Air Cargo Supply Chain

How aircraft physics, passenger airline dependency, and the economics of speed create a freight system that moves less than one percent of global trade volume but carries goods where hours determine whether the shipment has value at all.

Introduction

A supply chain describes how a product — a vial of insulin, a semiconductor component, a box of cut roses, an emergency defibrillator — moves from origin to end use, crossing organizational, geographic, and temperature boundaries at each step. In air cargo, this path is shaped by a constraint most freight systems never encounter: the aircraft itself imposes a hard physical tradeoff between how much weight it carries and how far it can fly, and most of the capacity available to freight does not belong to freight operators at all.

The observable properties of air cargo — volatile capacity, route concentration, extreme price sensitivity to fuel costs, reliance on a handful of hub airports — are downstream consequences of three root constraints interacting. Each shapes the system independently. Together, they produce a freight network that is fast, expensive, and structurally fragile in ways that only become visible when demand shifts or disruption hits.

The Three Root Constraints

Payload-Range Tradeoff

An aircraft generates lift by moving air over its wings. The heavier the aircraft, the more fuel it needs to sustain flight. Fuel itself has weight. This creates a physical tradeoff that no engineering can eliminate: every kilogram of cargo displaces a kilogram of fuel that could extend range, and every kilometer of range requires fuel that displaces cargo capacity. A Boeing 777 freighter can carry approximately 102 tonnes of cargo over 4,900 nautical miles, but if the route requires 9,000 nautical miles, the payload drops to roughly 60 tonnes because the additional fuel needed to cover the distance occupies space and weight capacity that cargo would otherwise fill.

This constraint is not a limitation to be overcome — it is a physical law that structures the entire network. Route planning in air cargo is not primarily about connecting origin to destination. It is about finding combinations of distance, cargo weight, and fuel load that fall within the aircraft's performance envelope. A freighter flying Shanghai to Chicago cannot simply load maximum cargo and depart. The route distance forces a fuel load that reduces available payload, or requires a technical stop to refuel — adding time, handling costs, and complexity that erode the speed advantage air cargo exists to provide.

The tradeoff compounds at high altitudes and hot temperatures, where air density drops and engines produce less thrust. An aircraft departing a high-altitude airport in summer may face payload restrictions purely from atmospheric conditions, independent of route distance. The physical constraint operates at multiple levels simultaneously — route distance, weather, airport elevation — and each tightens the envelope that determines how much freight can actually move.

Belly Cargo Dependency

Approximately half of all air freight worldwide travels not in dedicated freighter aircraft but in the cargo holds beneath the passenger cabin of commercial airlines. These belly holds exist because passenger aircraft have structural volume below the passenger deck that can accommodate containerized freight. Airlines sell this capacity as a secondary revenue stream — useful when available, but never the reason the aircraft flies.

This creates a dependency where freight capacity is determined by passenger demand. When an airline adds a daily flight from Frankfurt to Singapore because passenger bookings justify it, freight forwarders gain cargo capacity on that route. When the airline cancels the flight because passenger demand drops, the cargo capacity disappears regardless of freight demand. The freight market does not control its own supply on the routes served by belly cargo.

The consequence became structurally visible during the COVID-19 pandemic. When passenger airlines grounded approximately sixty percent of their global fleet in early 2020, belly cargo capacity vanished overnight. Freight demand — particularly for medical supplies, PPE, and pharmaceutical ingredients — surged simultaneously. The system lost half its capacity at the moment demand peaked. Air freight rates on some routes increased by four to eight times within weeks, not because freighter operators raised prices but because the physical capacity to move goods by air had been structurally halved by decisions made in an entirely different market.

Some airlines responded by removing passenger seats and loading cargo on the main deck — a temporary adaptation that revealed the structural depth of the dependency. The aircraft were not designed for main-deck freight loading. The conversions were slow, regulatory approval was required for each aircraft type, and the weight distribution limitations of a passenger airframe further constrained what could be carried. The workaround demonstrated that belly cargo dependency is not a market arrangement that can be quickly restructured — it is embedded in fleet composition, aircraft design, and the economics of airline route networks.

Speed Premium Economics

Air freight costs approximately $4-8 per kilogram on major trade lanes, compared to $0.30-0.80 per kilogram for container shipping on equivalent routes. The ratio varies by lane, season, and fuel prices, but air cargo consistently costs five to ten times more than ocean freight. This price differential is not a market inefficiency — it reflects the physics of moving objects through air versus water. Aircraft burn far more energy per tonne-kilometer than ships because overcoming gravity requires continuous thrust, while a vessel displaces water and moves with relatively low energy input per unit of cargo.

