GSSAs ready-and-waiting for demand to improve in H22023
The air cargo sector is rising in terms of tonnage and expanding to new locations, thanks to the GSSA expertise. With the businesses returning back to the pre-Covid levels, we look into how the GSSA market is looking at 2023, the forthcoming target market and what are the trends to follow in the GSSA sector.
The air cargo industry is expected to grow by 19.52 million tonnes at a CAGR of 5.32% between 2023 and 2027. Expanding e-commerce sales to support the air cargo business, growing APAC demand, and rising just-in-time manufacturing need are driving the market.
Also, the expansion of e-commerce has boosted the need for air cargo services, allowing GSSAs to diversify their product offerings. As e-commerce has grown in popularity, new participants in the GSSA industry have arisen.
In this special report, let us know from the experts in the GSSA industry about the cargo demand forecasts for 2023, the causes and effect of changes in demand and capacity, and the trends in the GSSA market.
Upcoming Target Market
Most notably, the Africa to Asia route area experienced significant cargo demand growth in February. Jumping to 39.5% YoY, this was the highest growth rate for this particular route since January 2020.
“In Central Europe, South America, and the United States, we are the market leader. A white spot remains Asia, where we now have representation in India, Korea, Hong Kong, and Thailand. Over the next few years, we plan to open and acquire companies in the region,” said Ingo Zimmer, CEO, ATC Aviation.
GSSA TAM Group, with its headquarters in Hong Kong, announced the opening of three offices throughout Southeast Asia in January 2023. TAM Group has established joint ventures with Thailand's GP Group and Vietnam's TP Cargo Transport Services to open offices in Bangkok, Thailand as well as Ho Chi Minh City and Hanoi, Vietnam in response to the rising demand in the area.
“For Global GSA Group, we expect that business will pick up again in the second half of the year but at a slow and steady pace.”
Ismail DURMAZ, CEO, Global GSA Group
“For TAM Group, the key playing field remains Asia Pacific and the Americas. We have opened 9 new offices in the last few months in South East Asia and in South America. We will continue to focus on the same and strengthen our presence in these key markets to ensure we provide the best possible service to our business partners,” said Alvin Tam, VP, Commercial TAM Group.
Global GSA Group's activity increased significantly in 2022, with 12 new contracts secured and 35 new employees hired, resulting in a 15% rise over the previous year. Its growth is largely due to Global GSA Group's strong clientele and continued business ties since 1995.
“We plan to expand and strengthen our coverage in Southeast Asia which is very dynamic at the moment. We have several opportunities in the pipeline as some of the countries in the area are experiencing rapid growth and are getting economically stronger,” said Ismail DURMAZ, CEO, Global GSA Group.
The latest update in February 2023 saw a shift in several regions. Europe to Asia, Asia to North America, and within Asia route areas experienced a significant improvement in their growth rates compared to previous months. A significant factor contributing to the improvement in Asia-related route areas is China's reopening, where the lifting of restrictions has stimulated economic activity and trade in the region.
“We seek out markets where we can leverage our strengths to identify untapped opportunities and determine how we can offer unique value propositions. We at Allied have substantial capacity from India to the far east; our focus is now on the Americas and niche African sectors. The volumes are generated by the far east markets whereas the revenue is coming in from the Americas and African sectors,” said Kritika Chaudhary, Executive Director, Allied Aviation.
"Africa's shipping capacity has increased significantly. This is owing to an increased demand for capacity during the Covid crisis. The concern might arise if Africa receives additional capacity," John Gilfeather, Sales Director, Network Airlines Services stated.
“At the moment, there’s a lot going on in Asia. The Indian subcontinent really stands out and performs well. The Southern Asia region is also making a new start and benefiting from China’s recovery in regional trade. The Chinese recovery is definitely bringing back activity to markets that had slowed down such as Vietnam, Malaysia, Indonesia and Thailand. Although it’s going to take a while before its effects are noticeable, they will be cascading onto Southeast Asian countries. I wouldn’t say that cargo capacity is expanding in these regions, as it’s still quite modest, but it’s promising,” said Adrien Thominet, CEO, ECS Group..
Cargo Demand this Year
According to the IATA air cargo market analysis report, the yearly fall in industry-wide cargo tonne kilometres (CTKs), which fell 7.5% from levels last year, moderated in February. Air cargo traffic reached pre-pandemic CTKs for the first time in eight months, increasing 2.9% from February 2019 levels. With such uncertainties, is it possible to forecast the cargo demand for 2023?
