Unending demand by e-commerce for air cargo…and story will continue

The air cargo industry is all set for a strong, solid finish in 2024, driven largely by the increasing demand for e-commerce in the U.S. and Europe amid supply chain worries. Total demand, measured in cargo tonne-kilometers (CTKs), rose by 9.4 percent in September 2024 compared to September 2023 (10.5 percent for international operations) for a 14th consecutive month of growth.

Capacity, measured in available cargo tonne-kilometers (ACTKs), increased by 6.4 percent compared to September 2023 (8.1 percent for international operations), according to the latest data from the International Air Transport Association (IATA).

Willie Walsh, Director General, IATA says: “Yields are also improving, up 11.7 percent on 2023 and 50 percent above 2019 levels. All this points to a strong finish for this year. For longer-term trends, the air cargo world will be closely following the outcome of the U.S. election for indications of how US trade policy will evolve."

International routes experienced exceptional traffic levels for a fifth month, with a 10.5 percent year-on-year increase in September. "Airlines are benefiting from rising e-commerce demand in the U.S. and Europe amid ongoing capacity limits in ocean shipping," the IATA update added. Asia-North America lane reported 7.6 percent demand growth with a share of 25 percent and 11 consecutive months of growth. Within Europe reported 18 percent demand growth with 1.9 percent share and 10 consecutive months of double digit growth.

Aggressive growth is likely to continue (49 percent) for e-commerce cargo volumes, according to a survey by Rotate presented at the recently concluded EU cross-border e-commerce forum at Liege Airport, Belgium. "Demand growth in 2025 will likely be limited by available capacity. Policy and security are perceived as key risks to growth with increasing imbalances leading to operational issues."

If e-commerce growth continues at +20 percent and general cargo grows at +two percent, 2025 air cargo growth would be +seven percent, the Rotate survey report added.

As many as 71 percent of cross-border shoppers, according to a survey of 12,000 respondents across 24 countries by DHL eCommerce, are under 45 with 52 percent being female, 40 percent based in Europe and 22 percent in APAC.

Online shoppers regularly buy from retailers in other countries, and it’s the younger generations driving these shopping habits, the survey reported. "As many as 61 percent of Gen Z, 57 percent of Millennials and 36 percent of Gen X have purchased from abroad within a 12-month period."

Cross-border shoppers show a stronger preference for out-of-home delivery and returns options compared to social and sustainable shoppers, the report added. "This suggests they value convenience and flexibility when it comes to receiving and returning their orders.

"If you’re thinking about expanding into new markets, you might want to consider selling to Poland – 95 percent of Polish shoppers buy from abroad. While many shop from abroad to get lower prices, some are hesitant to buy due to concerns about longer delivery times. If you are interested in expanding to this market, we recommend offering a reliable and efficient delivery service that meets their expectations and eases these concerns."

These shoppers (52 percent) get frustrated due to high delivery costs, long delivery times (48 percent) and unclear customs information (28 percent).

Andreas Schoenemann, Vice President, Cross-Border, DHL eCommerce says: "As transport barriers are reduced, it’s getting easier for retailers to explore new markets. Customers may not even be aware that they are buying from another country. Cross-border shipping has become so easy that retailers no longer need a distribution center in every destination country.

"The cross-border market is very substantial. At DHL eCommerce, we see around eight billion shipments a year travelling across borders, worth about $500 billion."

Customers are highly unlikely to buy something unless there are return options, adds Schoenemann. "If these are limited, shoppers may refrain from buying as they don’t want to deal with a complicated returns process. It needs to be seamless and straightforward – just like the domestic returns process. DHL eCommerce offers an unparalleled cross-border return product called Parcel Connect Return covering Europe with a single integration."

As much as 97 percent of online buyers say delivery options influence where they shop online. The majority of cross-border shoppers (88 percent) want end-to-end tracking of their orders from abroad. Almost 80 percent of cross-border shoppers say the delivery provider is an important element in decision making for online purchases, according to the DHL survey.

E-commerce, especially between China and major markets like Europe and the U.S., continues to drive significant air cargo demand, with a significant portion of Cathay Cargo's Greater Bay Area shipments being related to e-commerce, says Tom Owen, Cathay Cargo Director. "The combination of consumer trends and trade volume spikes has made 2024 the year of e-commerce."

Our integrated approach includes direct multi-modal links for upstream cargo acceptance in Dongguan where flight-ready exports are consolidated and sent directly to/ from Hong Kong International Airport (HKIA).
-Tom Owen, Cathay Cargo

While it's hard to pinpoint the exact increase in e-commerce volumes for 2024, we all know that it's sizable, says Sebastien Podgorski, Vice President, Airline Solutions, WebCargo by Freightos. "We're probably at the equivalent of 200-250 freighters per day (in capacity) which is astonishing. The key reason for the increase is the emergence of brands like Temu and Shein, but if we take a step back, the real reason is that these brands are giving people what they want - the right product at the right time. This is the same reason that logistics companies historically chose air cargo but now the same decision-making is in the hands of the consumer."

