Canadian air cargo: Positioning country's leadership in supply chains

The air cargo industry in the country is on a mission to consolidate the position of Canada's leadership in the global supply chains not only by leveraging the growth in e-commerce and cross-border opportunities but also by making investments into infrastructure, capacity and multimodal transportation.

With a gross domestic product (GDP) of $2.14 trillion in 2022, Canada is the ninth-largest economy in the world. The Canadian economy unexpectedly contracted in the third quarter of 2023, as per the data from Statistics Canada, but it avoided a technical recession. However, the long-term prospects also remain positive for the North American country. The economy is also supported by a strong and vibrant air cargo ecosystem that helps Canada move domestic, export and import shipments.

According to a Marketline report, the Canadian air freight sector had total revenues of $1.6 billion in 2022, representing a compound annual growth rate (CAGR) of negative 1.5 percent between 2017 and 2022.

It reads, “Sector consumption volumes declined with a CAGR of negative 1 percent between 2017 and 2022, to reach a total of 2.7 billion FTK in 2022. According to in-house data, Canada’s exports increased by 5.5 percent in 2022 and the impact can be seen in the segment share of the air freight sector where the international segment accounted for the majority of the share.”

Matthieu Casey, managing director – commercial at Air Canada Cargo noted that the air cargo industry in Canada plays a pivotal role in connecting a vast land mass with timely and reliable logistics services.

In fact, the North American nation is the second-largest country in the world, only next to Russia. However, the population is not distributed uniformly throughout Canada's territory and the vast majority of people live in the southern part of the country, near the American border.

“The strongest concentrations of population are located, firstly, along the axis extending from Québec City to Windsor, that is, along the St Lawrence River and lakes Ontario and Erie, and secondly, in Western Canada, in Vancouver and Victoria in British Columbia and the area extending from Calgary to Edmonton in Alberta,” according to Statistics Canada.

Casey said, “Many domestic and international companies rely on quick and dependable airfreight services to move critical goods throughout the country. With a highly developed pharmaceutical and healthcare industry, as well as deep roots in aerospace and high volumes of perishables, Canada’s airfreight industry has a significant role.”

On the same line, Kirsten de Bruijn, executive VP, cargo, WestJet, observed that air logistics emerge as an “indispensable component” of the country's transportation infrastructure, particularly “against the backdrop of its vast geographic expanse, concentrated population centres in the south, accessibility challenges to remote areas, and seasonal adversities,” as she puts it.

De Bruijn also pointed out that trucking remains the preferred mode for cargo transportation, especially for domestic transport and cost-effective solutions. “However,” she added, “The air cargo sector thrives in scenarios demanding time-sensitive and international shipments, emphasising its role in optimising supply chains through an innovative intermodal approach that combines trucking and air cargo.”

Meanwhile, Alex Lowe, director, e-commerce, cargo & aviation real estate, air service & business development, Edmonton International Airport (YEG), noted that air cargo is the only year-round option for many Northern communities in Canada, delivering time-sensitive, essential goods such as food, building materials, pharmaceuticals and more. He also took the recent example of Buffalo Airways launching a new route to the Northern territories.

“Buffalo Airways launched its first cargo jet route between Edmonton International Airport (YEG) and Yellowknife (YZF) 5x weekly (Monday-Friday) by the end of 2023. This is an example of air cargo partners working together to make air freight more affordable and faster to Canada’s North,” he said.

Vancouver International Airport (YVR) is one of the busiest cargo airports in Canada and in 2022, it handled more than 302,000 tonnes of cargo, an increase of nearly 11 percent over 2021.

Talking about the importance of air cargo, Jason Tse, manager, commercial leasing, cargo, Vancouver International Airport, told The STAT Trade Times that air cargo also provides an element of resiliency when other modes of transport, such as ocean or surface modes are challenged. He also took an example of how the 2021 Pacific Northwest floods washed out key roadways in the southern part of British Columbia in November and December of 2021.

“For 10 days, YVR was the only transportation network operating at full capacity locally, providing the essential link from Vancouver to the rest of B.C. and Canada,” he said.

