The Challenges and Prospects for the Air Cargo Sector

Logistics Transportation Review | Thursday, November 02, 2023

Summary: Embracing technology, adapting to market changes, and addressing external challenges will be key to achieving growth and success in the cargo sector.

FREMONT, CA: Like many other industries, the air cargo market has recently faced its fair share of challenges. As we move into 2023, the sector is still dealing with the aftermath of various external issues that have disrupted operations and impacted the global supply chain. As a result of the Russian invasion of Ukraine at the beginning of 2022, sanctions were imposed, and airspace was closed. This resulted in significant re-routing of flights due to no-fly zones and a surge in global crude oil prices, which reached a high of USD 122.71. The higher oil prices directly affected the air cargo industry and impacted consumers and customers, who had to bear increased costs.

Port congestion and strikes across multiple industries prompted a shift in airfreight demand, leading to relatively high airfreight rates in 2022 compared to other freight modes. As we look ahead to 2023, external challenges are expected to persist in the airfreight industry. Strikes in various industries can have a cascading effect on logistics operations, making it crucial for businesses to have robust contingency plans to safeguard their operations and customers. The ongoing war in Ukraine continues to create uncertainty, and the consequences of this conflict are still unfolding. With no-fly zones, sanctions, and escalating costs due to route diversions, the war poses significant obstacles for the air cargo industry.

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The conversation around energy and oil prices is expected to plateau in the second half of 2023. A decrease in oil and energy prices should positively impact customers as businesses can lower fees in line with fuel prices, providing some relief amidst the rising cost of living. Despite the overall decline in the cost of living, consumers and businesses continue to worry about it. Decision-makers across industries are tightening their belts, and ensuring the smooth movement of goods and freight services will continue to be challenging.

While airlines are gradually recovering from the impact of the pandemic, it will take time for them to return to their pre-Covid flight capacity. After a tumultuous 2022, we can expect prices to level as airfreight becomes a preferred method of goods transportation for an increasing number of customers. Airfreight volumes may take several years to fully recover to pre-pandemic levels.

The global appetite for cargo is predicted to continue to decrease during the first half of 2023, influenced by the cost of living and the significant decline in sea freight rates over the past year. Air and sea freight are now at comparable levels, an unexpected data trend that underscores the industry's changing dynamics.

Rate fluctuations will play a crucial role in balancing the market, and by the second half of 2023, we can anticipate a gradual decrease in costs as the uptake of passenger planes increases. While freight consignments may spike during major holidays, overall freight volume is expected to be lower compared to pre-pandemic years due to subdued worldwide demand.

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