Experts are predicting an increase in holiday sales this year over last year, "and just as in years past, UPS is positioned to deliver the reliable service that customers depend on, especially during the important holiday shopping season," says an official spokesperson.

While we have seen some modest increases in e-commerce demand on specific trades, volume on key trade lanes has grown by as much as 50 percent year-on-year, according to Derek Lossing, Founder and Senior Industry Advisor: E-Commerce and Transportation, Cirrus Global Advisors. "It’s hard to detail specific increases as the data is not always clear on a lane level from industry sources.What we can tell from U.S. Customs and Border Protection (CBP) data and other aircraft operations is that South China continues to lead the growth category. Most of the growth is being driven by three factors:

1) Growth in popularity of websites and apps such as Temu, Shein and Quince;

2) Increased access to faster & cheaper shipping options from multiple countries around the world, not just China, enabling global e-commerce at a price point far below the traditional integrators; and

3) Technology and data that enables cross-border compliance and solutions that are more scalable than ever before."

Cross-border e-commerce relies heavily on speed and reliability, especially for time-sensitive goods like electronics and fashion items, says Maggie Wu, General Manager, Aviation Logisitcs, Cainiao. "Consumers worldwide are increasingly accustomed to fast, stable logistics, expecting an experience comparable to local e-commerce shipping. This heightened demand further increases the need for air cargo services.

"Air cargo, generally the fastest option crross-border shipping, is essential to meeting these consumer expectations. As e-commerce continues to thrive globally, air cargo will remain a vital mode of transportation for the industry."

An overwhelming 93 percent of Americans believe that clothes don’t need to be expensive to offer lasting value, according to an online study conducted for Shein by The Harris Poll. The survey, which covered over 2,000 adults, also found that price and quality topped the list of priorities when choosing a clothing retailer with 79 percent of respondents highlighting both as key factors.

"90 percent of U.S. adults agree that even if they don't have a lot of money, they should be able to buy clothes that make them feel good." Around 80 percent of those surveyed said they can find clothes that are unique at Shein and want to wear them repeatedly.

Brussels Airport witnessed increased imports from Asia throughout 2024, particularly in January and February when the year-on-year (YoY) growth was 112 and 101 percent, respectively, says Dimitri Bettoni, Head of Cargo - Product & Network Development, Brussels Airport Company. "This was in line with the global trend of e-commerce growth.

"As e-commerce grows, we continuously invest in this sector and keep on developing strong cargo partnerships, particularly with Chinese carriers and airports. The airport has established various direct flights to major Chinese cities, facilitating faster and more reliable transport of e-commerce goods. Through these efforts, Brussels Airport positions itself as a vital link in the cargo chain between Europe and Asia, supporting the growing trade and e-commerce demands of both markets."

Lack of capacity, increasing demand
There is definitely a lack of capacity here, says Podgorski. "Demand is far outpacing supply. Looking back year-over-year, we estimate that demand has grown 2x faster than supply has been able to grow. This has put huge pressure on the rates as they continue to inch forward to all-time highs. That said, air cargo fluctuations are the norm; looking at our Freightos Air Index, we can see that while air cargo rates in January 2024 were about 67 percent lower than January 2023, rates in October 2023 and 2024 are about even. However, looking specifically at Asia-North America, rates are some 25 percent higher this year, likely due to the e-commerce boom."

The air freight industry is affected by numerous factors including geopolitics, trade relations, supply chain disruptions, seasonal consumption trends, different sector trends and changes in the supply of airfreight space, adds Owen of Cathay Cargo.

Lossing adds: "We do see companies evaluating air freight when rates rise. Large shippers often build supply chains with air because of air cargo’s unique value proposition - this is dependent on value, speed, risk of obsolescence, inventory carrying costs, cash flows of the business and speed to market. When the price moves in a significant way, that formula changes. For companies that have a high borrowing cost for cash and don’t want to stock up on inventory for small but high value goods, that formula may not change. But for others, it will deflate air cargo demand and push back to the ocean.”

Story to continue in 2025 and beyond...
Podgorski says it is hard to tell if this wave will continue, as is. "There is tremendous regulatory scrutiny, trade tensions and sustainability and environmental criticism of companies like Shein and Temu. However, this is not the first time we have seen an e-commerce boom, nor will it be the last. As long as goods can be produced and sold quickly and cheaply, there will be a global market for it. E-commerce will no doubt become cyclical like the rest of the air cargo industry but it is here to stay. Many projected that e-commerce would regress post-Covid but all signs point otherwise. And in a region where both ocean and air capacity is already very tight, the slightest change in one or the other can have immense knock-on effects."