The cost differential creates a structural filter. Only goods where time value exceeds the transport cost premium will move by air. This produces a structurally narrow market: pharmaceuticals with expiration constraints, electronics components needed to keep factory lines running, fresh produce with biological shelf lives measured in days, emergency medical supplies where delay has human consequences, and e-commerce parcels where consumer expectations require two-to-five-day delivery windows across continents.

The narrowness of this market means air cargo volumes are structurally sensitive to economic conditions in ways that ocean freight is not. During economic downturns, companies extend delivery timelines to save money, shifting marginal goods from air to sea. During expansions or supply crunches, the urgency premium increases and goods that normally travel by sea migrate to air. The system's total addressable volume is not set by global trade — it is set by the fraction of global trade where urgency justifies the cost, and that fraction expands and contracts with economic conditions.

How the Constraints Shape the System

Hub Concentration and Route Networks

The payload-range tradeoff forces air cargo into hub-and-spoke networks for the same physical reason it constrains individual flights. A freighter cannot serve every origin-destination pair directly because many pairs involve distances that severely reduce payload. Instead, cargo consolidates at hub airports — Memphis, Hong Kong, Dubai, Leipzig, Anchorage — where shipments from multiple origins are sorted and loaded onto flights serving the next leg. The hub model allows operators to aggregate freight density on fewer routes, operating aircraft closer to full payload on each segment.

Anchorage, Alaska occupies a structurally unusual position in this network. It sits near the great-circle routes between East Asia and North America, providing a refueling stop that allows transpacific freighters to carry higher payloads. Without Anchorage, a freighter flying Shanghai to Chicago carries less cargo because it needs more fuel for the nonstop distance. With the stop, it carries more cargo at the cost of a two-hour ground delay. The payload-range tradeoff makes a remote Alaskan airport one of the busiest cargo hubs on Earth — a structural consequence that geographic intuition alone would not predict.

Integrator Dominance

The interaction of all three constraints — route-dependent capacity, belly cargo unreliability, and narrow market economics — creates structural advantages for vertically integrated operators. Companies like FedEx, UPS, and DHL Express operate their own freighter fleets, ground networks, sorting hubs, and last-mile delivery systems. This integration allows them to control capacity on their routes (avoiding belly cargo dependency), optimize aircraft-route combinations (managing payload-range tradeoffs), and price their services based on delivery speed commitments (capturing the speed premium directly).

These integrators operate the largest dedicated freighter fleets in the world. FedEx alone operates more than 680 aircraft. The capital commitment is enormous — a single new Boeing 777 freighter costs approximately $350 million — but the integration eliminates the coordination failures that fragment the general air cargo market. A freight forwarder booking belly cargo must negotiate with airlines whose capacity decisions are driven by passenger economics. An integrator decides its own capacity deployment based on freight demand.

Cold Chain and Specialized Handling

The speed premium that defines air cargo's market also determines what physical infrastructure the system requires. Pharmaceuticals — vaccines, biologics, temperature-sensitive treatments — represent a growing share of air cargo value. These shipments require continuous temperature control from origin to destination, typically within ranges of 2-8 degrees Celsius or minus 20 degrees Celsius. A single temperature excursion can destroy a shipment worth millions.

The payload-range tradeoff intersects with cold chain requirements in a specific way: active temperature-controlled containers (such as Envirotainer or va-Q-tec units) add significant weight and volume to a shipment. The container itself — with insulation, refrigeration units, battery packs, and monitoring systems — occupies payload capacity that would otherwise carry additional freight. On routes where the payload-range tradeoff already constrains capacity, cold chain shipments further reduce the total volume available. The physics that limits cargo weight compounds with the physics that requires temperature maintenance.

Flows and Visibility

Physical flows in air cargo are fast relative to ocean freight but slower than transit times suggest. A parcel moving from Shenzhen to London involves trucking from the factory to the origin airport, security screening and customs clearance, consolidation and palletization, the flight itself, deconsolidation at the destination hub, customs clearance again, and final delivery. The flight may take twelve hours. The total door-to-door transit typically takes three to seven days. Ground handling at both ends consumes more time than the air segment in many cases.

Information flows are fragmented across the chain. A freight forwarder books capacity with an airline or integrator. The airline allocates cargo to specific flights based on weight, volume, and destination. Airport ground handlers manage physical loading sequences constrained by weight distribution requirements — aircraft must be loaded to maintain center-of-gravity limits, and cargo positioned incorrectly can affect flight safety. Each handoff between forwarder, airline, ground handler, and customs authority crosses an organizational boundary where tracking systems, data formats, and update frequencies differ.