“Another factor for the air cargo industry in Canada is our geography and population. We are a large country with a diverse population that, in some cases, is spread across a vast distance. In some remote communities, especially during the winter months, air cargo is the only viable mode of transportation and supplies delivery due to distance, rugged terrain, and weather conditions,” he added.

Additionally, Tse also emphasised the importance of the truck network to and from YVR and noted that it is quite well developed and they continue to work with partners, including the government to ensure the fluidity of movement by trucks along roadways, bridges, and border crossings.

“By circumpolar routes, YEG is Canada’s closest major North American airport to many parts of Asia. The Edmonton to Beijing flight path is one of the shortest of any major city in North America, as an example.”
Alex Lowe, Edmonton International Airport

The Canadian air cargo industry not only enables the domestic movement of goods but also helps the Canadian economy to move its products as well as natural resources to the outside world and bring in shipments for its people.

From a global supply chain perspective, Lowe thinks that the province of Alberta in Canada sits at an important geographic juncture, a space in the North American logistics chain that provides a shortcut between Asia and markets to the south.

“By circumpolar routes, YEG is Canada’s closest major North American airport to many parts of Asia. The Edmonton to Beijing flight path is one of the shortest of any major city in North America, as an example. When utilising the earth’s curvature to improve supply chain efficiencies, YEG is a strategic location to access Europe, the Middle East and Africa. It has become a significant entry point into all of North America or Latin America,” he said.

“That distance plays an especially important role at a time when supply chains are tight. Cargo moving into the interior of the continent can get ahead by starting its journey in Edmonton. The same advantages apply to goods going the other way, too,” he added.

On the same line, Casey pointed out that, along with a steady stream of domestic moves, Canada sees a heavier volume of import versus export and continued growth across all of these.

“E-commerce continued to see a steady growth pattern during and beyond the pandemic. This growth trajectory was known and indeed, consumer behaviour has continued to keep that segment on a healthy pace for growth,” he added.

Tse of YVR also pointed out the importance of e-commerce and noted that the changes in consumer behaviour continue to influence the cargo market.

Similar to other countries, in Canada the adoption of buying online likely matured several years faster than anticipated due to the limitation of brick-and-mortar shopping during Covid-19. While there has been some return to in-store shopping in recent years, there has likely been a permanent shift in consumer behaviour.

He emphasised YVR's focus on Transpacific cargo flows as a key facilitator of exchange between Asia and North America.

“Interestingly, we are seeing the next generation of online retailers, including Temu, Shein, Wish, and Aliexpress, build their market presence in Canada, which is driving cargo growth across the Pacific,” he said.

Meanwhile from an outbound basis, Tse noted that food perishables like crab, cherries, and frozen meat items are key commodities at YVR.

While the e-commerce boom and the growth of Canadian e-commerce platforms, notably Shopify, fuel increased cross-border shipments, it is noteworthy that Canada is a major exporter of natural resources and its airports including Toronto Pearson International Airport and Vancouver International Airport serve as crucial hubs connecting air cargo traffic between North America, Europe, and Asia and offer advanced cargo facilities.

The air cargo industry also thrives in Canada as it is an active participant in trade agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

“Both the global and Canadian air cargo sectors have witnessed a decline in rates due to a combination of factors. There exists an oversupply and excess capacity in the market, mirrored in Canada, attributed to significant investments by carriers in cargo planes.”
Kirsten de Bruijn, WestJet

In an attempt to support its supply chain, the Government of Canada in 2017 launched the National Trade Corridors Fund with a total allocation of $4.6 billion over 11 years (2017-2028) and the projects include airports, ports, railways, transportation facilities, and access roads.

As part of this, the government has provided $100 million to build an International Cargo Hub at Edmonton International Airport. Transport Canada website reads, “Converting 2,000 acres of land into a new global cargo handling operation located at the Edmonton International Airport which includes airside and groundside projects initiatives as well as installing utility infrastructure.”

Lowe said, “With this investment, YEG will expand its multi-modal distribution throughout Canada, the United States of America and Mexico. The airport’s increased cargo capacity will improve import and export trade routes and strengthen Canada’s supply chain.”

