Market Analysis – 78101501 – Domestic air cargo transport

Executive Summary

The global air cargo market, valued at est. $123 billion in 2023, is recovering from post-pandemic normalization with a projected 3-year CAGR of est. 2.5%. While the rapid expansion of e-commerce continues to fuel demand for domestic express services, significant headwinds persist. The single greatest challenge facing procurement is managing extreme price volatility, driven primarily by fluctuating jet fuel costs and persistent labor shortages, which directly impacts budget certainty and total cost of ownership.

Market Size & Growth

The Total Addressable Market (TAM) for global air cargo is projected to grow steadily, driven by demand for speed-to-market in high-value sectors like pharmaceuticals, electronics, and perishables. While the domestic segment follows global trends, it is more acutely sensitive to national economic indicators and consumer spending. The market is rebounding from a post-pandemic dip in rates and volumes, with growth expected to stabilize.

[Source - Statista, IATA World Air Transport Statistics, Jan 2024]

Top 3 Geographic Markets (by freight tonne-kilometers): 1. United States 2. China 3. United Arab Emirates

Key Drivers & Constraints

1. Demand Driver (E-commerce): The structural shift to online retail continues to drive demand for domestic express and time-definite delivery, requiring extensive and reliable air networks.
2. Demand Driver (High-Value Goods): Industries like pharmaceuticals, semiconductors, and luxury goods rely on air cargo for speed, security, and climate control, creating a stable base of high-yield demand.
3. Cost Constraint (Fuel Volatility): Jet fuel represents 25-35% of a carrier's operating cost. Price swings directly and immediately impact freight rates and surcharges, making long-term cost forecasting difficult.
4. Capacity Constraint (Labor Shortages): A persistent shortage of pilots, mechanics, and ground handling staff across the industry limits capacity expansion and drives up labor costs, which are passed through to shippers.
5. Regulatory Pressure (Sustainability): Increasing scrutiny on carbon emissions is forcing carriers to invest in newer, more efficient aircraft and explore costly Sustainable Aviation Fuel (SAF), with compliance costs eventually being integrated into rate structures.
6. Infrastructure Bottlenecks: Key cargo hubs frequently experience ground congestion, warehousing shortages, and inefficient processing, creating delays that negate the speed advantages of air transport.

Competitive Landscape

Barriers to entry are High due to immense capital requirements for aircraft acquisition and maintenance, complex regulatory hurdles (FAA, TSA), and the extensive ground infrastructure needed to build a competitive network.

⮕ Tier 1 Leaders * FedEx Express: Dominant U.S. market share with an unparalleled, owned-asset network and the world's largest cargo airline. * UPS Airlines: A highly integrated and efficient network, known for its strong service levels in time-definite domestic parcels. * Amazon Air: Rapidly growing network focused on supporting its own retail fulfillment, increasingly offering capacity to third parties. * DHL Express: Global leader with a more focused, premium-service domestic network within the U.S. compared to its international strength.

⮕ Emerging/Niche Players * Atlas Air Worldwide: A leading ACMI (Aircraft, Crew, Maintenance, and Insurance) lessor that provides outsourced airlift capacity to companies like Amazon and DHL. * Sun Country Airlines (Cargo): Passenger airline that has a growing cargo operation through a partnership with Amazon. * Flexport: A technology-forward digital freight forwarder that charters its own capacity, challenging traditional players with a superior user experience.

Pricing Mechanics

Air cargo pricing is based on chargeable weight, which is the greater of the actual gross weight or the volumetric (dimensional) weight of a shipment. This prevents light, bulky items from being unprofitable to transport. The final rate is a build-up of several components: a base rate (per kg/lb), a fuel surcharge, a security surcharge, and various accessorial fees for handling, dangerous goods, or special services.

The base rate is market-driven, determined by the supply/demand balance on a specific lane. However, surcharges are where most volatility occurs. The three most volatile cost elements are:

1. Jet Fuel Surcharge: Directly indexed to spot prices for kerosene-type jet fuel. Recent changes have been dramatic, with IATA reporting a -21.5% change in average global jet fuel prices in 2023 but with significant intra-year spikes. [Source - IATA, Jan 2024]
2. Labor Costs: Wages for pilots and ground crew have seen increases of est. 10-30% over the last two years due to union negotiations and severe shortages.
3. Airport & Airway Fees: Landing fees, navigation charges, and security screening fees are subject to periodic increases by airport authorities and federal agencies.

Recent Trends & Innovation

• Fleet Modernization for Efficiency (Ongoing): Carriers are accelerating the retirement of older, less fuel-efficient aircraft (e.g., MD-11s) and replacing them with modern twin-engine freighters like the Boeing 777F and 767F to reduce fuel burn and carbon emissions. (2022-2024)
• Digitalization & API Integration (Q3 2023): Major carriers are increasingly pushing for adoption of the e-Air Waybill (e-AWB) and offering APIs for direct booking and tracking. This reduces manual data entry, improves accuracy, and provides real-time visibility, with IATA reporting 80%+ e-AWB penetration on enabled trade lanes.
• Sustainable Aviation Fuel (SAF) Agreements (Q1 2024): Shippers are now able to purchase SAF credits through "book-and-claim" systems offered by carriers like UPS and DHL. This allows corporations to meet ESG targets by funding the use of SAF in the air cargo network, even if not on their specific flight.

Supplier Landscape

Regional Focus: North Carolina (USA)

North Carolina presents a robust and growing market for domestic air cargo, underpinned by its expanding manufacturing, life sciences/pharmaceutical, and technology sectors. Demand is concentrated around two key hubs: Charlotte Douglas International (CLT), a major American Airlines hub with significant belly capacity, and Raleigh-Durham International (RDU), which serves the Research Triangle Park. Greensboro's Piedmont Triad International (GSO) is also a critical node, home to a major FedEx Express hub. Local capacity is generally strong due to the presence of both integrated carriers and extensive passenger networks, but peak-season demand for pharma and e-commerce can strain outbound capacity from RDU. The state's favorable business climate and infrastructure investments suggest a continued positive demand outlook.

Risk Outlook

Actionable Sourcing Recommendations

1. Implement a "Core + Flex" Carrier Strategy. Allocate 70-80% of volume to a primary Tier 1 carrier (FedEx/UPS) to maximize volume discounts. Award the remaining 20-30% to a secondary carrier and emerging players (e.g., Amazon Air, passenger airline belly space) to benchmark rates, ensure capacity during peaks, and mitigate risk from single-carrier disruptions or labor actions.

2. Negotiate Indexed Fuel Surcharges with Auditing Rights. Instead of accepting carrier-published fuel surcharge tables, negotiate a surcharge formula directly indexed to a public benchmark (e.g., U.S. Gulf Coast Jet Fuel Spot Price). Secure contractual rights to audit surcharge calculations quarterly to prevent over-billing and ensure transparency, directly addressing the most volatile cost component.