News & Analysis

Boeing looks to long term cargo growth

Air cargo traffic has surged in 2017 and is forecast to grow 5% per year to 2021

Tom Hoang, regional director, cargo marketing, Boeing Commercial Airplanes

Tom Hoang, regional director, cargo marketing, Boeing Commercial Airplanes

Air cargo accounts for less than one per cent of the world trade tonnage, yet 35 per cent of world trade value is carried by air – and it is experiencing its biggest growth year since 2010. Freighters are particularly well suited for transporting high-value and/or time-sensitive goods because they provide highly controlled transport, direct routing, reliability, and unique capacity considerations (volume, weight, hazardous materials and outsized dimensions). Airlines that operate freighters generate 90 per cent of the US$81bn air cargo industry annual revenues.

Currently, traffic is exceeding capacity growth by more than two-fold, and there is already a shortage of viable large widebody freighter capacity. Airlines with the right capacity requirement in place will be able to take advantage of the market demand uptick.

Global air cargo traffic had been struggling with weak and hesitant growth since the global economic downturn of 2008/9. However, air trade has now seen 19 months of strong and sustained expansion as of October 2017. The world air cargo market grew 5.9 per cent and 9.7 per cent for October 2017 year-over-year and year-to-date. All regions are seeing growing air cargo volumes and cargo growth for 15 of the past 19 months has been above five per cent. Recent cargo growth has been led by strong performance by airlines in Asia and Europe. These two regions are responsible for over 60 per cent of the growth in 2017.

Strong demand has caused air cargo traffic to exceed capacity growth by more than two times for the past year and world air cargo yields have increased by 12.7 per cent for October 2017 over October 2016. Cargo capacity growth lagged behind demand for the 16th month in a row with a capacity growth of 3.7 per cent for October 2017 year-over-year and 3.8 per cent for October year-to-date. World air cargo traffic growth for year-end 2017 is expected to be about nine per cent.

This has been propelled by strong world trade and industrial production since the second quarter of 2016. The world’s largest economies – the US, EU, and China – are now in a synchronised expansion with growth rates at or above long-term trends. Consumer and business confidence has moved into very positive territory. In the US, consumption continues to bolster air trade. Positive economic policies in Europe have driven air cargo growth, and manufacturing exports are showing a turnaround, posting eight per cent growth in the first half of 2017. Chinese trade remains strong at near double digits and it is now the largest e-commerce market. China’s Singles Day 2017 (11.11) hit a record US$25.3 billion in 24 hours, up 40 per cent on 2016.

Products that typically go by air have shown solid growth over the past year – medical and pharmaceutical products, perishable, fashion, and electrical machinery have had sharp increases. Trade between US and Asia is boosting air cargo, for example, fashion products are up 80 per cent this year, compared to a 34 per cent decline in 2016.

Boeing cargo planes

Near and long-term market outlook

The outlook for the world GDP growth over the next few years is for continuation of the current expansion. Economists are forecasting above-trend world industrial production and trade growth through at least the end of the decade. Industrial production, a component of GDP, and a broad measure of manufacturing, mining and utility activity, correlates very well with air cargo growth. With these strong tail winds, air cargo should grow at above-long-term trend

• Boeing forecasts the world air cargo market to grow 4.2 per cent per year to 2036.
• The air cargo market linked to Asia, particularly the Pacific Rim, will lead all other international markets.
• Intra-Asia traffic is forecasted to grow faster than other international word markets, averaging 5.5 per cent growth per year.
• Asia-Americas and Asia-Europe will both grow at 4.6 per cent per year.
• Domestic China will be the fastest growing contiguous market in the world, averaging 6.2 per cent per year through 2036.

Freighter demand and aircraft orders

To meet the demand of the air cargo traffic growth, the world freighter fleet will grow from 1,810 airplanes to 3,030 airplanes by the end of 2036. Of the projected deliveries, 490 will be large freighter size aircraft (777F and 747-8F).

• Freighters carry more than 50 per cent of total world air cargo.
• The large widebody fleet (MD-11Fs, 777Fs and all 747Fs) provides more than 75 per cent of all freighter capacity.
• About 25 large freighters a year are required for growth and replacement. However, the large widebody freighter backlog is far below projected demand.
• Most serviceable parked large widebody freighters have been reactivated in the past year.

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