The US domestic air cargo market today is about as big as it was in early 2017 – despite a boom in e-commerce. After growing at about 3.7% per year between 2012 and 2021, flown traffic has dropped by almost 20% since early 2022. The bad news is that we may see more declines in the next 18 months. The good news is that they are likely to be more moderate. This article looks at the outlook for the US air cargo market and discusses what it means for the demand for air capacity.
US Air Cargo Market History
Earlier this year we wrote about how the structure of the US domestic air cargo market has changed. Given that over 40% of the world’s freighter fleet is domiciled in the US, the US outlook has a strong bearing on the fortunes of freighter operators and owners.
As of October 2024, the US was home to about 938 active freighter aircraft, about 43% of the world’s fleet. This includes 219 narrowbody, 453 medium widebody aircraft and 266 large widebody aircraft. While most large widebody aircraft (777s and 747s) are operated on international routes, around two thirds of medium widebodies (mainly A300s and 767s) and almost 90% of narrowbodies (mainly 757s and 737s) are operated domestically. The remaining MD-11 fleet mostly operates domestically as well.
Between 2012 and 2021, US domestic air cargo traffic measured in freight tonne kilometres grew on average by 3.7% per year. Volumes peaked in 2021 and have been declining strongly since 2022.
These declines are reflected in UPS and FedEx package volumes, less Amazon Air flying and a shift of postal traffic from air to ground.
These declines have translated into lower average flying hours for aircraft operated domestically, including 767s, A300s, MD-11s and narrowbody aircraft. It is worth noting that traditionally about 55% of FedEx’ and 85% of UPS’ MD-11 fleet were used domestically. Last year this included about 62 aircraft in total. Coincidentally, the domestic market lost about 63 MD-11 worth of flying in the last two years. So, there is good reason to phase these aircraft out.
E-Commerce Growth is Not Helping Domestic Air Cargo
Historically, growth in e-commerce traffic moving through express networks as well as the build up of Amazon’s dedicated network has supported domestic air cargo market growth. However, the impact of online shopping on air cargo traffic has waned. Increased cross border traffic is also not having an impact on volumes in domestic air cargo networks.
E-Commerce has consistently growth much faster than domestic air cargo, even though historically the relationship between air cargo growth, economic and growth in online shopping has been statistically significant.
While most of the corresponding increase in package volumes has been in ground networks, the demand for air capacity has nonetheless benefited. As the e-commerce share has increased the amount of traffic moving through US domestic air networks has also gone up. The chart below plots e-commerce as percentage of total retail sales against US domestic air cargo traffic levels for Q1 2010 through to Q2 2024. As the e-commerce share grew from 4% in 2010 to over 10% in 2019 air cargo also grew, although the incremental impact declined as e-commerce penetration increased. In other words, air benefited strongly in the “early” days of e-commerce but not any more as online shopping took on a more prominent position in the overall retail landscape.
US Domestic Air Cargo Forecast
Growth in the overall economy and e-commerce sales have generally been a good predictor of US domestic air cargo traffic. That makes a lot of sense – growth in overall economic activity means more B2C package (and document) shipments, growth in online shopping means B2C packages. The chart below shows actual domestic Freight Tonne Kilometres (FTKs) compared with what our forecast model would have predicted. Note that we have improved our model since April and the relationship is more statistically significant.
For the period between 2017 and 2019 we would have come in below actual growth. This was the period where Amazon was significantly expanding its dedicated air network which now is more mature (and in the last year even dropped in terms of output). For 2020-2021 we would have also come out lower, but that of course was during the crazy COVID period driven surge in online shopping.
Subsequently, actual volumes converged back to what we would have predicted but declines in 2023 and 2024 were much larger than what we would have expected. There appear to be fundamental changes in the way e-commerce is fulfilled which require less air cargo.
For the rest of the year, we do not predict an uptick and expect peak volumes to be lower than 2023. Overall annual growth is expected to come out at -2% and -0.2% in 2025. Good thing those MD-11s are getting phased out.
