Air cargo is generally not a good business. At least for airlines who take most of the long-term capacity risk. In the last five year the business went from dull to awesome. Many companies made more profit in the last five years than in their entire history. The first half of this year was pretty good and companies continue to naively believe that everything will be ok. We take the view the ice age may be just around the corner. Or at least go back to being dull.
Air Cargo: Mostly a Bad Business
Air cargo is generally not a good business. At least for airlines who take all of the long term capacity risk. Generally, operating margins of 4-5% are viewed as decent. Cargo airlines for the most part do worse than the rest of the airline industry, who consistently generate returns below their cost of capital.
Freight forwarders do very well, especially given they take hardly any long term risk. Cargo handling EBIT margins are all over the place but often range been 4% and 10%. In the last years they have gotten less due to big increases in labour costs. Large sites tend to perform better than small sites, which are often consistently loss making. Airport cargo operations are also often marginal. The most profitable airports make their money with car parking and retail concessions. Of course, sick patients feed an ecosystem of doctors, so there are a lot of parts of the business that can be quite lucrative, such as maintenance, aircraft leasing or other services. Aircraft, engine and equipment OEMs can also run a tidy business, although at lease one of the two big manufacturers has been in a world of continuous pain since 2019.
Vertical integration helps. For example, DHL Express’ margins have usually ranged between 11% and 13% over the last 10 years. UPS numbers are similar, FedEx admittedly usually lower. Around half industry revenue and about 20% of international traffic is generated by the above three express operators.
It’s also not bad being an operating platform for someone else – usually one of the three integrators, Amazon or another e-commerce platform, a postal company or a logistics provider taking a longer (i.e. more than one year) commitment. Operating margins for those companies tend to be stable and around the 8-10% mark. Think Atlas, ATSG, ASL, ASG – a lot A’s in the names.
It also helps when a big chunk of capacity is free. Historically about half of international air cargo is transported in the bellies of passenger aircraft. In some airlines the cargo division “pays” for access to this capacity, in other airlines there is no cost charged to the cargo division and all cargo revenue is just a contribution to the overall business. While one can argue about the merits of either approach the reality is that any cost assigned to the cargo division is just money from one pocket to the other. Around 10% of industry revenues are generated by belly only carriers (such as United, American or Delta) and a further 32% by carriers with both passenger and freighter aircraft (such as the big three Gulf carriers and all of the big Asian Carriers, and two out of three big European carrier groups).
The remaining 10% of industry revenue is generated by companies operating only freighters (such as Cargolux or Challenge). Some of these carriers operate for others or their own account. These are the carriers that need to be smart, keep a razor sharp focus on operating costs and find new ways to milk blood out of a stone.
Air Cargo in the Last 5 Years: Awesome Business
Since 2020 the air cargo industry has been on a massive high. The industry generated more revenue in the last five years than in the ten years prior. Many companies made more money than in their entire history. Operating margins between 2020 and 2022 were often in the range of 30%-40%. This has come down in the last few years but is still above the long-term average.
Air Cargo got lucky thanks to a combination of tight capacity and robust demand that has persisted well into 2025. A large chunk of international belly capacity disappeared during the pandemic and only returned to previous levels by the end of 2024. Some markets still have less capacity belly capacity than before. That includes the transpacific, but also between Europe and Asia where passenger flights operated by European and most non-Mainland China based Asian airlines are taking a payload hit on longer routes that avoid Russian airspace. Airbus and Boeing have also been delivering too few aircraft. The widebody delivery rate in the past five years has been about half of the prior five years – about 200 units a year vs 400. All conversion and production freighter programs are late and Boeing is not able to accommodate any further 777-200F orders for delivery before the 2027 program sunset date.
Demand during COVID did not drop off to the same degree as capacity and recovered quite strongly in 2021 and 2022. The real thing that has been pushing air cargo numbers higher has been China origin cross border e-commerce to pretty much everywhere. Average growth rates for that segment have been in the order of 40% per year for the last three years. Even 2025 has grown by just under 40% – despite the fact the deminimis traffic to the US was only 38% of 2024 levels in the most recent quarter.
Air Cargo in 2025: Everything is Just Fine
The latest round of quarterly company announcements follow a pretty consistent pattern. More realism than three months ago, but still a persistent reluctance to think more deeply about the future. In essence, the commentary coming from publicly listed logistics and express companies, e-commerce platforms and airlines can be summarized as follows:
- The first half of 2025 was generally good. The decline in China to US e-commerce, express and general freight traffic was compensated by other markets. Overall air trade numbers (excluding deminimis traffic) into the are actually up 10% for the first six months.
- Inventory pull forward and unforeseen appearance of new flows required lots of agility.
- Other markets will continue to compensate for whatever downturn happens in the US.
- We don’t really have a clue what is going to happen.
- It doesn’t make a lot of sense to engage in any long-term planning. We will stay vigilant and agile.
Any long-term thinking is sorely lacking – everything will turn out just fine.
Up Next: The Ice Age
Change has been afoot for a while. Long term industry growth rates were sitting at about 7% per year until about 2005, but pre COVID 2%-3% were more common. Traditionally general air cargo was made up of about 80% general freight, 15% express and about 5% mail. Mail has followed a pretty long term downward trajectory, the express business has mostly grown faster than general airfreight. Change kicked in starting around 2017/ 2018 when cross border e-commerce growth really took off. At the end of 2024 this mostly low value traffic accounted for 15% of international air cargo, express about 20%, while the share of traditional freight forwarder business was under 65%. Express in itself these days consists 40%-45% out of B2C traffic.
We estimate that roughly a third of transpacific air cargo has been linked to cross border e-commerce and about one quarter of traffic to Europe. About 100 freighters – approximately 15% of the fleet – are dedicated to this traffic. The flights operate primarily out of China and Hong Kong. Many airlines have removed capacity out of North South markets to participate in this business as much as possible. If we believe one of our latest forecasts, this traffic could make up as much as 25%-30% of international airfreight in just five years’ time.
In the long term, this is not sustainable. First of all – airfreight is just too expensive for moving low value items. For example, average value per kg of Chinese low value and e-commerce shipments into the EU is about 23 EUR (about 10 EUR a shipment). Standard airfreight imports are worth about 140 EUR per kg and exports even 190 EUR. We also do not know how much money Temu, Shein and others are actually making or losing on this business. Secondly, continued growth relies on customs ease of clearance – minimal cost, minimal inspections and minimal hold ups. Any changes to the way goods are processed could push platforms towards a traditional supply chain model where items are brought into warehouse by sea and sold and distributed domestically.
Companies should be describing the probability and impact of three scenarios on their business:
- That things continue as they have in the last years
- That the volume declines on US lanes are not compensated by other markets
- That a big chunk of the global e-commerce business disappears and airfreight goes back to what it looked like pre-2018.
The global economy is in a phase of major disruption and it’s important to move beyond just thinking of tactics. The next five years are unlikely to look anything like the last five.
PS: Luck May not Run Out Just Yet
Air cargo may just stay lucky for a while though. Even if demand goes South, the capacity situation is not going to change until at least 2028 or 2029, by which time aircraft production rates might be back to normal. But if you want to offload some 777-200 freighters let us know.