Air freight use skyrocketed during the coronavirus pandemic, as shippers jumped over the bottlenecks that plagued surface transportation networks to get their goods to consumers who spend for free.
But even as those bottlenecks begin to ease, the demand for planes to carry cargo is still growing. The trend is pushing shippers’ profits, boosting airline fortunes and boosting the most carbon-intensive form of freight transportation.
Global air passenger traffic is prediction According to the International Air Transport Association, in 2022, they will be about one-fifth lower than the level of 2019. Still, air cargo volumes will be 11.7 percent higher than in 2019 and 4 percent more than in 2021, the aviation trading group estimates.
How long the reliance on expensive air freight lasts has become “a matter of millions of dollars,” said Todd Ingledew, chief financial officer of luxury brand Aritzia. The Canadian company predicts its profit margins this year will be as much as three percentage points lower than last year due to higher costs of expedited air freight from overseas manufacturing sites, it told analysts earlier this month.
Levi Strauss, the jeans maker, said higher air freight costs “to support the supply of seasonal items” decreased 0.8 percentage points of gross profit margin in the last quarter, while Lululemon Athletica’s margin guideline for the current quarter included 1.5 percentage points of “pressure.” . of air freight costs due to port congestion and capacity constraints”.
Gap charged $50 million in air freight this quarter, which helped the apparel retailer lower its earnings estimates when it ousted CEO Sonia Syngal earlier this month. Another apparel group, PVH, took a $12 million airfreight blow in the last quarter.
Air freight is much more carbon intensive than sea shipping. In 2019, ships carried nearly 350 times more cargo than airplanes, but only accounted for five times more carbon dioxide emissions, according to the International Transport Forum.
But air freight has proven to be faster and more reliable than alternatives, as ports have fallen behind, truck drivers are scarce and warehouses have been flooded during the pandemic. Demand rose faster than last year during the holiday season, as retailers rushed to stock the shelves.
Global supply chain pressures have eased from a peak in December but remain at an all-time high, according to an index published by the Federal Reserve Bank of New York.
Industries like fast fashion have long relied on air freight to keep up with the latest trends, said Zvi Schreiber, chief executive of logistics booking service Freightos. Now a larger number of companies are shipping by air: For example, safety and engineering equipment manufacturer Brady has said it shipped critical parts by air in the last quarter.
A recent drop in air transport costs will provide some relief to shippers. For example, the average shipping rate from Shanghai to the US has fallen about 50 percent from its December high, but is still more than double its 2019 level, according to data from Baltic Exchange.
Even as shippers struggle, continued air freight demand allowed Delta Air Lines to report its highest-ever second-quarter freight revenue earlier this month, with air freight revenue rising 46 percent compared to 2019.
“Disruptions in the supply chain are still quite significant. I don’t see them being resolved in any material way in the next 12 months,” said Ed Bastian, CEO of Delta. “So I think the outlook for air freight should be pretty, pretty good.”
Freight as a share of airlines’ global revenues more than tripled between 2016 and 2021, said Marie Owens Thomsen, chief economist at IATA, though she said the share is likely to decline as passenger demand bounces back to pre-pandemic levels.
Others are also placing big bets on the increased demand for permanent air freight. US aircraft maker Boeing said it plans to increase the number of cargo planes in service by 80 percent over the next two decades. Airbus, Boeing’s biggest rival, plans to halve the number of active cargo aircraft by 2041.
The pandemic has demonstrated the “strategic importance” of air cargo, said Darren Hulst, Boeing’s vice president of commercial marketing: “This is not just a blunder in terms of shipping versus air. They are complementary in many ways, but I think air has proven itself.”
Shipping companies are also buying into the air freight boom. Denmark-based Maersk announced a new air cargo wing in April, while France’s CMA CGM has ordered six aircraft for its burgeoning air cargo division since November 2021.
“We’ve been carrying things by air during this period that were never shipped by air before,” said IATA’s Owens Thomsen. “At some point everything will normalize.”
Some US importers are betting that their need to avoid congested shipping routes will last well past the next holiday season. Harmit Singh, chief financial officer of Levi Strauss, said he expects air freight costs to rise until at least 2023.
“We assume that [air freight] will stay where it is for the rest of the year,” said Abercrombie & Fitch Finance Chief Scott Lipesky during the company’s latest earnings call. “A lot of us are optimistic that we’ll see a little relief in the back half, but who knows?”
Additional reporting by Steff Chávez in Chicago