Securing air cargo’s growth trajectory for the future

Air cargo is 4-5 times more expensive than maritime. Along with land and rail transport, the latter boasts its own cost, capacity, and reach advantages. On the other hand, air cargo is now becoming an essential part of the logistics value chain as well. It is the best means of rapid transportation for small as well as large cargo volumes.

Hence, developing a competitive moat is essential for the air cargo industry to ensure sustainable growth and profitability. This article examines strategies for creating that moat, leveraging historical and current statistics and contrasting the sector with its maritime, land, and rail counterparts.

Where does air cargo stand today?

Air cargo accounts for approximately 35% of global trade by value but only 1% by volume. This highlights its role in transporting high-value, time-sensitive goods such as electronics, pharmaceuticals, and perishables. According to the International Air Transport Association (IATA), air cargo volumes reached 61.7 million metric tons in 2022, generating revenues of $191 billion. While these figures represent significant growth from the pre-pandemic era, competition from other transport modes remains fierce.

In contrast, maritime transport handles about 80% of global trade by volume, with an annual throughput exceeding 11 billion tons in 2022, as reported by UNCTAD. Rail freight accounts for approximately 9% of global trade by volume, particularly excelling in regions like Europe and China. Meanwhile, road transport dominates regional and last-mile deliveries, especially in highly developed logistics markets such as the United States and the European Union.

Therefore, although air cargo is premiumised for various reasons, it has to catch up with its peers to stay competitive in the fast-evolving world.

Comparative analysis: Air Cargo vs. Others

1. Speed : Air cargo is unmatched in speed, making it indispensable for time-sensitive shipments. For example, shipping goods from Shanghai to Los Angeles takes about 11 hours by air compared to 15-20 days by sea.

2. Cost : While air freight costs remain high, they are justified for high-value goods. The average cost of shipping a smartphone by air is negligible compared to its retail price, making it a viable option for manufacturers.

3. Environmental impact : Maritime transport is more fuel-efficient, emitting 10-15 grams of CO2 per ton-kilometer compared to 500 grams for air cargo. However, innovations in SAF and electrification can narrow this gap for aviation.

4. Reliability : Air cargo offers higher reliability in terms of schedule adherence, whereas maritime and rail can be subject to port congestion and track limitations. Also, air cargo is the right mode of transportation during public emergencies.

Challenges facing the air cargo industry

1. Truck congestion & documentation: Truck waiting time outside airport cargo complexes is more than 4 hours. Even in a developed market like North America, truck congestion has been varying between 4-8 hours. This is mainly due to documentation taking place at the terminal gates post-truck arrival.

2. Cost competitiveness: Air freight is significantly more expensive than maritime or rail. For instance, the cost per kilogram of air freight can be 4-5 times higher than ocean freight and up to 15 times higher for long-haul bulk shipments.

3. Capacity limitations: Air cargo capacity is limited by aircraft size and availability. While a large freighter can carry up to 130 tons, a single container ship can carry over 20,000 TEUs (Twenty-Foot Equivalent Units).

4. Environmental concerns: The carbon emissions from the air cargo industry are increasingly concerning. Aviation is responsible for about 2.5% of global CO2 emissions, with air freight making up a notable portion due to its high energy intensity.

5. Regulatory & geopolitical factors: Stringent security protocols, customs procedures, and geopolitical tensions often delay shipments and increase operational complexity.

Strategies for building a competitive moat

1. Technology integration:

• Advanced analytics and artificial intelligence (AI) can optimise cargo routing and improve load factors, thereby reducing costs and emissions. This is where platforms like Cargo Community Systems and Cargo Management Systems have a significant role to play.
• Digital platforms such as e-freight systems can streamline documentation, reducing processing time by up to 80%. Point solutions such as electronic air waybill, airline electronic delivery order etc. take centre stage.
• Investment in autonomous aircraft and drones could revolutionise short-haul and last-mile deliveries, creating an edge over traditional modes. While the same is gradually picking pace in the current times, excessive penetration will be subject to the positive impact it creates over a period. 

2. Sustainability initiatives:

• Transitioning to sustainable aviation fuel (SAF) can reduce carbon emissions by up to 80%. Some of the leading airlines have already committed to adopting SAF. Yet, SAF utility is subjective as it is more expensive and can instantly shoot up the cost of shipments.
• Improving aircraft efficiency through lightweight materials and aerodynamic designs can further lower emissions. Also, developing carbon-offset programmes can enhance the industry’s appeal to environmentally conscious customers.

3. Infrastructure development:

• Expanding airport cargo facilities and integrating them with multi-modal transport hubs using Sea-Air Corridors powered by cargo community systems and digital freight corridors can enhance efficiency and connectivity.
• Advanced cargo tracking systems, such as IoT-enabled sensors, can improve supply chain visibility and reliability.

4. Partnerships and alliances:

• Collaboration with maritime and rail operators can create seamless intermodal solutions, leveraging the strengths of each mode.
• Strategic alliances within the air cargo industry, such as cargo-sharing agreements, can optimise fleet utilisation and expand network reach.

In conclusion

Building a moat for the air cargo industry requires a multi-pronged approach. The industry can strengthen its competitive position by leveraging technology, prioritising sustainability, and focusing on niches. Collaborative partnerships and infrastructure investments will further enhance its resilience and appeal.

More than all this, the role of technology innovations such as cargo community systems will further penetrate growth. Therefore, a well-developed moat will not only ensure the industry’s long-term profitability but also solidify its role as a cornerstone of global trade in an increasingly interconnected world.