Air Cargo Is Rising

The pandemic effect: demand for e-commerce has dramatically increased and global trade has gained strong footholds, propelled pent-up revenue for the air freight market, now poised to take off to new highs in the future.

What is Air Cargo Freight?

Air freight delivery is the industry of transfer and shipment of goods via an air carrier (charter or commercial). Such shipments travel out of commercial and passenger aviation gateways. Air cargo is a very interesting option for coordinating time sensitive shipments to almost anywhere in the world. A small or midsize company is now allowed to participate in international trade in a very effective manner thanks to air cargo. Shipping by air also offers the advantage of a high level of security as airport controls over cargo are very seriously managed.

Air Cargo is rising. The industry of freight shipping is a conjunction of other forms of shipping, like marine, rail and ground, air freight has been growing exponentially as an industry in the last 40 years. Air freight is now regarded as an efficient means to ship nationally and internationally and since the Suez Canal crisis, the activity is booming.

The Market

According to one of the latest reports from IATA:Global cargo volumes reached the highest level in the history of our time series in March although their growth softened modestly compared with February. Industry-wide cargo tonne-kilometres (CTKs) rose by 4.4% vs. the pre crisis levels and by 0.4% month-on-month.”

Since hitting bottom in April 2020, the air cargo market has seen a V-shaped recovery, while airlines’ passenger business is still in a depression.

Even though the market size of the cargo airline fluctuated around 110 billion U.S. dollars during the last four years, in a long-run analysis the strong growth in the cargo airline industry becomes obvious. Between 2004 and 2020, worldwide revenue generated in the cargo aviation industry grew by 80 percent.

In 2020, despite the coronavirus outbreak, the cargo airline industry generated revenue streams of 128.8 billion U.S. dollars.

The main actors of the industry are Fedex, Qatar Airways and UPS.

According to this forecast analysis from the FAA, the US Market will rise in the next 10 years.

Insuring the Air Cargo industry

Most of the air cargo companies provide a minimum amount of insurance for the freight: it’s the carrier liability. This coverage is most of the time enough to insure the risk but often consists of many exclusions, such as:

· Floods,

· Earthquakes,

· Natural disasters, and

· Delays.

That is the reason why clients started to seek out additional insurance to shield themselves against breakage, theft, lost merchandise, delays or interruptions which can result in loss. Typically as a forwarder (logistics company), you bear the supply chain and economic risks of disruptions while containers are being transported. It can be either of those 2 things:

1. First-order loss: in the case of time-sensitive cargo such as vaccines, perishables or even livestock, delays result in devastating losses to the shippers.

2. Second-order loss: oftentimes, because of such disruptions, airport logistics end up spending large sums of money to pay truck drivers waiting at the port lines counter-productively, wasting precious resources and capital.

There are also some types of air cargo insurance providing coverage during their entire time of transit, including ground shipping after the merchandise reaches its airport destination. Typically insurance coverage tends to exclude a large number of situations, be very manual to execute, and largely lack transparency which causes disjointed clients' experience and costly administrations of claims for the insurance providers.

Recent coverage solutions such as parametric insurance best protect the air freight forwarders, as they can fill these gaps and help manage risks. Parametric insurances are highly customizable and pay quickly. They can also be written to address economic losses based on weather-related occurrences, which is the main reason for delays in the air cargo industry.

Our CEO explained the benefits of insuring the Air Cargo industry with Otonomi.

OTONOMI is a parametric insurance solution for carriers. We are transforming the air cargo insurance process into a fast, transparent, and cost-efficient experience for both the policyholders and insurers. Powered by our proprietary technologies in data-activated triggers, smart contracts, and integrated digital wallets, we reduce claim resolution times from 45 days to 45 minutes, lowering admin costs by 90%.