Cathay Pacific expects headwinds in air cargo to continue in the short term until supply chains in the Chinese mainland become more stable and the level of inventories in major markets reduce.

George Edmunds, GM of Cargo Commercial at Cathay Pacific, noted a "shallow peak" and a "gradual recovery" in his market update on December 21 as he looked back on the ups and downs brought by the year 2022.

"2022 has been a year of challenges. It started with the temporary grounding of our long-haul freighter operations, travelled through continued supply chain issues, and then encountered inflation and a fall in consumer confidence resulting in a peak that underperformed. Despite this, in many ways, 2022 was as exceptional as the record-breaking run of 2021," Edmunds said.

The Cathay executive added that the lack of capacity and the record levels of demand witnessed in 2021 meant it was "no surprise that last year's peak was one of the most exceptional ever witnessed."

"2022, on the other hand, was a year of many surprises – some good and some bad," he added, noting the specific challenges of operating from Hong Kong as the fifth wave of the COVID-19 pandemic hit from the first day of the year.

Edmunds also noted the impact of localised lockdowns in the Chinese mainland on Cathay's operations, "making demand forecasts especially difficult"  — further compounded by the "macro impacts" of the Russia-Ukraine war (increased fuel and increased flying time) and a drop in consumer demand as the cost of living surged.

Short-term headwinds seen to persist

Moving forward to 2023, Edmunds said the outlook remains shaky in the first few months of the year as challenges remain — although capacity is expected to grow as more passenger airlines return to service.

"On the capacity front, as we head into 2023, our expanding passenger network will provide our cargo customers with more destinations and greater frequencies to choose from," the executive said. 

"However, we expect headwinds in the air cargo market to continue in the short term until supply chains in the Chinese Mainland become more stable and inventory levels in key consumer markets reduce," he added.

Edmunds said additionally as winter recedes, some of the acuteness of the cost of living crisis will alleviate, which will stimulate demand even as cargo belly capacity starts to grow.

"We think that global economic effects will linger certainly into Q1 2023, but as the COVID-19 policies on the Chinese Mainland start to ease – and there are encouraging signs – it will help normalise supply chains," the Cathay Pacific executive added.