Imagine Foxconn's factories operating at full capacity, working around the clock to fulfill orders, only to see finished products piling up with no way to ship them worldwide. This isn't a dystopian scenario but the current reality for the air cargo industry as it grapples with the unprecedented challenges brought by the COVID-19 pandemic. An industry that had hoped for revival through the U.S.-China trade agreement now finds itself caught between weakening demand and severe capacity constraints.
Pre-Pandemic Weakness: A Sector Already Under Pressure
Even before the coronavirus outbreak, the air cargo industry was showing signs of strain. Data from the International Air Transport Association (IATA) reveals that 2019 saw a year-over-year decline in air cargo demand, with January 2020 continuing this downward trend at 3.3% below previous levels. The global economic slowdown and ongoing trade tensions had already taken their toll before the pandemic delivered its devastating blow.
IATA warns that the full impact of COVID-19 will become evident in February's data. With global supply chains severely disrupted, the outlook appears increasingly grim. While airline capacity showed modest growth (0.9% year-over-year) in January, the slowing pace of expansion leaves the industry ill-prepared for future transportation needs.
Capacity Crunch: When Passenger Planes Disappear
The most immediate effect of the pandemic has been massive flight cancellations. Travel restrictions implemented worldwide to contain the virus have grounded countless passenger flights, which traditionally carry about 52% of global air cargo in their bellies, according to Yossi Sheffi, Director of the MIT Center for Transportation and Logistics. This disappearance of passenger aircraft has created an enormous capacity gap.
IATA specifically highlights the severe impact on routes closely connected to Asian markets, particularly the Asia-Europe and Asia-North America corridors that account for over 40% of international cargo volume. These vital trade arteries now face unprecedented congestion.
The Reopening Dilemma: Production Resumes, But Can Goods Move?
As China gradually brings the outbreak under control and businesses resume operations, a new challenge emerges: even with restored production capacity, transportation bottlenecks persist. Sheffi emphasizes that insufficient transport capacity remains the critical issue, with dedicated cargo carriers like UPS and FedEx unable to fully compensate for lost belly capacity.
UPS, for instance, has restored most operations in mainland China (excluding Wuhan), but only five of its 19 Chinese air cargo stations have returned to 100% capacity. This means product backlogs will likely continue despite manufacturing recovery.
Rising Prices: The Inevitable Result of Supply-Demand Imbalance
The mismatch between constrained capacity and rebounding demand has inevitably driven up air freight rates. In this seller's market, airlines and freight forwarders are raising prices to maximize returns, potentially squeezing shippers' profit margins through increased transportation costs.
Trade Deal Optimism Meets Pandemic Reality
The industry had pinned recovery hopes on the U.S.-China Phase One trade agreement, expecting it to stimulate trade growth and cargo demand. However, the pandemic has clouded this outlook. Even with improved trade relations, capacity limitations may constrain any potential trade expansion.
Path Forward: Innovation and Adaptation
To navigate these challenges, the air cargo sector must pursue strategic transformation:
- Network Optimization: Adjust route networks to prioritize high-demand regions, potentially increasing intra-Asia connectivity to serve regional trade flows.
- Operational Efficiency: Leverage technology and process improvements to enhance productivity, such as using data analytics for optimized flight scheduling and cargo loading.
- Strategic Partnerships: Collaborate across the logistics ecosystem to develop integrated supply chain solutions, including potential e-commerce logistics offerings.
- Business Diversification: Expand into specialized segments like temperature-controlled and pharmaceutical logistics to reduce reliance on traditional cargo.
- Digital Transformation: Implement IoT and AI solutions for real-time cargo tracking and visibility, improving service quality.
Building Resilience for the Future
The crisis underscores the need for greater operational flexibility, allowing rapid capacity adjustments in response to market shifts. Investments in automated handling systems and innovative transport methods could improve processing efficiency, while closer collaboration across supply chains would enable more responsive operations. Environmental considerations will also grow increasingly important, pushing carriers toward sustainable practices like fuel-efficient aircraft and optimized routing.
The COVID-19 pandemic presents the air cargo industry with its most severe test in decades, but also creates opportunities for reinvention. Success will require balancing short-term crisis management with long-term strategic planning, embracing innovation while maintaining financial stability. The sector that emerges may look fundamentally different—more agile, more technologically advanced, and better prepared for future disruptions.