“The International Cargo Hub is a transformational development that will be the largest cargo expansion in the airport’s history. It will include runway connections and taxiways to integrate new cargo handling aprons with direct airside handling operations and expansive facilities for handling, warehousing, automated e-commerce logistics and distribution. It will serve as a vital trade corridor for Canada and position our country’s leadership in global supply chains by helping capitalise on the rapid global growth of e-commerce and import/export fulfilment,” he added.

About YEG’s approach towards infrastructure development, Lowe said, “YEG has been making substantial investments in our cargo infrastructure for the past decade. We recently completed a 47,000 m2 cargo apron expansion, along with a state-of-the-art fuel hydrant system. Further investments include new modern airside warehouses that will cater to e-commerce, perishables, pharmaceuticals and more. Our focus on developing cargo infrastructure has provided a significant return on investment to date, and our substantial future investments, like the International Cargo Hub, signal our confidence in Canada’s air cargo market. The International Cargo Hub enables trade, creates jobs, benefits the Canadian economy and ensures we are an efficient hub in the intermodal supply chain needs of Canadians and global markets.”

Talking about the infrastructure at Vancouver International Airport, the Tse noted that YVR is a diverse global hub, located between Asia and the Americas.

“This gateway position makes us a key facilitator of exchange between these two regions. To deliver for our partners, we have developed a Cargo Village, with warehouses and logistics facilities that occupy more than one million sq ft near the airport, which provides a competitive cost structure for efficient freight movement,” he added.

“The market swing in Canada was not as extreme as it was in other international markets. As we continue to see a reappearance of capacity versus the past 2 to 3 years, it is important to note the importance of consistent and predictable capacity.”
Matthieu Casey, Air Canada Cargo

To meet diverse demands in the movement of commodities the players need to stay resilient and agile by expanding their reach and introducing new routes. For example, in November 2023, WestJet Cargo made at least three different announcements about expanding its operations. This includes the winter schedule and two agreements it has signed with Awesome Cargo and Flexport. While the winter schedule added Cuba, the Dominican Republic, Barbados and Jamaica to its list of destinations, the agreement with Awesome Cargo connects Canada and North America to the new Mexican cargo airline’s Felipe Ángeles International Airport hub and the Flexport agreement focuses on Canadian exports to Asia.

The announcement reads, “WestJet Cargo will introduce seasonal flights from Vancouver, British Columbia, to transport cherries to Incheon, and expand the reach of Canadian agricultural products to connect into Asia via Flexport’s network. As the collaboration evolves, WestJet Cargo and Flexport will explore opportunities to expand into specialised and high-value commodities.”

De Bruijn believes that the new partnerships are enhancing WestJet’s role in the Canadian air cargo industry. She said, “The collaboration with Flexport offers innovative air freight solutions for Canadian exports into Asia, expanding global reach. The partnership with Awesome Cargo establishes groundbreaking connectivity between North America and Mexico, showcasing technical brilliance in air cargo collaboration. These strategic alliances position WestJet Cargo as a dynamic contributor to the growth and evolution of the Canadian air cargo industry across diverse movements and partnerships.”

Another interesting partnership that WestJet announced this year was with Wiremind Cargo, a provider of revenue optimization and inventory management solutions. Thus, along with the renewal of its SKYPALLET contract with Wiremind, WestJet Cargo also undertook a Proof of Concept to enhance capacity forecasting, leveraging Wiremind's AI-driven solution, CargoStack Optimise.

De Bruijn said, “Equipped with cutting-edge technologies, WestJet Cargo enhances operational efficiency and strengthens network connectivity. The industry's commitment to innovation is further highlighted through intermodal approaches, integrating technologies to optimise supply chains.”

Meanwhile, Casey opined that Canada has been an early adopter of Artificial Intelligence (AI) technology with strong investments from the government into this evolving technology.

“Air Canada has many projects utilising AI across a few areas of the organisation including within cargo. We are working with external providers as well as building our internal capabilities and centre of excellence in AI to improve processes and provide predictive analytics to improve a wide variety of processes and enhance outputs from certain systems,” he said.

