Air cargo 2025 outlook bullish but cautious

After a bumper year with record demand and limited capacity, leading to high rates, air cargo is set for another record year in 2025 - unending demand for e-commerce, trade changes due to the proposed tariffs and continued geopolitical tensions.

Total air cargo demand, measured in cargo tonne-kilometers (CTKs), rose by 9.8 percent in October 2024 compared to October 2023 levels (10.3 percent for international operations) for the 15th consecutive month of growth.

Capacity, measured in available cargo tonne-kilometers (ACTKs), increased by 5.9 percent compared to October 2023 (7.2 percent for international operations), according to the latest data from the International Air Transport Association (IATA). "This was largely driven by an 8.5 percent increase in international belly capacity. Dedicated freighter capacity increased by 5.6 percent, the seventh consecutive month of growth with volumes nearing 2021 peak levels."

The air cargo industry’s proven adaptability to rapidly evolving geopolitical and economic situations is likely to be tested as the Trump agenda unfolds.
-Willie Walsh, IATA

Willie Walsh, Director General, IATA says: "Air cargo markets continued their strong performance in October, with demand rising 9.8 percent year-on-year and capacity up 5.9 percent. Global air cargo yields (including surcharges) continue to rise, up 10.6 percent on 2023 and 49 percent on 2019 levels. While 2024 is shaping up to be a banner year for air cargo, we must look to 2025 with some caution. The incoming Trump Administration’s announced intention to impose significant tariffs on its top trading partners — Canada, China and Mexico — has the potential to upend global supply chains and undermine consumer confidence. The air cargo industry’s proven adaptability to rapidly evolving geopolitical and economic situations is likely to be tested as the Trump agenda unfolds."

International routes experienced exceptional traffic levels for the fifth consecutive month with a 10.3 percent year-on-year increase in October, the update added. "Airlines are benefiting from rising e-commerce demand in the U.S. and Europe amid ongoing capacity limits in ocean shipping."

Asia-North America trade lane reported 8.6 percent growth in October, the 12th consecutive month of double digit growth. Middle East-Europe was 15.3 percent increase for 15 months of consecutive growth.

Even with the threat of increased tariffs from the new U.S. administration, the underlying strength of the global e-commerce proposition should help to maintain the current trajectory – albeit with some possible glitches along the way, says Wilson Kwong, Chief Executive, Hong Kong Air Cargo Terminals (Hactl). "New geographical consumer markets are coming on stream, new commodities are gaining popularity, and a new generation of shoppers are increasingly choosing to shop from home rather than the high street.

“The one thing that remains constant in air cargo is that nothing remains constant! Every year brings new markets, new trade wars, new crises, new commodities and new technologies. That’s really what underpins airfreight: we are the elastic in global trade, providing extra capacity when it’s needed at short notice. So my confident prediction is that there will be changes in trade and geopolitics – but I am just not sure what, where and when! Fortunately, with Hactl’s broad airline customer base, we have a global spread of traffic that insulates us well from problems in individual markets."

We are in an eternal dilemma of creating enough capacity to maintain supply chains at affordable rates during peaks while not flooding the market with excess capacity that destroys rates during troughs.
-Wilson Kwong, Hactl

E-commerce will certainly continue to be a factor in air cargo, adds Judah Levine, Head of Research, Freightos. "Some of the big surge that we saw in the last year and a half was a combination of an increase in interest in cross-border commerce, especially from big platforms like Shein and Temu. The reason it's going by air cargo is because of the de minimis exemption that makes it more sense right because you have not only the savings in terms of tariffs but also the lower reporting requirements, the faster time that de minimis packages can clear customs and especially the major savings in terms of customs filings and the need to use a broker and things like that."

Levine adds that it makes sense to use air cargo and it really facilitates direct cross-border commerce "because air is going to be fast and even though typically it's more expensive than sending by ocean, you have speed... so I think the question of whether it will continue to be a factor in air cargo in general I think certainly will be as big a factor as we saw this year, especially from China to North America to Europe."

