News #116 - Air cargo demand up +6% in May, sentiment drives decline in rates

Global air cargo demand increased by 6% year-on-year in May, according to Xeneta’s latest market analysis, marking a notable rebound. However, concerns over long-term trade stability have exerted downward pressure on spot rates, resulting in a 4% year-on-year decline to $2.44 per kilogram—the first such drop in over a year.

The Impact of the U.S.–China Tariff Truce

The May 14 implementation of a 90-day tariff truce between the U.S. and China brought some relief to trade tensions. The U.S. reduced tariffs on Chinese goods from 145% to 30%, while China lowered its tariffs on U.S. imports to 10%. Despite these measures, the timing of the truce was insufficient to reverse the broader softening in freight rates.

Niall van de Wouw, Chief Airfreight Officer at Xeneta, noted:

“Market fundamentals are holding up, but the decline in rates reflects waning sentiment and concerns over what will happen when international trade stabilizes. Current uncertainties are temporarily supporting airfreight, but this boost will not persist.”

Dynamic Load Factors and Capacity Trends

Global air cargo capacity rose by 2% year-on-year in May as airlines increased passenger belly capacity for the summer season. Yet, Xeneta's dynamic load factor—a measure of capacity utilization based on cargo volume and weight—remained flat at 57% for the fifth consecutive month.

Rates on a Downward Trajectory

Despite short-lived rate increases in certain lanes, the overall trend points toward a sustained decline. Van de Wouw explained:

“The sentiment over what lies ahead is evident in falling rates. Airlines are now prioritizing volume retention and are willing to pay a premium for stability in this unpredictable environment.”

The situation was further impacted by the U.S. de minimis threshold removal for shipments from China and Hong Kong in April. In response, the U.S. reduced tariffs on low-value e-commerce shipments to 54% or a flat fee of $100 per parcel, while cross-border e-commerce companies like Temu and Shein face a general 30% tariff.

China–U.S. Spot Rates Recover

Spot rates on the China–U.S. lane rose by 14% to $4.31 per kilogram by the week ending June 1, rebounding from their mid-May lows. However, seasonal rates remain below their early-April peak, reflecting ongoing caution in the mid-term outlook.

Challenges on the Horizon

Uncertainty looms as global trade faces legal and regulatory hurdles. A ruling from the U.S. Court of International Trade deemed former President Trump’s tariffs unlawful, while the European Union plans to impose a €2 fee on parcels under €150 entering the bloc. Parcels routed through EU-based warehouses will incur a reduced fee of €0.50, potentially benefiting companies with robust logistics networks.

The Path Ahead for Air Cargo

Van de Wouw offered a sobering assessment of the market’s challenges:

“The sentiment we observed in May may foreshadow weaker fundamentals, with reduced demand, falling rates, and lower load factors. However, the airfreight market will endure these challenges. Industry professionals must prioritize long-term relationships and resilience as the current volatility subsides.”

He emphasized the importance of maintaining constructive partnerships during these turbulent times:

“At the end of the pandemic, the emotional bank account between shippers and freight forwarders was depleted due to widespread frustration. Now, it is crucial to focus on rebuilding trust and thinking long-term to navigate these uncertainties.”

Source: https://www.stattimes.com/air-cargo/air-cargo-demand-up-6-in-may-sentiment-drives-decline-in-rates-1355514

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