo market still faces significant volatility due to geopolitical instability and economic uncertainty. Moreover, given the trends of increased supply and decreased revenue in the air cargo market post-COVID-19 pandemic, cargo airlines need to strive to collect and accumulate quality data for revenue management. Based on this data, they should reassess their existing decision-making processes and utilize new technologies such as machine learning (ML) and artificial intelligence (AI) effectively to enhance air cargo revenue. # Reference [1] International Air Transport Association (Air Cargo Market Analysis, March 2024, IATA)
[2] XENETA (2024) Air Cargo’s ‘Surprisingly Strong’ Start to 2024 continued in February with Another double-digit rise in demand and rates boost. (https://www.xeneta.com/news/air-cargos-surprisingly-strong-start-to-2024-continued-in-february-with-another-double-digit-rise-in-demand-and-rates-boost)
[3] Simple Flying (2024) Top 6: The World’s Main Regions for Global Airfreight Market Share.
[4] Simple Flying (2023) Emirates Sees A Surge In Cargo Business Flying Wedding Flowers
[5] The STAT Trade Times (2023) Cargo revenues seen declining to $111bn in 2024
[6] Daher. S., Hausman. L., and Williams. M., (2023) ‘Ahead of the curve: Getting cargo revenue management right as the cycle turns’, Travel Logistics & Infrastructure- McKinsey & Company.

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