“It is very difficult to predict with all the external influences that have major impacts such as the Covid crisis, the war in Ukraine, the inflation etc. What we can observe is that 2023 started very slow and that the yields dropped even further. For Global GSA Group, we expect that business will pick up again in the second half of the year but at a slow and steady pace,” said DURMAZ.
2023 got off to a sluggish start, but since February, cargo tonnes have been rising. The fact that China was under lockdown had a negative impact on both output and industry orders.
“It is anticipated that production will begin to gradually improve after the restrictions are lifted and the Chinese factories start to come back to their former productivity. Further positive developments with a positive impact for air cargo demand; inflation has stopped and prices are already declining, inflation has a significant impact on consumer demand. Although the PMI (Purchase Manager Index) was sluggish last year, it is already improving. Restocking of inventories is required. This gives us cause to believe that demand will improve in the second half of 2023,” said Zimmer.
“We foresee a decrease in the overall cargo demand. However, this decrease in overall demand for air cargo and increase in available capacity is likely to make air freight a more viable option in 2023.”
Alvin Tam, VP, Commercial TAM Group
External factors like the ongoing Russia-Ukraine conflict, the global economic situation, a decrease in consumer demand and labour shortages in several countries are presenting headwinds to air cargo, and there does not seem to be any respite in the short term.
“We foresee a decrease in the overall cargo demand. However, this decrease in overall demand for air cargo and increase in available capacity is likely to make air freight a more viable option in 2023. We have already noticed a soft start in 2023 with a considerable drop in YoY demand in Q1 this year. Additionally, the resumption of passenger flights implying increased available capacity has already posed challenging business conditions at the very beginning of the year,” said Tam.
“In terms of volume, we think the demand will be the same as in 2022. While we don’t see a drop in volumes, there’s a definite drop in yields and a lot more capacity is available on the market. As for the demand, it is not increasing and remains stable. This, of course, has an impact on prices,” said Thominet.
In terms of demand development, the year began with a -17% drop in cargo volumes YoY; export orders were short, carriers increased flight frequency across all regions due to passenger demand, creating a supply demand imbalance once again.
“March, however, witnessed improved volumes due to better export orders from emerging markets. Economies have shown resilience in the quarter 2 with hope of a stronger recovery in the 2nd half of 2023. Concentration on volumes and optimization of available flight capacity should be the mantra,” said Chaudhary.
“Currently, the cargo demand is stagnant, but as per various feedbacks we’re receiving from customers and trade partners the demand is expected to scale up during the third quarter and fourth quarter of the year 2023,” said Prithviraj Chug, CEO, Group Concorde.
“During the Covid period, everyone thought the situation wouldn’t go back to normal before 2024 or 2025. Today all planes are flying again and there’s even more demand than last year. This has an effect on prices which are dropping.”
Adrien Thominet, Chairman and CEO, ECS Group
“We have found demand quite challenging in 2023 . A lot of capacity has returned to the markets we operate in and has been supplemented by carriers commencing new routes. This has happened at the same time many shippers have reduced their volume of air freight,” said Gilfeather.
One of the primary emerging trends is digitisation, in which organisations are finally recognising the need of the hour and adjusting to the market in order to broaden their reach and capitalise on chances that did not appear conceivable previously. The market is rapidly focusing on digitisation and automation to improve efficiency, reduce costs, and improve the customer experience.
“I think 2023 we will see a surge in this. Even GSSAs have shifted from their traditional model. The way I like to say it is that GSSA is like a burger, you add a coke and french fries and you have a happy meal for your customer, and that’s the sweet solution you offer to your customers. Like that’s something we are trying to do with Speedbox, SaaS-based technology solution designed to empower logistics companies to scale up their door-to-door services. Automation has become widespread in logistics, changing how the industry operates in its day-to-day activities. It’s been a trend for years now and will still continue to be a logistics trend in 2023,” said Chaudhary.
“It is anticipated that production will begin to gradually improve after the restrictions are lifted and the Chinese factories start to come back to their former productivity. Although the PMI (Purchase Manager Index) was sluggish last year, it is already improving. This gives us cause to believe that demand will improve in the second half of 2023.”
Ingo Zimmer, CEO, ATC Aviation
GSSAs' roles are changing dramatically, and their added value is becoming more adaptable and nimble than ever before.
