Impact of China's Economic Slowdown on the Air Cargo Industry

The "China Cross-border Air Cargo White Paper," initially published by Roland Berger in 2022, stood as a pivotal research endeavor aimed at providing valuable insights to the air cargo industry amidst the complexities of global logistics.

Fast forward to 2023, as China relaxes its anti-COVID regulations and grapples with a decelerating economy, Roland Berger has revisited its findings and released an updated version of the "China Cross-border Air Cargo White Paper (2023)." This research serves as an extensive analysis of current trends in the air cargo sector, equipping logistics stakeholders with essential information to navigate the forthcoming opportunities and challenges.

A Retrospective View of 2022

The year 2022 presented formidable challenges for the air cargo industry. The world contended with repercussions from the Russia-Ukraine crisis, COVID-19 lockdowns, and unforeseeable events, leading to capacity constraints, airport closures, and substantial upheavals within the air freight landscape.

During the latter half of the year, some clarity began to emerge as air cargo capacity expanded. A global economic slump, reduced demand for anti-epidemic supplies, and weakened consumer spending in the EU and the US translated into a sharp decline in air freight demand and pricing, resulting in an overall subdued market.

Downturn in Air Cargo

Downturn in Air CargoThe volume of aviation freight experienced an overall decline in 2022, predominantly attributable to COVID-related lockdowns and geopolitical tensions. Consumer electronics, clothing, and anti-epidemic products all witnessed substantial reductions in demand.

Traditional freight routes endured a nearly 20% dip, influenced by US inflation and trade disputes with China. However, niche markets like South America and specific Middle Eastern regions managed to sustain growth.

Air Cargo Pricing in 2022

Air cargo prices fluctuated throughout 2022, eventually stabilizing at pre-epidemic levels by year-end. The confluence of weak demand and increased supply from full freighters contributed to these price fluctuations. The challenges facing the air cargo industry were further compounded by falling ocean freight rates.

Significant Enhancements in Delivery

While timeliness initially faced hurdles due to COVID-related disruptions, the latter half of 2022 witnessed substantial improvements. Upgrades in infrastructure, improved last-mile connectivity, and streamlined customs clearance processes collectively fostered a more reliable and efficient air cargo ecosystem.

Diversification of Air Cargo Capacity

The latter part of 2022 saw a resurgence in economic air freight products, driven by capacity recovery and the introduction of a broader product range by forwarders.

Progress Towards Sustainability

China's air cargo sector accelerated its eco-friendly transformation, aligning with initiatives like the 14th Five-Year Plan for Green Development of Civil Aviation. Measures such as sustainable aviation fuel usage were introduced to mitigate the industry's environmental footprint.

Digitalization of Air Cargo Operations

All stakeholders in the air cargo domain joined forces to attain an 80% penetration rate of electronic waybills by 2025. Airlines and facilities embraced digital intelligence transformations to streamline operations.

The Future of Air Cargo in 2023

At the outset of 2023, the cross-border air cargo market faces a challenging phase but with prospects for a turnaround. Global economic growth remains sluggish, impacting air freight demand and prices. Several factors, including supply chain shifts, high-end manufacturing exports, air cargo capacity recovery, and trade alliances, will mold the industry's future. Although short-term hurdles persist, the long-term market trajectory remains optimistic.

Sluggish Global Economic Outlook

The global economy grapples with challenges in 2023, characterized by cyclical downturns, inflationary pressures, and waning consumer confidence. China's declining exports exert pressure on air freight demand and prices.

Evolving Dynamics

Dynamic interactions between China, the US, and the EU will influence cargo volumes on specific routes. Enhanced collaboration with emerging economies and the Middle East is anticipated to drive cargo volume growth.

Shifts in Supply Chains

Supply chains continue to realign towards Southeast Asia, with high-end manufacturing exports such as photovoltaics and electric vehicles propelling air cargo volume growth.

Challenges in Cross-Border E-commerce

While overall cross-border e-commerce expansion has slowed, niche markets continue to flourish. The challenge of managing a wide range of SKUs compels leading players to rely on air cargo. Supply chain relocations may impact specific routes.

Government Initiatives

Policy relaxations support the gradual recovery of international passenger flights, augmenting air cargo capacity. Enhanced processing efficiency contributes to improved timeliness.

The Impact of Maritime Cargo

Plummeting ocean freight prices and increased freighter orders will directly compete with air cargo, affecting both volume and pricing.

Recovery and Potential Risks

International passenger flights approach 2019 levels, accompanied by an upsurge in freighter orders. The risk of oversupply may lead to declining freight rates.

Logistics Infrastructure

Upgrades in freight hubs and infrastructure enhancements enhance logistics quality, with initiatives like the Regional Comprehensive Economic Partnership (RCEP) further expediting customs clearance times.

Shipper Preferences

Shippers are transitioning from efficiency-oriented supply chains to models emphasizing safety and resilience. This transformation fosters green and intelligent supply chain development.

Collaboration

The entry of cross-border players into the market augments air cargo capacity and market dynamism. Strategic alliances and investments stimulate transportation supply. Leading logistics companies collaborate and integrate resources to provide seamless one-stop solutions to customers, boosting efficiency and competitiveness.

Anticipated Growth Parameters for Air Cargo

Despite short-term challenges, the air cargo market is poised for recovery in 2023. The focus during this recovery phase will be pivotal. The expansion of fleet size and the resumption of international passenger routes may temporarily exert downward pressure on air cargo prices. The industry's shift towards cargo-dominated logistics will compel logistics players to enhance their capabilities, emphasising timeliness, stability, product diversification, and service differentiation.

A Promising Recovery Ahead

The air cargo market is projected to remain subdued in 2023, with the potential for a rebound towards the year's end. The initial impact of plummeting ocean freight prices may affect air cargo volume, but an uptick in replenishment demand is anticipated in late 2023 or early 2024.

Price Competitiveness:

In 2023, the excess capacity supply in the airline industry may temporarily intensify price competition among airlines. As more routes and flights become available due to the recovery of capacity, airlines will be vying for passengers by offering competitive fares and promotions. This could lead to better deals for travellers as airlines seek to attract customers in a crowded market.

Enhanced Timeliness:

The capacity recovery in the airline industry will not only result in more flight options but also contribute to improved timeliness. With more routes and flights available, airlines will have the opportunity to optimise their schedules and reduce delays. Additionally, advancements in technology and improved operational efficiency will further enhance the punctuality of flights, making travel more convenient for passengers.

Product Diversity:

As the logistics industry becomes increasingly customer-centric, logistics players will prioritise product diversification to cater to niche markets and diverse customer demands. This means that logistics companies will offer a wider range of services and customized solutions to meet the specific needs of different industries and customers. This diversification will allow logistics companies to remain competitive and adapt to changing market demands.

Improved Last-Mile Services:

In China, the ongoing expansion and upgrading of logistics facilities will significantly enhance last-mile services. Last-mile delivery is a critical aspect of the supply chain, and improvements in infrastructure and technology will lead to faster and more efficient delivery of goods to consumers. Moreover, deepened cooperation with overseas customs authorities will streamline international shipments and reduce delays, further improving the overall last-mile experience for both domestic and international customers.

In Conclusion:

China confronts near-term challenges driven by global economic dynamics and supply chain shifts, but the long-term outlook remains optimistic. The industry is well-poised to adapt to evolving market conditions by enhancing capabilities, embracing sustainability, and digitization to foster growth and stability. Through strategic collaboration, product diversification, and sustained improvements in timeliness, the air cargo market in China is poised to navigate these challenges and emerge stronger than ever.