Casey also gave two examples from Air Canada. “Our first AI deployment was around cargo capacity forecasting and this allows Air Canada Cargo to better and more accurately predict available cargo capacity across the network. Another project using advanced analytics is in the cargo acceptance process, which increases speed at acceptance and improves both the customer and employee experience,” he said.

"There are new opportunities to expand trade relationships between Canada and emerging economies such as those in Southeast Asia or Latin America, enabled by free trade agreements like CPTPP, a growing middle class, and the growth of manufacturing in these regions.”
Jason Tse, Vancouver International Airport

Airport Cargo Community Systems (ACCS) is an important tool to modernise supply chains not only in Canada but also globally. Lowe believes that will become essential for airports to optimise their cargo operations and maximise their cargo growth potential.

“The collaboration of logistic leaders in the industry will help synchronise our role in global supply chains. Working together to leverage technology will support our International Cargo Hub and strengthen communication in our Cargo Village community and with global supply chain members.”

Going forward, Lowe opined that the air cargo and logistics industry needs to continue focusing on adopting new methods to share data with shippers and customers.

He said, “Innovative solutions to provide accessibility and visibility are being introduced to the supply chain designed to monitor packages, shipments, and warehouses. Partners in the supply chain can then observe end-to-end, real-time tracking and monitoring solutions, giving them full visibility throughout the shipping process. This provides access to data in real-time while products are in transit. It is important to recognize that the industry is shifting and customers are looking for digital technology solutions that provide shipping data. Service providers need to adapt to how customers, both large organisations and small businesses, want to view their shipments.”

In July 2022, YVR announced a proof of concept project for an ACCS with Kale Info Solutions and other key players in their cargo community.

“This new system uses AI and data to connect shippers, agents, and truckers, to cargo handlers and airlines at the airport with real-time information. This creates efficiencies for us and our partners – while significantly reducing paper, fuel consumption and idling time, benefitting the planet,” Tse said.

The current global air cargo industry is facing several headwinds not least due to geopolitical developments but also due to the recovery of international air travel, the capacity return and the falling revenues and yields.

De Bruijn admits that WestJet Cargo manoeuvres through the intricate landscape of the Canadian air cargo market, where freight rates are subject to various influences.

“Both the global and Canadian air cargo sectors have witnessed a decline in rates due to a combination of factors. There exists an oversupply and excess capacity in the market, mirrored in Canada, attributed to significant investments by carriers in cargo planes. The global economic slowdown, exacerbated by labour shortages and disrupted supply chains, has contributed to reduced demand, impacting freight rates. Additionally, the increase in fuel prices has added to operational costs, further influencing the economic dynamics of air cargo,” she said.

Casey pointed out that airfreight in Canada has seen market adjustments in the past 12 to 18 months, although to a slightly lesser extent than some of the other global regions that Air Canada Cargo operates in.

“The market swing in Canada was not as extreme as it was in other international markets. As we continue to see a reappearance of capacity versus the past 2 to 3 years, it is important to note the importance of consistent and predictable capacity, which benefits all stakeholders across the logistics chain within Canada and indeed with all stakeholders that import, export or transit into, out of and via Canada,” he said.

Tse of YVR thinks that it is an exciting time to be part of the Canadian air cargo industry. He pointed out the new investments, new technologies and new trade opportunities transforming the industry.

“Firstly, the interest and investment in the air cargo business by airlines operating at YVR such as Cargojet, Air Canada, and WestJet has been rejuvenated to an unprecedented level. Secondly, there are real opportunities to adopt and leverage emerging technologies like air cargo community systems, automated ground and air vehicles, robotics, electric vehicles, and artificial intelligence. Thirdly, there are new opportunities to expand trade relationships between Canada and emerging economies such as those in Southeast Asia or Latin America, enabled by free trade agreements like CPTPP, a growing middle class, and the growth of manufacturing in these regions.”

However, to fully realise these opportunities, he also reminded that it is important to align air policy bilateral agreements parallel to the free trade agreements.

This was originally published in the December 2023 issue of The STAT Trade Times.