“Following our augmented GSSA strategy, we have been extending ECS Group’s scope of services to anticipate and perfectly fit our clients’ changing requirements. Abilities such as All-In, which offers the most comprehensive Total Cargo Management service available on the market and TCE (Total Cargo Expertise), which guarantees the highest levels of safety and security on the ground have already proved their worth. The other major added value of GSSA’s is their capacity to adopt and bring digital tools and intelligence to their clients. Business intelligence is crucial and fresh data is going to become increasingly important as market changes happen very quickly,” said Thominet.
GSSAs continue to play a vital role in customer support and after-sales services, despite the fact that digital marketplaces are growing more popular as a supplement to traditional selling avenues.
“In the current fast-changing environment, it is essential for Global GSA Group to invest and to implement the right digital tools to serve its clients to the highest standard. So digitalising our processes as well as implementing new systems has always been a priority. It is also paramount for us to enable our teams to continuously update their digital skills in order to maintain a high level of expertise. Sustainability is another crucial issue that Global GSA Group is addressing through partnering with stakeholders and implementing innovations and improvements to make its operations always more sustainable,” said DURMAZ.
GSAs are investigating and discovering new markets by utilising numerous data sources such as IATA, CASS, and Seabury. With this information, we can inform and reply to our airline clients about market trends and developments.
“We foresee the role of the GSA to be more critical in the coming days. During the pandemic, the carriers were compelled to optimise their operation in various territories, while retaining their presence. In addition, labour shortages in several countries will also imply the requirement of representative companies / GSSAs to complement the airline partners in an enhanced manner,” said Tam.
“Changes in demand and supply can have a significant impact on rates of air cargo. As with any market, the rates of air cargo will fluctuate based on a variety of factors, including supply and demand, competition, and the type of goods being transported.”
Kritika Chaudhary, Executive Director, Allied Aviation
“Certain emerging developments in the GSSA market are aligning with the change in distribution brought about by digital growth. Carriers' and IT businesses' online platforms have enabled dynamic and real-time visibility of carriers and pricing. Historically, the interaction with clients was established through the employees of the carriers selected by GSSA. This is now augmented by digital technology, which gives forwarding clients instant access to carrier price and capacity. NAS has responded by ensuring that our frontline crew is educated in the newest digitalisation to guarantee that our carriers' capacity and price is regularly updated while also maintaining,” said Gilfeather.
Changes in Demand/Capacity Affect Prices
The current growth in capacity is not uniform globally. The war in Russia is still having an impact and complicating matters. Airlines find it challenging to fly over Russia, which makes it difficult to get to Asia.
“Capacities are, therefore, largely and totally redeployed on routes such as transatlantic routes, which face severe problems. On the other hand, depending on the region of the world, some routes can be less affected. During the Covid period, everyone thought the situation wouldn’t go back to normal before 2024 or 2025. Today all planes are flying again and there’s even more demand than last year. This has an effect on prices which are dropping,” said Thominet.
“We have found demand quite challenging in 2023 . A lot of capacity has returned to the markets we operate in and has been supplemented by carriers commencing new routes.”
John Gilfeather, Sales Director, Network Airlines Services.
“These fluctuations have a major effect. We see capacity increasing by the day since the profitability of the last years have attracted lots of new players to the market. Furthermore, carriers with huge passenger fleets are implementing all their aircraft again. Consequently, if the demand does not meet the available capacity, the rates can drop even more to be lower than pre-Covid rates. This scenario is what we are experiencing today in several regions,” said DURMAZ.
The two main principles that steer the heart of our sector are supply and demand. March saw a -10% YoY decline in demand and a +14% YoY growth in supply, which resulted in a major decline in prices and yields throughout the world.
“This kind of volatility leads to an aggressive market for spot rates and lack of long term rate contracts. Overall, changes in demand and supply can have a significant impact on rates of air cargo. As with any market, the rates of air cargo will fluctuate based on a variety of factors, including supply and demand, competition, and the type of goods being transported,” said Chaudhary.
“While the cargo yields are witnessing a significant drop compared to the pandemic times, the yield remains well above the pre-Covid levels. This drop compared to the pandemic times is expected as the yields escalated substantially over the last 3 years, beyond ‘normal’ levels,” stated Tam.
“The effect of demand and capacities on the rates we have experienced during the Covid period. Because of the low-capacity air cargo rates to certain destinations tripled. Meanwhile rates are back on a lower level but still holding strong and above pre Covid level,” Zimmer.
With a hope that capacity and demand will begin to stabilise by the second half of 2023, the GSSAs are looking to grow into Africa and Asia and are attempting to get business in those regions. GSSAs are developing out-of-the-box solutions to address changing customer requirements, while also assuring IT infrastructure on their own or through trusted partners.