News #82 - Freighter demand: Key drivers and trends

IATA reports that air cargo now accounts for approximately 35% of global trade by value, emphasising its critical role in the economy. As carriers expand their fleet to meet increasing demand, they are also facing challenges related to capacity constraints, fuel efficiency, and the need for sustainable practices. This dynamic landscape will influence how air cargo operators strategise their growth and adapt to the evolving market demands.  

The air cargo industry has experienced a dramatic overhaul in recent years. Global trade patterns have shifted, technology has advanced, and consumer habits have changed. This has led to a significant increase in demand for freighter aircraft by air cargo carriers.  

Amid global challenges, exceptional resilience and adaptability have been demonstrated by the air cargo industry. By 2024, the sector has not only rebounded from the initial impact of the COVID-19 pandemic but also witnessed notable growth in key segments.

Current state of the air cargo industry

According to the International Air Transport Association (IATA), cargo revenues are expected to reach $120 billion in 2024, following $138 billion in 2023. While this is below the extraordinary peak of $210 billion in 2021, it remains above the 2019 figure of $101 billion and surpasses the December 2023 forecast of $111 billion.

Despite strong demand, cargo yields are projected to decline by 17.5% in 2024, although they will remain slightly above 2019 levels. This shift represents a normalisation following the exceptional highs experienced during the pandemic. A significant contributor to this change is the substantial increase in belly capacity that entered the market in 2023, coinciding with the recovery of passenger travel.

The importance of air cargo in global trade cannot be overstated. Today, air cargo transports over $6 trillion worth of goods, accounting for approximately 35% of global trade by value, according to IATA.

The explosive growth of e-commerce has also been a game-changer for the air cargo industry, reshaping demand patterns and driving significant investments in capacity and technology. This symbiotic relationship between e-commerce and air cargo has accelerated in recent years.

In its EU cross-border e-commerce forum 2024 report, Rotate, an air cargo consulting and data specialist firm, stated that if e-commerce growth continues at +20% and general cargo at +2%, overall growth by 2025 would reach +7%. It has also projected that air cargo demand growth in 2024 is expected to reach around +11 to 12%.

On e-commerce growth, American aircraft manufacturer Boeing, in its World Air Cargo Forecast 2022-2041, states that global e-commerce revenues are projected to more than double pre-pandemic levels by 2026, reaching $8.1 trillion.

Freighter demand: Driving forces and trends

The air cargo industry has seen a marked rise in freighter orders in recent years, with both established carriers and new players making considerable investments to grow their dedicated cargo fleets.

E-commerce growth

This trend has been particularly pronounced since 2021, as airlines and logistics companies respond to the evolving demands of global trade and e-commerce.  

“The growth of e-commerce has focused demand in certain key areas, especially on routes from China to Europe and the U.S. This has increased the need for large freighter aircraft like the Boeing 777F, Airbus A350F, and Boeing 747F, which are ideal for carrying the high volumes of cargo on these routes. As a result, these large freighters are becoming more important for supporting the ongoing growth of e-commerce shipping globally,” says Leonard Rodrigues, Director Revenue Management & Network Planning, Etihad Cargo.

In its new Commercial Market Outlook 2024-2043, Boeing has highlighted that e-commerce is fueling a massive surge in air cargo demand, with online platforms shipping over 10,000 tonnes of goods daily. This volume is equivalent to the capacity of 100 Boeing 777 freighters, underscoring the profound impact of e-commerce on global logistics.

It has also predicted that over the next 20 years, an additional 2,845 freighters will enter service to accommodate the growing demand from global trade and e-commerce.

Interestingly, while Boeing has raised its forecast, Airbus, in its latest projection, anticipates lower demand for freighters.

In its Global Market Forecast 2024, the European aircraft manufacturer projects that 2,470 freighters will enter the industry over the next twenty years (2024-2043).

Replacing ageing fleet with new freighters

Manufacturers have launched new freighter programmes to meet evolving market demands. Notable examples include the Airbus A350F, which has garnered significant interest since its launch in 2021, the Boeing 777-8F, the freighter variant of the 777X family, and Embraer's initiative to develop freighter versions of its E-Jet family. These new programmes are complemented by a surge in passenger-to-freighter (P2F) conversion orders, with many passenger aircraft grounded during the pandemic finding new life as cargo carriers.