Capital flows reflect the structural split between integrators and the general cargo market. Integrators invest directly in freighter fleets, hub facilities, and ground networks — FedEx's total fleet and infrastructure represents tens of billions in capital. The general cargo market operates through asset-light freight forwarders who purchase belly cargo space from passenger airlines. The forwarders bear minimal capital risk but have no control over capacity. The airlines bear fleet capital risk but optimize for passenger revenue, treating cargo as incremental yield. Neither party in the general market has aligned incentives to invest in freight-specific capacity.

What Disruptions Have Revealed

The COVID-19 pandemic provided the most comprehensive stress test of air cargo's structural dependencies. When passenger airlines grounded their fleets beginning in March 2020, belly cargo capacity — approximately half the global total — disappeared within weeks. The timing was structurally consequential: demand for air cargo did not fall with passenger travel. Medical supplies, PPE, pharmaceutical ingredients, and consumer electronics (driven by remote-work equipment purchases) all required air transport urgently.

The system's response revealed the belly cargo dependency in its full structural depth. Dedicated freighter operators — integrators and cargo airlines — saw utilization rates approach one hundred percent. But freighter capacity could not replace the lost belly capacity because the freighter fleet is sized and routed for a system that assumes belly cargo handles a large share of the volume. Routes previously served by passenger aircraft with belly cargo had no freighter service. Freight forwarders could not redirect shipments to freighter routes because the freighter routes did not cover the same network.

The Eyjafjallajokull volcanic eruption in 2010 demonstrated a different structural feature. Volcanic ash in the atmosphere closed European airspace for six days. Unlike port congestion, which degrades throughput gradually, airspace closure is binary — aircraft either fly or they do not. There is no partial capacity. The perishable goods that depend on air cargo — flowers from Kenya, fresh fish from Norway, pharmaceutical shipments requiring cold chain continuity — faced total transport failure, not delay. Products with biological shelf lives cannot queue for later capacity. The shutdown did not create a backlog; it created waste. Flowers wilted, produce spoiled, and time-sensitive medical shipments missed their windows entirely.

This revealed the structural consequence of the speed premium constraint: the goods that travel by air are precisely the goods that cannot tolerate interruption. The system serves products defined by urgency, but the system itself has no buffer for disruption. There is no air cargo equivalent of a container sitting at anchor waiting for a berth. When air capacity disappears, the value proposition of the shipment disappears with it.

What This Reveals About Industrial Structure

• Physics constrains the network more than economics does — The payload-range tradeoff is not a cost problem to be optimized away. It is a physical law that determines which routes can carry what volume. Network design in air cargo begins with aircraft performance envelopes, not market demand. Routes exist where physics permits them and cargo density justifies them, in that order.
• Capacity borrowed from another industry inherits that industry's volatility — Belly cargo dependency means air freight capacity fluctuates with passenger travel patterns, airline profitability, and route decisions made for reasons unrelated to freight. The cargo market absorbs supply shocks originating in a different market with different demand drivers. This is not a risk that can be managed through contracting — it is structural exposure embedded in fleet composition.
• The speed premium creates a self-selecting market that amplifies disruption — Because only urgency-dependent goods travel by air, any disruption to air capacity disproportionately affects goods that cannot tolerate delay. The system concentrates the most time-sensitive freight into the most disruption-vulnerable transport mode. The market's own selection criterion — urgency — ensures that disruptions carry maximum consequence.
• Vertical integration is a structural response, not a strategic preference — Integrators exist because the three root constraints make the general air cargo market unreliable for time-definite delivery commitments. Controlling the aircraft, the hubs, the ground network, and the delivery fleet internalizes the variables — payload management, route capacity, schedule reliability — that the fragmented general market cannot coordinate.
• The boundary between air and sea freight is economic, not physical — The same product may fly or sail depending on urgency, economic conditions, and the cost of delay relative to the cost of air transport. This boundary shifts continuously, making air cargo volume structurally more volatile than ocean freight volume. The market is not a fixed segment — it is a fluctuating slice of global trade defined by a moving threshold.

Connection to StockSignal's Philosophy

The air cargo supply chain demonstrates how physical constraints — aircraft performance envelopes, fleet ownership structures, and the economics of speed — propagate through a system to determine its capacity, concentration, and vulnerability patterns. A company's position relative to these constraints — whether it operates dedicated freighters or depends on belly cargo allocation, whether it controls hub infrastructure or purchases capacity through intermediaries, whether it serves the narrow band of goods where urgency justifies the cost — shapes its structural reality in ways that financial statements alone do not reveal. This analysis describes the system as it is currently structured. It does not predict how the system will evolve, nor does it prescribe changes. The constraints identified are physical and economic realities that produce observable outcomes — recognizing where those constraints bind is the kind of structural observation the screener is designed to surface.