Global freighter capacity ‘maxxed out’ for this year and next

Global freighter capacity is “maxxed out” for this year and next year and even though a significant amount of conversion work is underway to transform aircraft from passenger to all-cargo configuration this will not produce a substantial amount of additional (maindeck) capacity in 2022 nor in the following years, according to analysis from a leading global management consultancy.

“The freighters that are flying currently are flying maximum block hours,. Every freighter aircraft still fit to fly - irrespective of how old and inefficient - has been put into service, which has enabled maindeck capacity to increase by 30% when compared to pre-COVID levels,” Ludwig Hausmann, who leads the air cargo service line within the global transport and logistics practice of McKinsey & Company told Lloyd's Loading List in an interview.

“But belly capacity, which prior to the health crisis represented 55% of all air cargo capacity, is still down by slightly over 50%. The upshot is we have a capacity shortfall of around 12-13% and for the gap to close, you really need to believe that belly capacity is coming back to close to where it was before.”

Closing the gap

Research from IATA and other organizations points to a recovery in airline passenger services in certain parts of the world, where vaccination has taken place and the pandemic has settled down, Hausmann noted.

“So we might be back at 60% of pre-crisis  (belly) capacity by the end of this year and maybe 90% at the end of next year. This means that at the end of next year, we might be in a situation where air freight belly capacity is kind of closing the gap, more or less, while heightened freighter capacity continues to operate.

“But what will be crucial is where the belly capacity is coming back  unless it's back to 100% everywhere. It's fair to assume that air passenger travel will come back first on continental or short to mid-haul routes and for inter-continental traffic on routes to tourist destinations, such as the Maldives, or the Caribbean, which are largely irrevelant to air cargo.”

Hausmann underlined that a key stage will be reached when inter-continental passenger services return for business travel, notably on transatlantic routes such as Europe-North America, Europe-China, Europe-Japan, Europe-Southeast Asia, Europe,-India, and US-Asia. “These long-haul passenger routes are the most important when it comes to the return of belly capacity.”

Capacity glut ?

As for the likelihood of the massive push to convert passenger aircraft into freighters creating serious over-capacity in maindeck space two to three years from now as air cargo demand cools down after a period of sustained, exceptionally strong demand Hausmann noted: 

“There is an inherent risk (in the significant uptake in conversion work) creating a glut in capacity  We have seen it in the past. Basically, people are now seeing dollar signs. However,  we really need to look at the numbers here to ascertain how much additional capacity the conversion work will generate  in relation the existing volume of maindeck space on the market and on the basis of the latest analysis, it appears to be something in the region of 5-10% only over the next three years.”

His colleague, Tobias Wölfel, who leads Air Cargo Research at McKinsey’s German office, is also sceptical as to the risk of an over-supply of freighters.

“What also has to be borne in mind when talking about new maindeck capacity coming on to the market in the new few years, is that of all  the freighters flying at the moment -  and we have a situation where every available one of them is in service - a good number of them are old aircraft at the end of their operating life and are programmed to go out of the market in the not too distant future. So that’s likely to kind of neutralise the prospect of a glut of capacity coming from the conversion work which is debatable anyway.”

Hausmann highlighted that out of all the freighter aircraft in the world, almost a third of them are operating for post, parcel and express specialists such as FedEx, UPS and DHL. 

“In a way, such capacity doesn't ‘interfere’ with that of 'classic' air cargo. But assessing the amount of freighter capacity the market is likely to require in the years to come is always a difficult exercise because there are so many variables to take into account,” he observed. 

“However, it is one we are familiar with given that from time to time we have clients who are conducting due diligence regarding the potential acquisition of firms specialising in aircraft conversion work and cargo airlines.

Outlook

Husmann underlined that demand for freighters has been at exceptional levels for well over a year since the onset of COVID-19 and there is continued uncertainty over how long this trend will last. 

“It could well be that with the pandemic by and large receding and belly space coming back into the market and ocean freight managing to get back on schedule so to speak, with improved reliability, air capacity tensions will ease and rates stabilise but the timeframe for that remains blurred. What is clear is that in this kind of market environment there would be no reason whatsoever for air cargo to continue to pursue a sharp upward path on prices.”

A more negative analysis would not rule out a return to a period rather like the one which prevailed before the COVID crisis, where the air cargo segment had years of stagnating, even slightly decreasing yields, Hausmann added.

“But personally I don't see any a brutal decline in rates on the horizon, principally because the impetus given to air cargo by cross-border e-commerce will more than likely be maintained and help keep the market buoyant, while the positive impact from the anticipated post-pandemic recovery in the global economy will also play a part.”