Freighter demand stays firm despite market softening

posted on 25th April 2023
Freighter demand stays firm despite market softening

Utilisation of dedicated all-cargo aircraft ‘remains elevated over pre-2019 levels’, and forwarders insist there’s a need for the own-controlled networks they have expanded during the pandemic. Roger Hailey reports

Demand for freighter aircraft boomed during the pandemic, but the return to post-pandemic consumer patterns and the steady return of passenger flights and their lower-deck bellyhold capacity inevitably has seen air cargo tonnages and rates, and the need for freighters, decline from their elevated levels.
Putting the current state of the air cargo market into historical context, market data specialist World ACD’s March 2023 analysis highlighted that despite the market weakening significantly in the last 12 months, early 2023 worldwide revenues remain the third highest in the last 15 years, and rates remained around 50% above pre-Covid levels. Indeed, its analysis indicates that worldwide air freight revenues last year were also just slightly below their record levels in 2021 and around twice their average annual level in the decade before the Covid pandemic. And on the demand side, tonnages in 2022 were on a par with those in 2016 and higher than in any of the years leading up to 2016.
First-quarter (Q1) 2023 tonnages were estimated to be down by 11%, year on year (YoY), compared with -13% for Q4 2022. And as of early April, worldwide rates were 35% below their levels in the same period last year, but around 50% above pre-Covid levels.
Meanwhile, overall capacity has risen by 12% compared with last April, with double-digit percentage increases from almost all regions – except from Central & South America, which was slightly down (-1%), and North America (+6%). The most-notable increases were ex-Asia Pacific (+28%), ex-Africa (+19%) and ex-Europe (+15%).

Charter demand expectations
These dynamics mean demand for freighter aircraft charters in 2023 is unlikely to continue at the same level as last year, confirms Glenn Hogben, CEO of UK-based Air Charter Association (ACA), adding: “Demand in the air cargo market has significantly reduced in 2023 as scheduled service capacity and the shipping industry has started to recover, providing alternatives. Air cargo has seen a revival and exceptionally high demand throughout the pandemic period as it demonstrated its core strengths at supporting urgent cargo transport. This high level of demand was not anticipated to continue, and a drop was inevitable.
“However, there are still positives for the industry, as many businesses have been re-introduced to the significant benefits of speed and certainty of delivery that air cargo has delivered. Some [customers] will certainly continue to use air cargo as standalone or as a combined transport solution.”
Ocean freight, which suffered container unit shortages and lengthy port lockdowns in key Asian hubs during Covid, especially in China, has seen container freight rates fall, which could mean that freighter aircraft charters may look less attractive for certain cargo. But Hogben makes the point that air charter rates have also been falling steadily.
“Certainly, some cargoes that are less time critical are already returning to [ocean] container freight, to reduce cost,” he notes. “However, I believe many [customers] have been introduced to the speed and efficiency of air cargo and will retain full or partial use of air charter to maintain their supplies, particularly where cargo is time critical.”

Return towards normal
DB Schenker, a freight forwarder that operates its own air cargo charter network alongside its normal commercial airline uplift, said that the global air freight market missed a typical peak season in 2022, but the company expects a return to normal in the second half of 2023.
“We need to be prepared for that,” said a DB Schenker spokesperson. “By having set up our own controlled full charter flight network, we continue to provide our customers with reliable capacity at stable market rates. We are confident this will continue to be of relevance on many key routes, to offer the best possible air freight solutions for our customers.”
On the question falling deepsea container rates, DB Schenker said: “As the ocean freight market continues to normalize, some air freight will be returning to ocean transport mode. However, we do not see any signs that traditional air cargo is moving in that direction.
“The enormous time advantages of air transport remain a unique asset of this form of transport. Whilst some of our customers aim to move more freight to ocean to save costs, their supply chains do not appear to be ready yet to take a huge shift in that direction.”
DB Schenker agrees with industry thinking that a separate air charter network allows forwarders to access less-congested airports that have good road feeder links to key consumer points: “Our service from alternate airports is performing extremely well, so we will continue our strategy of also heading for alternative runways,” the company says.
“Secondary airports like Chicago-Rockford (RFD) help us to achieve short transit times and therefore overall time advantages for our customers.”
On the question of available air freight capacity outpacing air cargo volumes, DB Schenker agreed that more capacity is currently entering the market, but added: “When economic demand picks up again, there will still be sufficient demand to accommodate this growth (in capacity).”

