Will more e-commerce lead to increased freighter demand?

Online retailers in North America, Europe, China and other regions have seen a surge in orders throughout the pandemic, despite the fact that overall spending and economic activity are down. Fulfillment systems are even struggling to deliver, to some extent. In its June 30 earnings call, FedEx noted that the pandemic has accelerated e-commerce adoption, with the e-commerce share of retail hitting 27% in April compared to 16% of sales in the 2019 calendar year. Payment provider Afterpay's own analysis on buying behavior also points to increased spending through late June. Alibaba and jd.com, the world's largest and third-largest etailers, respectively, have made similar observations. To be sure, the long-term trend has also seen people buying more frequently and spending more on online purchases. For more on this, see our previous analysis on the topic from February. The chart below shows an overview of the relative size of the main e-commerce platforms that we include in our annual e-commerce logistics outlook . All major and minor platforms, with the exception of eBay and Rakuten, have shown double-digit growth in overall sales volumes in 2019. But what does this growth mean for the requirements for air capacity? Top e-commerce platforms' gross merchandise value (GMV) and growth in 2019

* Note that Otto results are for the period ended February 2019. The period through February 2020 will be available in August.

So far Amazon has been the only platform to commit long term to dedicated air capacity , growing its network in the U.S. and Europe. By our count, the company will grow its U.S. fleet from fifty-six to sixty-one by the end of the year, and will be operating eighty-one aircraft by the end of 2021. This is in addition to Amazon's eight to ten 737s operating in Europe, its business with Cargojet in Canada, and use of charter capacity on intercontinental services. UPS, which last year generated 11.6% of its revenue with Amazon, has also seen air volumes increase. Meanwhile, our sister publication Cargo Facts notes that Alibaba's logistics arm Cainiao will be increasing dedicated charter activity to 1,260 flights over the next nine months, up from 260 in 2019. Jd.com has also buying more dedicated capacity within China and is in the process of setting up an airline. At this stage we think only the big three — Alibaba, Amazon and Jd.com — have the scale to commit to dedicated air capacity. However, although all three companies follow similar logistics insourcing strategies, Alibaba and Jd.com remain reliant on commercial arrangements with third parties to provide their capacity. Outside of dedicated capacity or charter arrangements, we find that e-commerce traffic is taking a larger share across a multitude of networks; in express networks business-to-consumer (B2C) traffic last year accounted for almost 50% of all shipment volumes. FedEx noted that the B2C share of domestic shipments in the quarter ending May 2020 had jumped from 56% to 76%. As normal economic activity resumes, this number will of course come down, but all the large integrators — as well as regional players such as Aramex and Blue Dart — admit that B2C is the primary source of growth. Most postal traffic these days consists of B2C and even the share of e-commerce consolidations moving as general cargo is increasing in intercontinental cargo networks. We estimate that the e-commerce share of air cargo stands at about 16%, excluding inbound traffic destined for distribution centers. The Achilles heel of e-commerce logistics is the sustainability of the free shipping in the face of increasing logistics costs resulting from faster delivery. In its 2019 cross-border shopper survey published in January, Brussels-based International Postal Corporation , a joint venture company between postal authorities, pointed out that 63% of customers received free shipping on their orders. As online retailers have improved their delivery service options, shipping costs have grown faster than revenues, with very few exceptions. For faster shipping supported by air to be sustainable, customers must be willing to pay more for shipping or else product prices will have to increase. Guillermo Ochovo, our Madrid based analyst, contributed to this article.

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Will more e-commerce lead to increased freighter demand?

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