The trend towards e-commerce being the main driver of air freight is expected to continue until 2025, says Joachim von Winning, Director, Cargo Partnerships, Frankfurt Airport. "However, we are keeping a close eye on market developments so that we can react to potential saturation at an early stage and take appropriate measures.

"Frankfurt offers ideal conditions for high-quality e-commerce processes and is responding to the predicted further growth in the coming years with a standardised e-commerce process developed in close cooperation with German customs, which is unique in this form and guarantees fast delivery times, digital traceability and customs-compliant processing."

A major advantage of airfreight in general and Frankfurt airport in particular is its flexibility, which allows us to react quickly to market volatility.
-Joachim von Winning, Frankfurt Airport

Trump and tariffs
All eyes are now on the U.S. President-elect Donald Trump and his moves on tariffs that could move billions in trade: he has already indicated 25 percent tariffs on all imports from Mexico and Canada and 10 percent on all goods brought in from China.

A word of caution from Derek Lossing, Founder, Cirrus Global Advisors: "Disruptions in the supply chain are beneficial for air cargo. That being said, there is going to be pumping on breaks for e-commerce. I am pessimistic about the growth of Temu/Shein compared to the previous years....I don't see growth of China airplanes coming to the U.S." Lossing was speaking to The STAT Trade Times on the sidelines of the Air Cargo Forum organised by The International Air Cargo Association (Tiaca) in Miami in November 2024.

The announced tariffs will only partially narrow the price gap with traditional offerings, so the immediate impact on air freight volumes is likely to be limited, according to Winning of Frankfurt Airport. "However, the plan to charge per-shipment fees for customs clearance in the U.S. is expected to have a significant impact. In the short-term, we expect demand to increase on the North Atlantic and North Pacific routes as companies rush to transport goods to the U.S. before the tariffs are implemented. This could lead to capacity constraints on other routes. A major advantage of airfreight in general and Frankfurt airport in particular is its flexibility, which allows us to react quickly to market volatility."

President Trump’s attempts to balance trade may result in some shifting of traffic from one trade to another in the short term, according to Kwong of Hactl. "But we are all in this global market now, and it would be hard even for a superpower to become isolationist overnight; any benefits in reducing imports would soon be offset by a tougher export market. World trade relies on two-way cooperation and compromise. We should always distinguish between rhetoric and action."

There were multiple bills proposed in the U.S. Congress, although none of them really went anywhere, says Levine of Freightos. “In September, the Biden administration issued an announcement that they intend to issue an executive order. So it wasn't an executive order, but it was an announcement that they were going to issue an executive order. And that executive order was directly targeting Chinese use of dimminimus. And we're approaching the end of the Biden administration, so it's probably not going to happen from the Biden administration. Even if an executive order were issued, it takes a couple months for the whole process before the changes would actually go into effect.

“That being said, the previous Trump administration and certainly President-elect Trump and statements that Trump made during the campaign show that he's not averse to putting up trade barriers. So, in addition to the overall announcement of tariffs that he's said during the campaign and expanded emphasis in the last couple weeks, it certainly would seem feasible that he would promote something similar to what even the Biden administration was considering, which is significantly closing the de minimis exemption for Chinese imports.

“So if that happens, I think we will see a significant impact on air cargo on that lane, And if something similar were to happen for Europe, I think we could see a change to see e-commerce going on those lanes. Do I think it will go away completely? Probably there'll still be some volumes that make sense to send by air anyway because it'll be faster.”

Waiting for more volumes
Jaisey Yip, Vice President, Cargo Business Division, Changi Airport Group is keeping her fingers crossed to exceed the two million tonnes air cargo mark in 2024, last recorded in 2019.

Changi reported a 15 percent increase YoY to 1.5 million tonnes of cargo in the first nine months of 2024. "Growth drivers include recovery of Singapore's exports, especially high-value items like semi conductors. Second reason is the increase of air-sea tonnage, and last but not the least cross-border e-commerce that is coming into Singapore," says Yip who spoke to The STAT Trade Times at Miami.

Changi, Yip adds, "is focussing on four verticals to drive growth:

*First is pharmaceuticals, which is key to our manufacturing sector.

