The long haul

posted on 4th March 2021
The long haul

A likely long-term decline in business travel will lead to less intercontinental wide-body ‘cargo friendly’ belly capacity in the coming years, which will keep yields higher than pre-COVID levels in the coming years, believes Sebastiaan Scholte, CEO of cargo GSSA Kales Group

It will be capacity, or better said the relative lack of capacity rather than demand, that will influence the air cargo market in the coming years. Most of the passenger planes have been grounded in the last year and most likely will also be in the first half of 2021. Demand has not fallen as much as supply, resulting in higher yields. The higher yields will continue in the foreseeable future.

Most likely, the yields will decline as soon as the world is vaccinated and starts going back to normal, resulting in more passenger flights. However, even though everybody will start flying to touristic destinations again, business travel will be affected in the long run because remote working will remain popular. Therefore, there will be less capacity in the coming years due to less long-haul wide-body ‘cargo friendly’ passenger aircraft. Yields are therefore expected to remain higher than the pre-COVID levels in the next years.

Technology challenge
Due to the COVID crisis, digitisation and remote working have accelerated at a pace that otherwise would have taking many years. The technology is there, but not always adapted as much as in different industries. The air cargo industry is definitely not driving technological changes, but very slowly adapting technology that already exists.

The challenge is not so much about inventing new technology to optimise the processes, but more the adaption. People love to talk about the technologies yet not even adapted in more tech savvy industries instead of applying what is available now. We need to walk properly first before we start talking how we can fly to the moon.

Digital, connected and smart
We need to be collectively as an industry more digital, connected and smart. Information, in many instances, is moving at the same speed as the cargo, which leads to inefficiencies in the air cargo supply chain. Information can and will need to move faster than the physical goods.

“Information can and will need to move faster than the physical goods”

Sebastiaan Scholte

Certain companies do not want to share the information because it will show up errors or flaws. But each hiccup in the chain will lead to more inefficiency further up the supply chain. Sharing information, even though it shows operational inefficiencies, is a strength and will help other companies react to it and adjust. Companies should be rewarded for sharing their information real time, including delays, and not for an on-time performance report that is made afterwards monthly, and mostly used to reduce prices instead of optimising operations.

More outsourcing to GSSAs
More airlines will focus on their core business and may want to become more flexible in their workforce. There will be more outsourcing to GSSAs, especially dynamic customer-focused ones – like Kales Group. This allows airlines to save cost and become more agile.

E-commerce now represents 20% of total air cargo demand and around 80% of cross border e-commerce is transported by air. It is logical that large shippers and e-commerce companies are acquiring more of their own capacity. Large shippers like Amazon, Inditex, Alibaba, and Mercado Libre will continue to be consumers of traditional air cargo capacity but are also increasingly becoming suppliers of capacity themselves. It may well be that in the future these large shippers will be able to offer more air cargo capacity than some of the major cargo airlines now.

“In the future these large shippers may be able to offer more air cargo capacity than some of the major cargo airlines now”

Sebastiaan Scholte