The plans by the U.S. government to prevent Chinese e-commerce giants from exploiting a loophole in import regulations "will not put the genie back in the bottle," says Xeneta. The Biden administration is moving to curb low-value shipments entering the U.S. duty-free under the $800 de minimis threshold, which it says has been abused by Chinese e-commerce platforms such as Shein and Temu.

“Shein and Temu were not set up to expose a loophole in de minimis regulations," says Niall van de Wouw, Chief Airfreight Officer, Xeneta. "The cornerstone of the e-commerce business model is the massive and seemingly insatiable consumer demand in the West for low-cost fast-fashion, apparel and textiles.

"More than a billion shipments now enter the U.S. under de minimis exemption each year with the majority originating from Chinese e-commerce platforms. This extraordinary level of demand is not going away and the genie cannot be put back in the bottle.”

Another key takeaway from the Rotate survey - lowering of de minimis thresholds ($800 in the U.S.) may have limited impact with only 17 percent expecting large declines in volumes in case U.S. and Europe tighten regulations.

As consumer demand for quick deliveries continues, Cathay Cargo anticipates that e-commerce growth will persist into 2025 and beyond, driven by increasing online shopping and further digitalisation in the logistics space, says Owen. "We are also closely monitoring the evolving regulatory landscape in the USA and Europe as these regions play key roles in shaping e-commerce logistics.

"Despite regulatory developments, we fundamentally believe that the new model of consumer consumption behaviours will continue to benefit the air cargo industry, creating sustained demand for efficient and reliable shipping solutions."

The key here is what happens with Section 321 clearance into the U.S., says Lossing. "There is still a lack of clarity on how the new rules will be enforced, and we have been modeling for clients likely scenarios based on what we do know. The question is will the scope be limited to goods subject to the 301 Tariffs? And more importantly, what is the timeline for these changes?

"We know other countries with higher import duties or taxes still have a significant growth in cross-border e-commerce. But we are very close to the U.S. elections, and those proposals could change - either way- there is a new administration coming in January - and most of what was proposed is not through Congress but through Executive Action. So, we need to understand what Congress might do to further strengthen the proposed changes.

"However, my firm's forecast is that it will cut China to U.S. e-commerce air freight demand between 5-23 percent. That’s significant, given the prevalence of e-commerce as a percentage of total demand. There is also a B2B element that is driving air freight demand as well - with the prevalence of Amazon FBA and penalties for stock outs for FBA vendors. When you talk to China sellers using air freight to inject into Amazon’s regional distribution network - often this isn’t driven by clearance savings - but speed and risk of de-prioritisation on the website. So we are forecasting this piece of B2B e-commerce demand will stay pretty robust based on seller surveys in China."

Wu of Cainiao adds: “Yes, we believe the demand for e-commerce is very likely to presist into 2025 and beyond. As more people worldwide gain access to the internet and smartphones, the potential customer base for e-commerce continues to grow. This trend is especially evident in developing economies, where we are seeing a significant increase in parcel volumes across emerging markets across Latin America and the Middle East. However, uncertainties such as regulations, economic megatrends, and shifts in consumer behavior may impact the growth of e-commerce."

Interlinking of container shipping woes and air cargo volumes
Owen of Cathay Cargo says: "Falling ocean freight rates and on-going geopolitical disruptions have led some exporters to shift from ocean to air freight. The two sectors are interconnected, and as ocean freight faces challenges, demand for air cargo could remain strong. Air cargo offers a faster alternative for time-sensitive shipments, especially when global trade conditions fluctuate."

Lossing of Cirrus does not see container shipping rates playing a significant role in air cargo. "The vast majority of the world's goods still move by ocean and this won’t change. Whenever you have uncertainty - whether that is risk of a port strike, terrorist attacks driving capacity out of the market - you will see some small percentage that will shift back to air that is truly time sensitive. Over the long run, there will be short-term spikes in demand due to unforeseen events. But the order books of the global ocean carriers and the ship makers is generally sufficient to absorb challenges in the ocean supply chain in the long run."

The cost of air cargo is higher than sea freight, and it remains to be a big challenge for logistics companies to balance the cost and experience for logistics, adds Wu. "At Cainiao, we are working hard to reduce delivery costs for our merchants in various ways. In addition to continuously optimising our logistics, we focus on improving operations, enhancing efficiency, and driving digitalisation to minimise costs.

"For instance, Cainiao's smart consolidation technology enbales purchases made by the same consumer or group to be packaged into one single parcel for cross-border shipping. This approach leverages economies of scale, allowing for expedited shipping services without additional costs to consumers or merchants. In simple terms, the more items a consumer purchases, the faster the delivery and lower the costs."