As of now, Airbus has secured orders for 55 A350Fs from airlines including Etihad Cargo, Singapore Airlines, Cathay Pacific, and new customer Starlux. The aircraft, based on the A350-1000 passenger model, is scheduled to enter service by 2026.

Boeing has also, as of now, secured a similar number of orders for its new B777-8F, with 55 orders from customers including Qatar Cargo, Silk Way West Airlines, Lufthansa Cargo, Cargolux, and ANA Cargo.

According to Boeing, the 777-8F is designed to replace the B747-400 freighters, a point highlighted by John Perdoch, Director of Product Marketing – Freighters at Boeing, during an interview with STAT Media Group at the Air Cargo China and Transport Logistic China exhibition and conference 2024 in Shanghai.

The current freighter version of the B777, the B777F, has gained significant market share in recent years, replacing the older B767 freighters, which previously managed much of the cargo before the B777F entered service.

Boeing's orders and deliveries report indicates a total of 353 orders for the B777F, with 266 aircraft delivered to date.

Today many air cargo carriers are facing the need to replace ageing freighters, driving new orders. This replacement cycle is influenced by fuel efficiency, maintenance costs, and regulatory compliance.

While discussing the ageing fleet, Airbus freighter marketing, and investor relations expert told The STAT Trade Times about the ageing of freighters like the Boeing 747-400F. “One of the key drivers for the launch of a new freighter aircraft type is the observation of ageing cargo fleets worldwide. The 747-400F is facing the end of its life cycle, and a significant number of aircraft retirements are expected in the coming years,” an Airbus spokesperson said.

Sustainability in focus

Newer aircraft offer significant improvements in fuel efficiency, reducing operating costs and environmental impact. Older aircraft become increasingly expensive to maintain, making fleet renewal economically attractive. Increasing focus on sustainability and environmental responsibility is influencing freighter orders. International Civil Aviation Organisation’s Carbon Offsetting and Reduction Scheme for International Aviation (ICAO CORSIA) and regional environmental regulations are pushing carriers to invest in more fuel-efficient aircraft. Additionally, IATA has set a target to achieve net-zero carbon emissions for the global aviation industry by 2050.  

For instance, according to Airbus, the new A350F is 40% more fuel efficient than the 747F and 20% more efficient than the 777F.

On the other hand, Boeing claims that the 777-8 freighter offers nearly the same payload and range capabilities as the 747-400 freighter while delivering 30% improved fuel efficiency and emissions and 25% lower operating costs per tonne.
In line with these initiatives, Airbus emphasises the importance of compliance with future regulations, stating, “The A350F, based on a proven platform of the A350-1000, will be the only freighter aircraft on the market to comply with these defined standards coming into effect in 2027.”

Ground reality and challenges

Although new freighters like the B777-8F and A350F offer many advanced features, both are still in the developmental stages. For Airbus, there has been a strong demand for passenger-to-freighter (P2F) conversions of A330-200/300 aircraft. However, the future of these conversions is uncertain due to factors like aircraft availability, additionally, there are other factors such as limited conversion slots, and the high cost of converting widebody planes.

Additionally, global supply chain disruptions are impacting the development of these new and converted freighters. The industry is also grappling with capacity constraints at major air cargo hubs, rising fuel costs, environmental concerns, geopolitical tensions affecting trade routes, and labour shortages in certain regions.

From an airline perspective, these challenges are acutely felt. Lufthansa Cargo highlighted the current situation in a statement to The STAT Trade Times: "The 777 freighter is currently the only produced widebody-long-range freighter. The next generation of production freighters – B777-8F and A350F – are on the horizon, but it will still take years before they are implemented on a significant scale. The same will most probably apply to widebody conversion freighters. This leads to a decelerated phase-out of old-technology freighters, as above all the 747-400 freighters."

Adding to this, Rodrigues of Etihad Cargo notes, "The key challenge for the freighter market in the coming years is the short-term shortage of freighter capacity, as growing demand, particularly from the e-commerce sector, strains existing resources."

