10 September, 2024

This week Ryan Keyrouse, CEO at Rotate, shared insights and expectations on the global e-commerce market with 450+ delegates at the EU Cross-Border e-commerce Forum in Liege, Belgium. The analysis leveraged Rotate’s Live Capacity data and showcases Rotate’s recently developed air cargo demand data product – a holistic view on the market that uniquely provides insights on e-commerce.

Highlighting the phenomenal growth of e-commerce out of China in the last two years, Rotate’s materials revealed that growth is no longer concentrated solely in the southern province of Guangdong (+15%) but rather in other provinces (+37%). Capacity data supported this trend, showing China’s secondary airports out-performing, as airlines increasingly operate dedicated e-commerce freighters to these airports. This also means the share of e-commerce transported via mail has dwindled.

It is not only the origin of e-commerce that is diversifying. While China to the United States and Europe indeed experienced the largest tonnage growth over the last two years in absolute terms, China to Malaysia and Mexico combined added as many e-commerce tonnes as Europe – with YoY growth rates of 46% and 73%, respectively.

Ahead of the forum, Rotate surveyed the 450+ delegates on various e-commerce trends. This revealed several inconsistencies between industry perception and the data. For example, while half the delegates believed e-commerce growth came on top of a growing general cargo market, trade data indicates the general cargo market over the last two years was flat at best.  The survey also revealed the biggest risks to e-commerce growth was not changes to De Minimis thresholds, but rather security concerns from misdeclarations and politically motivated policies.  

When asked what drives operational issues, respondents again pointed to misdeclarations along with the digital constraints from so many small packages, unprepared airport facilities and staff, and unbalanced flows. The growing imbalances leads to increasing gaps in one-way freighter profitability.

Looking ahead to 2025, Mr Keyrouse discussed a range of possible market scenarios. Delegates were split between e-commerce continuing its aggressive growth and maturing to a more moderate growth, while a small minority thought e-commerce volumes had peaked. This positive outlook would put the industry in uncharted territory – setting records for consecutives months of growth – but also leaving the industry wondering how much the available capacity will constrain demand growth given deliveries and conversions are limited and the utilization of freighters is still near its peak.

Reflecting on the forum, Mr. Keyrouse remarked “We have all seen bits of this data in the past – so it’s exciting to have finally combined various data sources to build the first holistic view of demand. It is something we have wanted to build for a long time – and more is coming soon.” Rotate is currently continuing the co-development of its demand data products together with customers and invites interested companies to reach out to learn more about this unique approach to air cargo demand data.

 

About Rotate:

Rotate is transforming the air cargo industry by enabling better commercial and strategic decisions through data-driven consulting and proprietary software and data products. It empowers industry professionals to convert data into action and create substantial value. With offices in the Netherlands and Malaysia, its team of ~35 strategy consultants, air cargo specialists and technology professionals, is dedicated to creating real and practical solutions and strategies.
Having successfully completed over 400 engagements with more than 100 clients, Rotate staff have made a significant impact in the air cargo sector. They developed software and optimization software trusted by airlines that together represent 40% of the global air cargo market. Rotate’s recently launched Sales Cockpit is being utilized by industry leaders such as Etihad Cargo and Air Canada Cargo.

Rotate is a proud member of CargoTech, a consortium with the mission to encourage, facilitate, and accelerate the digital transformation of the air cargo industry. It aims to be a one-stop-shop, offering digital solutions for every air cargo business process, and providing best-in-class digital transformation consultancy services to air cargo stakeholders.

For press or media enquiries, please reach out to Jonathan Mellink, Head of Sales and Marketing: jonathan@letsrotate.com

15 July, 2024
By: Tim van Leeuwen

As delegates gathered in Shanghai at the first Air Cargo China conference since 2018, the mood was significantly better than at industry gatherings a year before. Aptly enough the conference was organized in China, the source for the positive mood – with its continued growth of cross-border e-commerce demand.

Quantifying e-commerce volumes remains a challenge. Direct data on e-commerce volumes does not exist, and hence the best indications we have are anecdotal (“more than 50% of our traffic out of Hong Kong is e-commerce”). What information is available on e-commerce volumes, and how do these impact the air cargo market’s near-term outlook?

Air cargo traffic in the lift

The subdued atmosphere amongst those in air cargo in 2023 was largely due to a slowdown in demand. Air cargo traffic was markedly below the peak volumes of 2021, when pandemic-induced demand significantly boosted volumes. By mid-2023, air cargo traffic had recorded 17 consecutive months of year-over-year declines (see figure 1).

Figure 1: Monthly (year-over-year) growth of international air cargo traffic, as reported by IATA.

Thankfully, fortunes changed in 2023. As of May 2024, air cargo demand is on a run of ten consecutive months of year-over-year traffic growth. The last 6 months even registered double-digit growth. This strong demand is likely to continue in the second half of the year, although the growth will slow to single digits when comparing to a stronger second half of 2023.

