E-Commerce, Air Cargo & China

In our March blog, The Evolution of Air Cargo, we examined the development and growth of the air cargo industry as a whole.  This month, we are examining how e-commerce is fueling the demand for air cargo and the influence China is having on both industries.   With a projected GDP of $9.2 trillion (USD) for 2019, China is ranked number two on the list of the world’s biggest economies behind the United States with a projected GDP of $21.5 trillion for 2019.  China has been able to steadily and exponentially increase GDP since implementing economic reforms and poverty abatement efforts in the late 1970’s.  The success of these efforts has resulted in an ever-expanding Chinese middle class with disposable income and a desire for quick returns.  And this well-traveled, high-tech population has elevated expectations for easy access to high-quality products.  So, how is China supporting the demands of a growing middle class searching for the latest and greatest of the world’s products?  The answer: with a booming e-commerce industry.  Valued at a staggering $1.1 trillion (USD), China has the largest e-commerce market in the world, and it is showing no sign of slowing down.  In 2018, China’s Singles Day (the Chinese equivalent of Cyber Monday) garnered $30.8 billion (USD) in sales (IN ONE DAY!!!).  To put this in perspective, Cyber Monday generated less than one-third of the Singles Day sales coming in at $7.9 billion for 2018.

According to TradeGecko, an inventory and order management software company that tracks e-commerce trends, as a region, Asia Pacific (APAC) rules the e-commerce market with much of the drive coming from China.  In China alone, between the years of 2006 and 2017 the number of online shoppers increased by 500 million.  The strength of APAC e-commerce shoppers can be seen through a growth rate comparison of Amazon (North America) to Alibaba (APAC).  Over a four-year period between 2012 and 2016, Amazon’s growth rate was 123% while Alibaba’s growth rate was 220%.  Both are very strong, but APAC is clearly leading the online charge(s).  And as we tighten the focus to China, a 2017 TradeGecko study found that 23.1% of the Middle Kingdom’s total retail sales came from e-commerce. 

So, why is the e-commerce industry success important to the aviation community?  Because most products purchased through e-commerce are transported to the customer via air cargo.  In fact, according to Dr. Fang Liu, Secretary General of ICAO, “Nearly 90% of business-to-consumer e-commerce today is delivered by air.  Remarkably, this percentage grew from 16% to 83% in just the six-year period between 2010 and 2016.  This tremendous growth, over such a short period of time, provides a concrete testament to the direct relationship which exists between air transport capability, and e-commerce profitability.”  It can also be seen through the response of e-commerce’s major players, Amazon and Alibaba.  In an article about air cargo trends for 2019, Air Cargo World reported, “To serve e-commerce operations, Alibaba’s logistics subsidiary, Cainiao, unveiled its investment to develop six “eHubs,” while Amazon has continued building up its own Amazon Air hub network.  Airfreight hubs are becoming increasingly important to e-commerce growth, as e-commerce giants, integrators and carriers are building up their package sorting and automation capabilities, along with extending networks in the hopes to capture a larger portion of the growing demand. We expect those trends to continue and accelerate in 2019.”

By Masakatsu Ukon – Cathey Pacific Cargo Boeing 747-400F B-HUO NRT, CC BY-SA 2.0, Link

The ripples from China’s impact on the e-commerce and air cargo industries are strong domestically as well as globally.  According to Boeing’s World Air Cargo Forecast 2018-2037, “E-commerce sales accounted for more than 20 percent of total sales in China in 2017 and are estimated to increase to more than 40 percent by 2021. By 2020, China’s e-commerce market is predicted to be larger than the existing markets in the United States, United Kingdom, Japan, Germany, and France combined.”  Boeing’s Forecast also found that China realized a 48% increase in the volume of parcels shipped domestically and a 33% increase in revenue year-over-year from 2012 to 2017.  Furthermore, China Daily reported that courier companies in China were in the process of bulking up their investments in air cargo in order to provide faster deliveries.  In June of 2018, Shanghai YTO Express inked a $1.06 billion (USD) deal with the Jiaxing municipal government to build an air logistics hub at the Jiaxing airport.   Meanwhile, competitor courier companies were simultaneously establishing strategically located air freight bases across the country and/or partnering with established airlines to build their air cargo capabilities.

By Sky Wing Sky – Own work, CC BY-SA 3.0, link

While potential world-trade pitfalls such as Brexit and the escalation of tariffs between the U.S. and China have loomed heavy over the global marketplace, both the e-commerce and air cargo industries managed to demonstrate growth in 2018.  As an industry, e-commerce is relatively new and therefore still in the rapid ascent phase of its evolution, while air cargo has been around long enough to see plateaus and understand the victory of sustained smaller growth.  IATA noted in its December 2018 Cargo Outlook report that over the past five years, air cargo has consistently increased its share over other modes of transportation, thereby surpassing the growth-rate of world trade.  So, as economies flourish and the Chinese consumer continues to drive the e-commerce industry’s employment of air freight, major aircraft manufacturers are preparing for China to purchase large cargo aircraft, or convert passenger aircraft for their cargo needs.  And with a cargo variant in the plans for the COMAC ARJ21, China may one day serve its domestic e-commerce market with a domestic aircraft!

According to Aviation Benefits Beyond Boarders, “The fastest growing air cargo market in the world is between China and North America with an annual growth rate of more than 10% year on year since 1995. Around 40% of air freight shipped from China to the USA comprises consumer goods and 29% high-tech products, such as computer electronics.”  So the next time you grab your device and place an order through your favorite cyber marketplace, know that in addition to supporting the individual retailer, you are also promoting the development and growth of two very important industries.