Freighter utilisation ‘remains elevated’
As the global economy and its supply chains continue to recover from the pandemic shock and the effects of the war in Ukraine, US aircraft manufacturer Boeing said that the utilisation of dedicated freighters “remains elevated” over pre-2019 levels. “During the pandemic about 390 new freighters entered the global fleet,” a spokesperson said. “About two-thirds of these aircraft were converted passenger-to-freighter aircraft and about one-third were new-production freighters.”
Boeing observed that the commercial travel market continues to recover, very few passenger aircraft were still operating in cargo-only missions as they had during the heights of the pandemic – either with parcels on seats or as ‘preighters’ where the passenger seats have been stripped out completely.
The latest (2022) Boeing Commercial Market Outlook (CMO) forecasts more than 2,800 freighter deliveries globally in the 20 years to 2041. Boeing said the bulk of additions to the fleet – about 45% of the total – will be in standard-body conversions like the B737-800 Boeing Converted Freighter (BCF).
“The remaining 55% consists of about 940 new production medium-widebody freighters like the 767-300 freighter and large-widebody freighters, like the new B777-8 Freighter, and 555 medium-widebody freighter conversions, such as the B767-300BCF,” explained Boeing.
Airbus has a rival to the B777-8F, its A350F – the first of which is scheduled to roll off the production line in late 2024 or 2025, around two or three years ahead of its Boeing competitor. Boeing already boasts more than 80 orders and commitments under its belt for the B777-8F, from industry-leading operators including Qatar Airways, ANA, Cargolux, Ethiopian Airlines, Lufthansa, and Silk Way West Airlines; Airbus only has around half that number of orders for its A350F.

Freighter fleet analysis
IBA, a leading market analyst for both passenger and freighter aircraft, has provided CAAS with its in-depth view of the current freighter fleet, which has seen significant changes since the start of the pandemic – including some quite old aircraft. For example, a small number of 1970s generation Airbus A300B4-200F aircraft (around four examples) were re-activated between early 2020 and the present, says Jonathan McDonald, IBA’s manager for classic and cargo aircraft. But IBA “does not anticipate much future in these particular four aircraft though, due to age and reliability issues”.
Meanwhile, IBA says seven Boeing 747-200F aircraft were re-activated during the period (with a mix of PWJT9D, GE CF6-50E2 and RR RB211-524 engines), mainly in countries such as Georgia, Kyrgyzstan and Iran. But IBA does not feel these re-activations will have much of an impact either, as the aircraft utilisation will be low and contracts somewhat sporadic by nature.
More significant has been the reactivation of Boeing 747-400 series freighters. McDonald notes: “A large number (probably over 50 examples) of converted Boeing 747-400BCF/BDSF aircraft have either been re-activated or seen an increase in utilisation levels since March 2020, though some of this reactivation will be the aircraft transitioning from one operator to another – as opposed to an aircraft leaving desert storage due to a surge in demand.
“While Boeing 747-400BCF/BDSF aircraft do not have as much operational flexibility as the nose-loader factory Boeing 747-400F/ERF, they do nonetheless share quite similar fuel burn and commonality in systems, so IBA anticipates some future in these aircraft.”
FedEx reactivated a few Airbus A300-600R aircraft to help with pandemic-related traffic flows, though this is likely to be a short-term solution said IBA, adding: “Lufthansa Cargo deliberately delayed its McDonnell Douglas MD-11F retirement from 2019/2020 to late 2021 as a result of needing the extra capacity during the worst of Covid.” US integrators FedEx and UPS are understood to be the largest operators of the 90-tonne capacity three-engine MD-11F, between them having 94 of the aircraft type currently in operation, almost half of those built.
Aviation specialist and editor Guy Norris told a recent podcast that we are now seeing “an erosion happening at that top end of the market”, due to factors that include higher fuel prices due to the war in Ukraine, supply chain shortages and high inflation. He added: “You’ve either got the B747s and B777 freighters, which are above 100 tons [cargo capacity]. You’ve got B767s and other types which are significantly smaller. And in the middle you’ve got this MD-11 category.”
The MD-11F may be “just too big to operate,” Norris told the podcast, adding: “It’s not big enough to be filled like a B747, but it’s too big to operate on the other major routes that both of these carriers have.” The age of the MD-11F is another issue, some being 33 years old, and re-fleeting seeing competition from newer, twin-engine freighters with lower operating costs.