Capacity as an indicator for air cargo traffic

To our surprise, one data source paints a bit of a gloomy picture: air trade data (as reported by customs) has declined in 2024. US customs data shows air trade down 9% on the Transpacific (see figure 2). This contrasts sharply to 21% growth as reported by airline traffic (the dark blue line in figure 2).

The difference in trends between these sources is caused by so-called “de minimis” thresholds of customs authorities, the maximum shipment value allowed to be imported duty-free. As an example, imports into the US are only subject to duty (and hence detailed registration at customs) if their value is over 800 USD. With e-commerce shipments nearly always below this value, customs-based trade data usually does not cover e-commerce volumes, whereas traffic statistics do. With e-commerce demand continuing to grow, the gap between these indicators has swelled significantly since 2022 (see figure 2).

 

Figure 2: Monthly figures for air cargo trade (as reported by US customs), air cargo traffic (as reported by airlines) and air cargo capacity (from Rotate Live Capacity) between China (including Hong Kong) and the USA. Sources: US Census, BTS, Rotate Live Capacity

Whilst air cargo traffic data gives a better picture of true demand, one disadvantage is that it usually has a significant lag (up to three months). This means it is hard to adjust strategy in real time based of this information. Rotate’s consulting team has found that on high-demand trade lanes (like the Transpacific), real-time air cargo capacity is amongst the best indicators of air cargo traffic (see figure 2). Capacity data is increasingly the best indicator of air cargo demand – especially on lanes highly impacted by eCommerce.

Freighter shortages improve the near-term outlook

With e-commerce volumes representing a sizeable share of air cargo demand out of Asia, delegates at Air Cargo China expressed worries that the air cargo industry is becoming reliant on cross-border e-commerce volumes. A commonly asked question at the conference was around the outlook of the air cargo market for the remainder of the year. Rotate’s consulting team is keeping an eye on three trends in particular.

The first is any potential changes to de minimis thresholds, in particular in the USA where adjustments are being discussed. Given the low-value nature of the shipments though, the threshold would have to be lowered significantly to affect a sizeable number of e-commerce shipments. For now, our capacity data shows no signs of flights into the USA slowing down.

Second is any indications of slowing consumer interest in e-commerce platforms; at Rotate we monitor downloads and usage statistics of popular shopping apps. Again, our analysis has shown consumer interest is unrelenting.

A third trend concerns the supply side, with several forwarders and carriers commenting on the difficulty of obtaining capacity on today’s market. In part this can be attributed to reductions in deliveries of large widebody freighters into the market. As an example, engine supply issues and quality assurance efforts have limited Boeing’s deliveries of B777-200LRF freighters to just 7 so far this year (see figure 3). Ongoing production issues at Boeing (and high demand for passenger aircraft) have also delayed the certification of the imminent Boeing 777-P2F conversion programs.

Figure 3: Slowdown of large widebody freighter deliveries in 2024 (Source: Boeing) and recent news on delays to large freighter conversion programs

All these trends combined mean there is ample reason to believe that the air cargo market will remain strong in the second half of 2024. E-commerce demand will likely continue to play a key role, both in established markets and increasingly in emerging markets. Air cargo continues to deliver on consumers’ unrelenting demand.

 

Tim van Leeuwen is a strategy consulting project manager at Netherlands-based Rotate, the go-to team in the cargo industry for commercial decision-making.

Want to know more about Rotate, please feel free reach out to us via: commercial@letsrotate.com 

 

About Rotate:

Rotate is helping the air cargo industry to make better commercial and strategic decisions. The company provides software products, market data, and strategy consulting to help the air cargo industry turn data into action. Rotate brings together a unique mix of air cargo experts, strategy consultants, and technology professionals to create real and practical solutions and strategies. The company targets all domains that drive the commercial performance of airlines: from sales optimization and dynamic pricing to revenue management, contract management and revenue leakage.

For press or media enquiries, please reach out to Jonathan Mellink, Head of Sales and Marketing: jonathan@letsrotate.com

 

March 7, 2024
By: Tim van Leeuwen

Operating freighter aircraft has historically been a business with tight margins, a market environment temporarily interrupted by the COVID-19 pandemic. Recent airline financial statements again show (more familiar) marginal profitability levels, despite yields that remain 35%-40% up on 2019 figures.

How do we reconcile these two seemingly contradicting facts? Tim van Leeuwen gives us exclusive insight into how Rotate’s strategy consulting team views profitability in the industry, and what impacts he sees on (future) airline decisions.

Slim pickings: turning a profit in air cargo

For the two decades ahead of COVID-19, the air cargo industry faced increasing pressure on yields, as a continuous influx of cargo-friendly widebody passenger aircraft combined with steady additions to the global freighter fleet led to sustained growth of global air cargo capacity. This in turn gradually worsened the industry’s demand-supply balance. Freighter operations were (on average) marginally profitable, with one cargo-only airline averaging a 2.1% EBITDA margin between 2010 and 2019.

