With supply chain managers still trying to empty warehouses of goods imported ‘just-in-case’ during 2022, there is currently no pressure to replenish inventories quickly, notes James Hookham, secretary general of the Global Shippers Forum. Other challenges this year include the implementation of the EU’s ICS2 scheme for pre-notification and clearance of EU air cargo imports from March
Forecasting the future of logistics is fraught with difficulty, even for the near-term. It’s a hands-on, day-to-day sector, running 24/7/365, fully exposed to the impulses and shortcomings of politics, economics, society and technology, not to mention the forces of nature. The past three years have been testament to that!
Making things even more tricky at the beginning of 2023 is the uncertainty about the single biggest influencer of the sector’s fortunes – the state of the world economy. Especially the uncertainty of outlook for the consuming economies in Europe and North America, currently poised on the knife-edge between recovery from pandemic-induced inflation and a recession due to lack of demand and by high interest rates. It will be the speed and timing of any recovery in consumer spending on goods that will dictate the pace at which logistics markets generally, and the air cargo sector in particular, picks up from its current lull.
There was some optimism from Central Banks at the beginning of February that the trend of worsening inflation and raised interest rates could be over by mid-year. But with supply chain managers still trying to empty warehouses of goods imported during 2022 – ‘just-in-case’ they could be sold, rather than ‘just-in-time’ to meet a firm order – there is currently no pressure on them to replenish inventories quickly. Indeed, some shipping lines were using this as an excuse to slow ships down last year to save on fuel.
Whenever the upturn in demand for air cargo does arrive there will be no shortage of capacity to carry it. Assuming another Northern Hemisphere spring and summer free of Covid-restrictions sustains the recovery in passenger numbers, then these flights alone will bring more belly-hold capacity into play for established carriers. That will be supplemented by the arrival of new dedicated freighter aircraft and conversion capacity ordered before the downturn last year.
Then there are the newest and most unexpected suppliers of air freight services, the deep-sea container shipping lines. Although their capacity is currently tiny compared to incumbents, these experienced asset managers and operators will be out to leverage their existing customer base to turn the logic of this move, plus their other recent acquisitions in warehousing, forwarding and last-mile distribution, into a seamless shipper experience. However, real growth in demand will be needed for these services to thrive – otherwise a price war or rapid exit may beckon.
Environmental factors
Ask a shipper what the biggest barrier is to them using more air freight, other than cost, and they will probably list carbon footprint and environmental impacts. This is not some personal angst on the part of the individual shipper. Greenhouse gas emission inventories are now an embedded reporting metric in listed businesses as part of Board-level commitments to reach a Net Zero emissions target by 2050, or earlier. Many shippers have strategic objectives to make meaningful contributions to carbon savings from their operations, starting now.
Therefore, one prediction that can be made with some confidence is that the drive to reduce aircraft emissions will continue through 2023. And following the adoption of IATA’s own Net Zero commitment by world governments at ICAO last September, these aspirations need to move off the drawing board and into production in short order. Recently reported moves by global branded shippers and airlines to lock in the costs and carbon benefits of sustainable aviation fuels (SAFs) are small but powerful steps forward as they demonstrate how to turn green rhetoric into bankable credits, to the benefit of the fledgling SAF producers and the Scope 3 carbon inventories of major shippers.
EU’s ICS2 scheme
Another known event this year is the implementation of the EU’s ICS2 scheme for pre-notification and clearance of EU air cargo imports from 1 March. (The other modes follow over the next three years). Whilst this task will mainly fall to forwarders to perform, it will further stimulate a more general trend of shippers and forwarders wanting to maintain visibility of their shipments.
Industry-level agreement is close on the approval and acceptance procedures for shipments containing smart trackers – which are capable of recording and reporting cargo temperature, orientation, shock impacts, as well as location in real time to a mobile phone app – which should allow path-finding enhancement to customer service, with huge potential in other modes, to finally reach the market this year.