*Second is hi-tech because Singapore is very strong in the manufacturing of semiconductors.

*Third is e-commerce with expectations of rising middle class boosting consumption; and

*Fourth is perishables: we are not major producers but are major conduits between producing markets and consuming markets."

Russi Batliwala, Chairman, Chapman Freeborn Group, said e-commerce is offering some kind of stabilisation in a completely uncertain market. "As charter brokers, it is our job to know where capacity is available. E-commerce companies in China are buying very cleverly, and are clearly not affected by the peaks and troughs. They are the drivers for all of this...very clearly..." For ad-hoc projects, like humanitarian missions, Batliwala says capacity is available.Batliwala spoke to The STAT Trade Times at the Tiaca event in Miami.

If e-commerce continues to grow the way it did, then we're still going to be bumping up against tight capacity and higher rates, especially out of China to North America.
-Judah Levine, Freightos

But where is the capacity?
Kwong of Hactl says: "That’s a simple question with a complex answer. It depends on which trade lanes you look at, and seasonality. Yes, we will likely see continuing capacity shortages at peak times, and the trend to control capacity by major shippers through freighter contract charters will exacerbate this situation. We are in an eternal dilemma of creating enough capacity to maintain supply chains at affordable rates during peaks, while not flooding the market with excess capacity that destroys rates during troughs. Going on rates and yields, we are probably in the right area at present."

If e-commerce continues to grow the way it did, then we're still going to be bumping up against tight capacity and higher rates, especially out of China to North America, says Levine of Freightos. "But again, the legislative piece can be significant and it may not be limited to the United States. I think, for now, capacity on some lanes are still kind of quite tight. So it does require some kind of additional capacity infusion to keep up with that growth if it remains that way.

"We know that rates are elevated for Asia-North America and Asia-Europe.. especially to the United States, rates have been $5-6 per kilo throughout the year which would normally be peak season levels. Now in peak season, we've seen rates at $7 though not as high as some people expected/

"I think one of the reasons that we haven't seen any kind of peak season chaos even though we're already in December is because a lot of forwarders and shippers planned ahead. There was more reliance on securing capacity in advance and block space agreements. There's also probably some pull forward, not to ship everything during this period."

The entry of new e-commerce market players significantly accelerated air cargo growth in the latter half of 2023 and into 2024, underscoring the importance of air cargo’s unmatched speed to serve the digital economy, says Boeing in its World Air Cargo Forecast 2024-2043. "Global e-commerce revenues are forecast to rise around nine percent per year through 2029, with the fastest growth in the emerging markets of South Asia and Southeast Asia. Air cargo networks will play an essential role in this expansion."

Global air cargo traffic, measured in CTKs, will average four percent annual growth from 2024 to 2043. With a 2019 base year, the compound annual growth rate (CAGR) would be 3.4 percent.

"Express carriers, which accounted for 18 percent of total industry traffic in 2023, are expected to grow at an average annual rate of 5.8 percent. Due to their greater flexibility in handling express cargo, general cargo as well as e-commerce, these carriers are anticipated to outpace overall industry growth and increase their market share to 25 percent by 2043. However, other types of carriers will remain essential to e-commerce transport, particularly as e-commerce shipments become denser over time."

The Freighter Fleet Forecast projects the global freighter fleet to grow by approximately 66 percent from 2,340 airplanes in 2023 to 3,900 airplanes in 2043. "Freighter deliveries total 2,845, with roughly two-thirds being converted passenger airplanes. Of those conversions, nearly 70 percent will be standard body freighters."

A survey of the cargo community at Frankfurt in January 2024 revealed that three-quarters of the companies based there expect their business in Frankfurt to grow over the coming years, says Winnin of Frankfurt Airport. “Appropriate space needs to be created for these activities. As an airport operator, we’re being proactive in how we face up to these developments. With our CargoHub masterplan, we are setting the stage for comprehensive investment in the cargo business at Frankfurt Airport. The focus is on digitisation and boosting the efficiency of our processes as well as enhancements to our cargo infrastructure."