Cargo’s COVID era: the biggest bull market in history

The impact of passenger aviation on the cargo industry became more apparent than ever during the outbreak of the global COVID-pandemic. Air cargo’s demand-supply balance tipped heavily in favor of airlines, as the parking of passenger aircraft massively reduced supply while demand for air cargo soared. “Cargo yields nearly doubled overnight (see figure 1), with yields on the most affected trade lanes quadrupling”, notes Rogier Blocq of WorldACD, a leading market data provider that provided yield data for this study. “Global yields are still considerably higher than pre-COVID averages”.

Figure 1: Global average air cargo yields in 2019-2024. Following an initial spike in yields in 2020 as mouth masks had to be quickly distributed around the world, air cargo yields peaked in Q4 2021 through a combination of strong consumer demand and congestion in the world’s container ports

Only half of the story: why looking at profitability matters

While yields are still elevated versus pre-COVID levels, revenue is only half the story. The recent surge in inflation (OECD indicates combined inflation of 21.6% between 2020 and 2023) has amplified the need to look beyond fuel and consider other costs when studying freighter profitability, with crew, maintenance and airport services also increasing some 25%. Combining WorldACD’s air cargo yields with Rotate’s freighter cost benchmark model paints a picture of global freighter profitability over time (see figure 2).

Figure 2: Freighter profitability over time, showing the global average yield (green line) compared to estimated average cost per kilogram of large (B747/B777) freighters, assuming an 8,800km flight at 80% load factor.

This analysis highlights that freighter profitability – despite higher yields – did indeed revert to marginal pre-COVID levels, supporting comments by leading industry figures at the back end of 2023. In fact, during the third quarter of 2023 market conditions were temporarily worse than in 2019 (itself not a great year for air cargo). Since then air cargo saw a rebound in demand (WorldACD figures show demand up +9% in the first two months of 2024 versus the year before), but market conditions are expected to remain marginal going forward.

The Temu effect: advantage Asia

Whilst overall cargo profitability has fallen drastically, these aggregated global figures hide another key trend impacting air cargo in the last 18 months: another incredible rise of eCommerce demand, this time mainly driven by platforms like Shein and Temu. Online cross-border consumer orders have been a welcome sight as demand for general air cargo lagged, with Shein and Temu expecting to fill (the equivalent of) 90 Boeing 747 freighters out of Southern China every day by the end of the year. For reference, Rotate Live Capacity data only shows around 500 active B747/B777s.

The effect on air cargo has been profound, with WorldACD’s Rogier Blocq observing that “yields out of China and Hong Kong at the beginning of this year were still up +45% vs 2019, whilst yields across the rest of the world are 15% higher than in the same period”. As a result, freighter operations to/from Asia Pacific have maintained higher profitability than those on other trade lanes (see figure 3), and conversely freighter operations on the Transatlantic are challenging again. Rotate’s Live Capacity data confirms that Transatlantic freighter capacity was indeed down -15% in January 2024 versus the year before, while more cost-competitive passenger belly capacity grew +5%.

 

Figure 3: Estimated contribution per kilogram of large (B747/B777) freighters for three round trips in 2019, 2022 and Q4 2023. Whilst contribution on all trade lanes has dropped since 2022, those to/from Asia Pacific still exceed 2019 levels.

How a return to marginal freighter profitability may impact airline decisions in 2024

The return to pre-COVID profitability levels should impact airline decisions in 2024, ranging from difficult freighter fleet decisions for some airlines to a renewed focus on planning and optimization for all.

Whilst some airlines may still target growth in 2024 (exploiting pockets of growth on various trade lanes, including those driven by eCommerce demand), others will pull all available levers to meet their budgets and manage the (often high) expectations of airline executives that grew accustomed to double-digit cargo margins during COVID. These levers include optimization in (freighter) network planning, sales steering towards an airline’s optimal commercial mix, faster and sharper pricing to ensure capacity is visible on all distribution channels at the right price, and a data-driven approach to sales initiatives.

Longer-term strategic considerations include those on fleet, with several airlines already cancelling orders for (conversion) freighter aircraft (replacing these with passenger aircraft orders) or studying the potential of partnerships to supplement the current network and fleet. eCommerce may again influence airlines’ (fleet) decisions, with its different density profiles influencing the attractiveness of freighter types.

Add these pending decisions to a seemingly constant stream of disturbances for airlines to deal with, and 2024 looks like another interesting year for air cargo.

 

Tim van Leeuwen is a strategy consulting project manager at Netherlands-based Rotate, the go-to team in the cargo industry for commercial decision-making.

Rotate would like to thank WorldACD Market Data for their inputs to this article.

Want to know more about Rotate, please feel free reach out to us via: commercial@letsrotate.com 

 

About Rotate:

Rotate is helping the air cargo industry to make better commercial and strategic decisions. The company provides software products, market data, and strategy consulting to help the air cargo industry turn data into action. Rotate brings together a unique mix of air cargo experts, strategy consultants, and technology professionals to create real and practical solutions and strategies. The company targets all domains that drive the commercial performance of airlines: from sales optimization and dynamic pricing to revenue management, contract management and revenue leakage.

For press or media enquiries, please reach out to Jonathan Mellink, Head of Sales and Marketing: jonathan@letsrotate.com