P2F conversion growth
Meanwhile, one of the most significant longer-term outcomes of the pandemic for freighter markets was the resulting surge in passenger to freighter conversions (P2Fs), with relatively young passenger aircraft grounded early and thus becoming attractive lower-price feedstock for conversion to freighters.
McDonald highlights a trend within current conversion activity of “P2F conversions gradually shifting from Boeing 737-300/400 to Boeing 737-800 and Airbus A321P2F”. Examples or “symptoms” include freighter airline ASL “gradually phasing out its 737-400SFs in favour of 737-800SFs; BlueBird Cargo and Airwork New Zealand looking to do similar along with other carriers. Boeing 757s are still being converted, fuelled by strong demand in China from SF Airlines,” McDonald notes.
In the medium to long-range wide-body market, the Boeing 767-300ER is “getting to maturity”, and IBA expects Israel-based conversion house IAI Bedek eventually to focus more towards the Airbus A330-300 conversion. Still, IBA sees a good few years of Boeing 767-300ER conversions yet.
“Once dominated by GE-powered aircraft, Boeing 767-300ERBCF/BDSF operators are having to look to PW-powered examples, although GE will always account for the majority of aircraft,” notes McDonald. “The sharp drop in Airbus A330-200/300 passenger aircraft values has meant carriers can source much younger aircraft for P2F conversion, and IBA sees this trend continuing.”

Potential overcapacity
Despite rising e-commerce volumes and continuing growth expected for some other higher-yield cargo, there is industry speculation that the influx of converted aircraft could swamp the air freight market. In other words, too many freighters chasing too little air freight.
But Hogben of the ACA takes a more optimistic view: “This will be an interesting area to watch as there are a large number of freighter conversions planned and in progress and these will provide higher capacity in the market.
“However, there are several reasons why I expect this will not swamp the market. Firstly, the size of e-commerce packages being sent continues to grow, greatly increased by the pandemic shopping trends and this will require larger capacity aircraft.
“Secondly there are currently some very old cargo aircraft operating, which newer freighter conversions will naturally replace by being more fuel efficient. This will be driven both by cost and sustainability requirements that will likely become a big driver.”
While the last version of the B747 freighter came out of the hangar earlier this year, the modern, greener and cheaper-to-operate production line freighters from Boeing and Airbus should provide a healthy, competitive market.
On the newbuild market, McDonald of IBA says: “The only production freighters are now the Boeing 767-300F and Boeing 777F, which should remain in production until around 2027 or 2028. The last Boeing 747-8F was delivered to Atlas at the start of the year, so that terminates over 50 years of iconic Boeing 747 Freighter production.”
Recent orders and deliveries of newbuild Boeing 767-300F and Boeing 777F aircraft include to Air Tanzania Cargo, Air Canada, Maersk, Western Global and Ethiopian, McDonald highlights, with other significant developments including the two imminent large widebody freighter aircraft launches. “Airbus A350F is due in 2025 and Boeing 777-8F due two to three years later,” McDonald notes.
In what is now a complex air cargo market, buffeted by economic headwinds, returning bellyhold capacity and significant freighter fleet numbers, Glenn Hogben of the ACA reminds us that it has been an exciting if challenging time for the industry, noting: “The last few years have enabled air cargo to demonstrate its advantages, the ability to respond rapidly and the overall critical role it plays in global logistics.”