Sustainability and e-commerce
Lossing feels sustainability is definitely a challenge, especially for the European and large U.S. players. "But it’s a tempered strategy. Large firms could make faster strides in climate goals if they chose to but they are not at the risk of alienating their customers. Our research shows that the average consumer 1) Does feel CO2 emissions are important for the website/brand they are ordering from and ethical business practices weigh on their evaluation of brand sentiment and 2) Doesn’t understand the impact of the international cross-border CO2 emitting model. So we see a lack of consumer understanding at play when they then click buy."

Digitalisation and challenges
Freightos data shows 73 percent of air cargo capacity has moved online, and Podgorski highlights a key lesson - "it can be done. This seemed like a mammoth task when we set out five years ago with the first digital platform booking. Today, it may not be the dominant method of booking but it’s certainly trending in the right direction.

"With over a million annual bookings, air cargo procurement professionals have voted for WebCargo by Freightos booking with their clicks. The challenge remains to continue to showcase the real efficiency this unlocks. With more bookings, more modes, more types of shipments and more carriers, efficiency spreads even further. This requires a culture change but also a delicate understanding of where tech provides value and where people do. The right solution must address both."

What next for e-commerce and air cargo?
To meet the growing demand in e-commerce logistics, Cathay Cargo is extending its capabilities with solutions like Cathay Courier, designed for high-priority door to door small package e-commerce shipments. “This service offers speed and reliability, providing direct, seamless connections across air and multi-modal routes,” says Owen. “In addition, we are enhancing intermodal sea-air transportation, facilitating shipments between Hong Kong and other regions.

“Our integrated approach includes direct multi-modal links for upstream cargo acceptance in Dongguan, where flight-ready exports are consolidated and sent directly to/ from Hong Kong International Airport (HKIA). This allows us to optimise competitive rates, combined with Hong Kong’s efficient air cargo network.

“By offering an alternative gateway for e-commerce shippers in the Greater Bay Area, we enhance flexibility, improve lead times, and support the diverse needs of global e-commerce players, keeping them competitive in a fast-moving market.”

UPS customers will experience a shortened shipping (and shopping) season this year, with four fewer shipping days between Thanksgiving and Christmas, the spokesperson added. "Through collaboration with our customers, we’re matching volume demand to our network capacity and monitoring for spikes, making adjustments as needed. UPS runs the most efficient, integrated network in the world, and more than half of our volume moves through an automated hub, which enables us to get packages more quickly and nimbly to our customers while reducing delays.

"To ensure we maintain the industry-leading service our customers expect, we recently announced that we are adding over 200 flights from Asia Pacific to Europe and the U.S. in Q4 this year.

"As an industry leader in on-time delivery performance for six consecutive holiday shipping seasons, UPS is ready again to deliver the reliable service that customers depend on year-round. We encourage everyone to ship early and often so you can enjoy the holiday season worry-free."

E-commerce shipments, on arrival at Brussels Airport, are transferred to specialised facilities or to onward flights, thanks to well-designed airside operations, Bettoni added. "One of the biggest challenges in moving e-commerce goods is the increased customs scrutiny and procedures worldwide. To maintain smooth processes of e-commerce handling, close collaboration with customs authorities is fundamental. For instance, in June 2024, Brussels Airport Company, Air Cargo Belgium and Belgian Customs signed a vision document to improve infrastructure, enhance operational efficiency, embrace digitalisation, and foster cooperation. For low-value e-commerce goods, simplified customs procedures have been implemented, reducing the time and paperwork necessary for these goods to clear customs. The introduction of the EU’s Import Control System 2 (ICS2) helps ensure compliance while speeding up clearance."

Faster delivery is becoming a key differentiator and comparative advantage in cross-border logistics, adds Wu of Cainiao. "While faster delivery generally leads to better logistics experience, it's important to clearly define what fast means. Next-day delivery is typically expected for local e-commerce logistics, but for cross-border e-commerce, we offer differentiated delivery times through tiered logistics services. Achieving the right balance between cost and overall service experience is crucial for maintaining a sustainable business model. Speed is just one factor in the broader service experience; beyond speed, the stability and quality of logistics are equally important in ensuring a satisfying customer experience.

"Cainiao has launched a pioneering five-day global delivery service, which guarantees delivery of cross-border parcels from China to major markets in Europe, Asia, the Americas, and the Middle East within five working days. We've already seen a signifivant increase in customer satisfaction rating in the regions where this service has been rolled out."

UPS spokesperson concludes by saying: "We meet customers where they are, and so as we see a shift from air to ground, we can flex our network to quickly adjust to customer preferences in real-time. In addition to speed and price, customers also want a deep portfolio of differentiated services with integrated, end-to-end solutions – UPS capabilities are industry-leading in those categories."