In the words of its cargo chief, Cathay Pacific was one of the carriers “hit longest and the deepest” by COVID. But the Hong Kong-based carrier is now firmly in recovery mode with e-commerce a determining factor in its return to growth.

In a webcast by Cargo Masterminds, Tom Owen, director of Cathay Cargo, not only provided an update on the company’s fortunes post-pandemic, but his comments also revealed just how dependent the air cargo industry has become on the B2B and B2C internet trade, particularly in the current downturn.

“We are still rebuilding capacity after COVID hit us. This time last year, we weren't operating any wide bodies (aircraft). So, the growth in tonnage we are seeing, while driven by the market, is primarily due to us having a lot more capacity available to sell this year (compared to last), including the current final quarter.

Building Capacity

“We’re building up capacity as quickly as we can to respond to the market. We are going to be around 85% of our cargo capacity – that is combined freighter and belly, by the end of this year.”

Quizzed on whether the market would end the year on a high, Owen said: “We are seeing a peak season and while some of the more traditional shipments that we would handle through Hong Kong, around tech, garments, etc., are weaker, the e-commerce phenomenon is strong and has continued to grow post-COVID.”

He underlined that Cathay Cargo is shipping “good quantities of e-commerce products through our Hong Kong hub to North American consumers. And there's been an encouraging uptick in that as the year-end approaches and families are purchasing stuff online for obviously the end of the year, and also that retailers and restocking.’

As to the likelihood of pressure on the inventories of US retailers due to strong consumer demand heading into the holiday season and the prospect of this leading to a shift in volumes from ocean to air, Owen noted:

“I’m not sure about an ocean to air shift but what we have seen is that demand for air has grown and as a result, we've been increasing our capacity on the trans-Pacific lanes over the last couple of months and we'll continue to do so through November and early December.

“We estimate anywhere between possibly 50-60% of our current ex-Greater Bay Area on-call cargo is related to e-commerce and our main trade lanes are really the trans-Pacific lane to the US east and west coast.

“There's also e-commerce flowing down into Southeast Asia and into Europe as well. And I think the main hubs in China, such as Guangzhou and Shenzhen, are all seeing that opportunity. But Hong Kong, with its big network and greater connectivity and seamless transfers, has meant that it's benefited significantly in the last year from post-COVID e-commerce growth.”

E-Commerce Key Driver

It is difficult to gauge how prominent a place e-commerce now holds as an air cargo vertical but there is little doubt that it is a key driver of growth in the sector.

Earlier this month, UK cargo airline European Cargo increased the number of its weekly A340 freighter flights from Chengdu in China to Bournemouth, on the English south coast, from six to nine.

It means capacity on the ‘e-commerce’ route has tripled in the past six months with almost 700 tonnes of weekly import capacity now available to shippers.

At the end of last month, air cargo services specialist Challenge Group, which has its main hub at Liège Airport, in Belgium announced it was scaling up ‘e-commerce’ flights into the Belgian from Hong Kong and would soon be offering a daily service, deploying combined B747 and B767 capacity.

According to a recent report by Trade Data Service (TDS), there is anecdotal evidence that e-commerce is driving increased air cargo volumes in the second half of the year. However, “due to value reporting thresholds, trade statistics generally do a poor job at capturing cross-border e-commerce traffic, which may account for up to a fifth of global air cargo volumes,” it said.

“Value reporting thresholds imply that any increase in e-commerce traffic is unlikely to be captured in the data. Reporting threshold for the EU is €1,000, or 1,000 kg; for the US, it is $2,500 for exports and $2,000 for imports,” TDS added.

Turning to the general outlook for the air cargo market, Owen noted: “In terms of headwinds, obviously there’s the concern around international trade that we talk about a lot in regard to the economic situation of the globe and its impact on air cargo.

“But I think that among the tailwinds pushing us along, as previously mentioned, is international global e-commerce which currently shows no signs of slowing down in terms of growth, but also two other verticals – perishable cargo into the Chinese mainland, and pharmaceuticals which we've been investing heavily in over the last few years at Cathay Cargo.”

He added: “So like all these things, the cargo market is up and down. It's very cyclical and we're ready to make an agile response to anything that's thrown our way as the year comes to an end and also next year.”