Lufthansa Cargo further elaborates on the industry's predicament: "As the whole industry is under pressure to find more sustainable solutions while operating aircraft, the demand for efficient and less fuel-consuming aircraft is growing. The supply of especially long-range widebody freighters is lagging behind. The question remains open as to how the expected strong growth in passenger traffic will impact freighter demand."

Scope of narrow body freighter

The rise of e-commerce and express delivery services has created demand for smaller, more frequent shipments, often over shorter routes. Narrow-body freighters, such as converted Boeing 737s or Airbus A321s, are well-suited to meet this demand. They offer airlines greater flexibility in route planning and the ability to serve smaller markets that may not have the volume to justify wide-body operations.  

The A320/A321 Passenger-to-Freighter (P2F) conversion programme, initiated in 2015, is a collaboration between established leaders in the conversion industry: ST Engineering, Airbus, and Elbe Flugzeugwerke (EFW).

While Boeing 737 freighter conversions are typically carried out by Boeing, Israel Aerospace Industries (IAI), and PEMCO Conversions, an Air Transport Services Group (ATSG) company.

Narrow-body freighters offer several advantages, including flexibility and agility, lower operating costs, and suitability for specialised cargo. They can operate from smaller airports and airfields, expanding their reach to a wider range of destinations. Additionally, their smaller size often translates to lower fuel consumption and maintenance costs. Narrow-body freighters are well-suited for smaller shipments and specialised cargo that may not fill a wide-body aircraft.

However, narrow-body freighters also face some challenges. Their smaller load bays limit the types and quantities of cargo they can carry, and their range can be restricted due to smaller fuel tanks. Furthermore, due to their smaller size, narrow-body freighters may have higher operating costs per tonne of cargo transported.

Implications of freighter fleet expansion in air cargo:

The surge in freighter orders by air cargo carriers has far-reaching implications beyond the immediate capacity increase. One significant impact is on global supply chain resilience. With more dedicated freighters in operation, companies may rethink their inventory management strategies, potentially moving away from just-in-time models towards more robust, buffer-heavy approaches.  

Additionally, the freighter leasing market has become increasingly important in this evolving landscape. As carriers expand their fleets, lessors focus on the financial robustness of the aircraft.

“Generally speaking, the freighter leasing market for large freighters is a market where lessors put special focus on the financial robustness of an aircraft. The more end-user customers a manufacturer can win over, the more this is a strong indicator for a lessor to decide operating in that field. As a next step, a manufacturer’s goal is to sell a good volume of aircraft into the market to ensure a certain availability of it, allowing lessors to join the market either speculatively or as a financing option,” highlights Airbus about the critical interplay between aircraft manufacturers, lessors, and air cargo carriers in shaping the dynamics of the freighter market.

“Airbus values the support of lessors in the freighter market to facilitate the growth of the operator footprint. Many A320/A321P2F and A330P2F operators including IndiGo and Amazon Prime Air have been facilitated by lessors,” the company stated.

Airbus also mentioned that Air Lease Corporation, one of the world's largest lessors, is a key partner in the A350F programme, having ordered seven aircraft during the launch phase.

The increase in dedicated freighter capacity might also influence the dynamics of passenger aircraft belly cargo as airlines may need to reassess their revenue strategies, potentially leading to changes in passenger ticket pricing or route planning to compensate for any lost cargo revenue. This could indirectly affect consumer air travel costs and options.

Lastly, the surge in freighter orders is driving the development of specialised cargo infrastructure at airports worldwide. This trend is exemplified by major hubs like Hong Kong International Airport, which handled 4.3 million tonnes of cargo in 2023, becoming the world's busiest cargo airport. Similar success stories include Incheon and Taiwan Taoyuan airports, crucial for electronic goods shipments, and Memphis International Airport, FedEx's global hub for express delivery. These airports' investments in world-class infrastructure, improved connectivity, and ongoing fleet expansions highlight the growing importance of dedicated cargo facilities. As more carriers invest in freighters, we may see a proliferation of cargo-focused airports or terminals, creating new opportunities in aviation real estate and infrastructure development.

Source: https://www.stattimes.com/air-cargo/freighter-demand-key-drivers-and-trends-1353411

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