Australia / Coronavirus Insights
Going Places: Transport Industries to Grow After COVID-19

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by IBISWorld
Jun 24 2020

The COVID-19 pandemic has severely disrupted the Transport division. A decline in domestic and international trade has exerted downward pressure on demand for transport capacity. The world price of crude oil has fallen 42.5% in 2020, which has reduced operating costs for transport providers. However, lower operating costs have provided minimal benefit given the ongoing restrictions on international and domestic travel.

While current conditions are bleak for transport service providers, the outlook for transport over the next five years is positive. The total value of world trade is expected to decline by 11.6% in 2020 before recovering at an annualised 5.6% over the next five years. Stronger growth is expected at the start of the period, as global economies will likely be past the worst of the coronavirus outbreak.

An accelerated shift to online shopping, in conjunction with rising commodity production in Australia, is expected to increase Australia’s total domestic freight task to 903.3 billion tonne kilometres in 2024-25. The removal of COVID-19 containment measures is expected to lift trade barriers by 2021-22, unlocking the economic shackles and enabling a return to normal operations. However, despite anticipated growth over the next five years, most transport industries are unlikely to generate greater revenue in 2024-25, relative to their peak in 2018-19.

Sea transport

Australia is expected to export close to 1,520 million tonnes of goods by sea in 2019-20.  The Water Freight Transport industry, which ships Australian products to foreign ports, is expected to decline by 9.5% in 2019-20 due to weaker demand. Australia is a major exporter of bulk commodities such as coal and iron ore, and agricultural products such as wheat and grains. Due to their high weight, these goods travel by sea in custom-built bulk carriers, rather than by air freight.

The Water Freight Transport industry is expected to grow at an annualised 4.1% over the five years through 2024-25, including growth of 9.4% in 2020-21. Shipping firms have struggled with overcapacity in recent years, which exerted downward pressure on freight rates and limited profit margins. Average profitability in the industry declined from 10.5% in 2014-15 to an expected 6.0% in 2019-20. However, sea-borne exports are expected to grow at an annualised 1.1% over the next five years, rectifying overcapacity issues and enabling growth in freight rates.

Growing demand from export markets in Asia is expected to drive Australian output of bulk commodities, such as iron ore, black coal, and grain. East Asia’s GDP is expected to recover quickly from COVID-19, growing by 6.2% in 2020-21. As export demand rises, Australia’s freight shipping fleet is expected to transition to larger vessels in pursuit of greater economies of scale. The global transition to larger ships is expected to spur a renewal in infrastructure development in the Port and Water Transport Terminal Operations industry, which currently lacks sufficient deep-water port infrastructure to support modern ultra large container vessels, which can carry more than 14,000 shipping containers.


Airfreight is more expensive than shipping, but is also much faster. For this reason, airfreight is used to transport perishable Australian exports, such as horticultural goods, boxed meat, and chilled seafood. Passenger flights in the International Airlines industry normally provide the bulk of airfreight capacity in Australia, and typically carry commercial cargo in addition to passenger bags. A significant decline in air travel has reduced total freight from 84.8 million kilograms in January 2020, to 54.5 million kilograms in April 2020. Freight is expected to have declined further in May and June, in line with a further reduction in total flights.

While demand for airfreight has fallen in response to COVID-19, supply has declined far more significantly, exerting upward pressure on airfreight rates. The shortfall in airfreight capacity is too large to be met by dedicated freight aircraft alone. Passenger airlines have been incentivised to convert passenger aircraft to carry freight only, and to divert freight capacity away from normally scheduled flights to the more lucrative charter market in the Non-Scheduled Air Transport industry.

Freight is expected to become a vital lifeline for airline operators, as demand from passenger transport remains weak. Over the next five years, consumers are forecast to forego discretionary travel, and corporate travel will likely return at a slow pace as businesses become more accustomed to videoconferencing. Airlines will likely need to increase airfares to make flights viable with low passenger numbers. However, any fare increases would further limit the return of air passenger demand. As passenger demand remains weak, airlines have temporarily repurposed passenger aircraft to serve as quasi-freighters, carrying cargo on seats and in some cases removing seats entirely. In 2018, Qantas generated more than $35 per passenger from ancillary revenue sources, including commercial cargo transportation. Over the next five years, cargo is expected to become a vital revenue stream for Australian airlines.

While airfreight capacity has fallen, many Australian exporters in the agricultural industry remain reliant on airfreight to access foreign markets. To assist Australian exporters, the government has subsidised airfreight through the International Freight Assistance Mechanism, a $110 million scheme that provides logistical support to exporters seeking airfreight capacity. 15 international airlines have participated in the scheme, which currently focuses on major export markets in China, Japan, Hong Kong and the United Arab Emirates.

Revenue in the International Airlines industry is expected to decline by 31.5% in 2020-21, as global borders remain shut. On current projections, a vaccine for COVID-19 is expected to be widely available by 2021-22, which would likely enable international travel to recommence. Air travel is projected to surge as borders reopen. Air passenger movements through capital city airports are expected to grow at an annualised 6.1% over the five years through 2024-25, rebounding from a projected low in 2020-21. However, overall international airlines revenue is forecast to remain well below the peak of $28.6 billion in 2018-19 until at least 2025-26. Weakened consumer sentiment and higher unemployment are projected to limit demand for travel.

Consumer behaviour drives freight task

COVID-19 is expected to have a lasting impact on consumer shopping behaviour. Greater uptake of online shopping is expected to drive long-term demand for the Postal Services industry and Courier Pick-up and Delivery Services industry. Postal service revenue is forecast to rise at an annualised 2.8% over the five years through 2024-25, to $9.8 billion.

Unlike most industries, the Postal Services industry is expected to grow by 2.4% in 2019-20 due to growth in online shopping. Demand from Online Shopping is expected to increase by 11.1% in 2019-20. In response to surging demand, postal service operators have adjusted their operating models to focus on parcels rather than letters. Australia Post announced its intention to reduce metropolitan letter deliveries to once every second day in April, allowing the company to focus on parcel delivery.

Similarly, The Courier Pick-up and Delivery Services industry is forecast to expand over the next five years. Courier companies are projected to increase their networks of pick-up and delivery points to compete more effectively with Australia Post. Couriers may become vital for prompt document delivery, as Australia Post transitions to less frequent letter deliveries.

Oil price support for transport firms

The price of crude oil is a key component of the cost structure for all transport industries, given its use as a fuel source for most forms of transportation. The price of crude oil is expected to plummet by 42.5% in 2020, significantly reducing operating costs for transport firms. However, the total benefit of this decline has been partly mitigated by a matching depreciation of the Australian dollar, which has exerted upward pressure on fuel costs in local currency terms. The domestic prices of petrol and diesel are expected to decline by 5.6% and 5.8% respectively in 2020-21, reducing operating costs for road freight enterprises. However, downstream industry operators will likely experience the greatest benefit from lower transport costs, due to the fierce competition between most road transport providers. As a result, revenue in the Road Freight Transport industry is expected to decline by 8.4% in 2019-20, and to decline by a further 0.5% in 2020-21.

The price of crude oil is expected to grow at an annualised 6.5% over the five years through 2025, but remain well below 2019 levels as global demand remains subdued. As fuel prices rises, transport operators are expected to pass on this cost to downstream industries.

IBISWorld reports used to develop this release:

For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647