Home Luxury brand Air Cargo Demand Maintains Highs Even as Supply Bottlenecks Ease

Air Cargo Demand Maintains Highs Even as Supply Bottlenecks Ease

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Air freight use has skyrocketed during the coronavirus pandemic as shippers have jumped bottlenecks plaguing surface transportation networks to get their goods to free-spending consumers.

Yet even as these bottlenecks begin to ease, the demand for aircraft to transport cargo continues to grow. The trend is to squeeze shippers’ bottom lines, improve airline fortunes and boost the most carbon-intensive form of freight transport.

According to the International Air Transport Association, global air passenger traffic is expected to be about a fifth below 2019 levels in 2022. Yet air cargo volumes will be 11.7% higher than in 2019 and 4% to those of 2021, according to estimates by the airline trade group.

How long the reliance on expensive air shipments will last has become “a multi-million dollar question”, said Todd Ingledew, chief financial officer of luxury brand Aritzia. The Canadian company expects profit margins to be three percentage points lower this year than last year due to higher costs of expedited airfreight from overseas manufacturing sites, he said. to analysts earlier this month.

Levi Strauss, the jeans maker, said rising air freight costs “to support the delivery of seasonal goods” squeezed its gross profit margin by 0.8 percentage points last quarter, while margin forecasts of Lululemon Athletica for its current quarter included 1.5 percentage points of “pressure”. air freight costs due to port congestion and capacity constraints”.

Gap took a $50 million charge on airfreight this quarter, which helped the clothing retailer lower its profit expectations by ousting chief executive Sonia Syngal earlier this month. Another apparel group, PVH, suffered a $12 million hit in its latest quarter related to air freight.

Air freight is much more carbon-intensive than maritime transport. In 2019, ships carried almost 350 times more freight than planes, but only accounted for five times more carbon dioxide emissions, according to the International Transport Forum.

But air freight is faster and has proven more reliable than the alternatives as ports have been delayed, truck drivers have become scarce and warehouses have filled up during the pandemic. Demand surged ahead of last year’s holiday season as retailers rushed to shelves.

Pressures on the global supply chain have eased since a peak in December, but remain historically high, according to an index released by the Federal Reserve Bank of New York.

Industries such as fast fashion have long relied on air freight to keep up with the latest trends, said Zvi Schreiber, managing director of logistics booking service Freightos. More companies are now shipping by air: for example, safety and technical equipment maker Brady said it shipped crucial parts by air in its last quarter.

A recent drop in the cost of air transport will bring some relief to shippers. Shanghai’s average shipping rate to the US, for example, has fallen around 50% from its peak in December, but is still more than double 2019 levels, according to Baltic Exchange data. .

Even as shippers suffer, sustained demand for airfreight helped Delta Air Lines report its highest cargo revenue in the second quarter earlier this month, with airfreight revenue up 46% from to 2019.

“Supply chain disruptions are still quite significant. I don’t see them being materially resolved in the next 12 months,” said Ed Bastian, Delta’s chief executive. “So I think the outlook for air cargo should be pretty, pretty good.”

Cargo as a share of global airline revenue more than tripled between 2016 and 2021, said Marie Owens Thomsen, chief economist at IATA, although she said the share is expected to decline as the passenger demand is rebounding to pre-pandemic levels.

Others are also making big bets on how long high air cargo demand will last. US aircraft manufacturer Boeing said it plans to increase the number of its freighters in service by 80% over the next two decades. Airbus, Boeing’s main rival, plans to increase active freighters by half by 2041.

The pandemic has demonstrated the “strategic importance” of air cargo, said Darren Hulst, Boeing’s vice president of commercial marketing: “It’s not just an issue in terms of shipping versus air travel. They’re complementary, in many ways, but I think air has proven itself.

Shipping lines are also buying into the air cargo boom. Danish company Maersk announced a new air cargo wing in April, while France’s CMA CGM has ordered six planes for its fledgling airline division since November 2021.

“We shipped things by air during this time that were never shipped by air,” said IATA’s Owens Thomsen. “Things will normalize at some point.”

Some U.S. importers are betting their need to bypass congested shipping lanes will last well beyond the next holiday season. Harmit Singh, chief financial officer of Levi Strauss, said he expects rising air freight costs to continue through at least 2023.

” We suppose [air freight] going to stay where it is for the rest of the year,” Abercrombie & Fitch chief financial officer Scott Lipesky said during the company’s latest earnings call. “A lot of us are optimistic that we’ll start to see some relief in the back half, but who knows?”

Additional reporting by Steff Chávez in Chicago