News# 53 - Air cargo market rides an incoming wave, but can it last?


The air cargo market has started the year on an apparent tear thanks to strong e-commerce volumes out of Asia and extended transits for ocean freight being rerouted around the Red Sea conflict zone, but whether the growth is sustainable or a product of low comparisons to last year remains an open question.

Last summer the industry was drifting at the bottom of a trough, but a swell of business in September turned into a wave that has carried into the first quarter. 

Shipping demand on airliners was up 13% annually for the first two months of the year, normally a slower period that follows the fourth-quarter peak season and the short spike for Chinese New Year, according to WorldACD. Growth was 11% if the extra leap year day in February is excluded.

The freight data provider revised upward its initial January estimate, saying volumes increased 17% for the month — three points higher than initially reported. Xeneta, another market intelligence firm, also bumped up its estimate for January volume to 11% from 10% and released figures that showed February growth was equally strong.

Meanwhile, the International Air Transport Association (IATA) said air cargo demand leaped 18.4% in January, the highest annual growth since the summer of 2021. Global volumes were also 2.8% higher than in 2019, prior to the COVID crisis. All three sources use different methodologies and data sources to generate their findings.

Improved volume performance is reflected by the continued March rise in average global cargo spot rates, narrowing the price gap to within 15% to 20% of last year’s level, according to price reporting agencies. Although prices are still lower than a year ago, when a 16-month downturn was still in full swing, they remain nearly 30% above pre-COVID levels.

Global air cargo demand has remained solid in March, up 7% year over year, according to Xeneta’s latest high-frequency data. Sixty percent of aircraft space for cargo is now filled, up 4 points from January.

It should be noted that this year’s growth looks better, in part, because volumes were down about 10% in January and February of 2023 from the prior year.

The upswing in volume was also influenced by the timing of Chinese New Year, which occurred in January last year and February in 2024. Factories close for an extended holiday period, and exporters increase shipments in the two weeks before and after the production pause. But compared to 2019 levels, when Chinese New Year fell in February, volume was only up about 3% in January and 2% in December, according to analysis by investment bank Stifel.

“It’s fair to say that the trend is up, though the trajectory isn’t as steep as suggested by the yearly observations,” said Marc Zeck, senior research analyst at Stifel, in a column for the monthly Baltic Air Freight Index newsletter.  

Industry professionals point to a strong pickup in e-commerce exports from Asia, especially South China and Hong Kong, as a key driver of the unexpected surge in airfreight demand. International consumers are buying more goods on Chinese e-commerce platforms and expect quick delivery of their packages, which requires air transport. 

“For some airlines, e-commerce now makes up over 50% of their revenue ex East Asia,” said Niall van de Wouw, chief airfreight officer at Xeneta, in his company’s latest monthly report. The surge in volumes has created congestion at airports in Guangzhou, China, and Hong Kong.

Meanwhile, views are mixed about the extent to which rebel attacks on Red Sea shipping are causing a mode shift to air cargo. The researchers say cargo owners are increasingly diverting urgent commodities out of Asia to more expensive airfreight to circumvent supply chain problems caused by ocean vessels having to reroute around the horn of Africa, which has degraded ocean schedule reliability to the lowest level since October 2022.

In February, the South Asia-to-Europe market led the month-over-month growth in spot rates, as the Red Sea disruption caused demand to rise 18%. Demand growth is also higher since the start of the year for the China and Vietnam air lanes to Europe.

WorldACD data shows a surge in volumes from hubs such as Dubai, Bangkok and Colombo, Sri Lanka, that support sea-air moves to Europe as cargo owners there seek to replenish inventory. The hybrid solution, in which shipments are transported from Asia by container ship to a midway point, offloaded and transferred to a local airport for carriage to the final destination, is faster than traditional ocean shipping but cheaper than an all-air shipment.

Tonnage out of Dubai to Europe has been exceptionally strong for more than five weeks and is now triple the level from last year. Demand from Bangkok to Europe is up more than 30%, with many shipments originating in Vietnam and being trucked to Thailand’s main airport. Movement through Colombo is slower than in recent weeks but still up more than 20% from a year ago. Spot rates for air exports from Sri Lanka increased more than 50% in the week ending March 3 from a month earlier, reflecting the heightened demand there.

Air demand and rates out of India are also elevated, which many partly attribute to the Red Sea situation. Rates out of South Asia reached $4.60 per kilogram to North America last week, 55% higher than in December, with prices to Europe nearly double their end-of-year level at $3.55 per kilogram, according to price reporting agency Freightos.

Germany-based Neo Air Charter last week said it arranged 60 rentals of widebody freighters from Hong Kong for e-commerce customers during the first two months of the year because of ocean shipping delays from Asia to Europe.

“The Red Sea attacks are causing a lot of time-sensitive traffic to switch to airfreight,” said Neo General Manager Brian Davis in a press release. “We haven’t seen demand like this since the early days of COVID.”

Kerry Logistics recently announced the start of an air-sea offering from eight European countries to destinations in Australia and New Zealand that it says is 50% cheaper and three times faster than ocean shipping. Cargo is moved by air to Hong Kong, where it is transloaded to ocean vessels for transport to Oceania, reducing a 60-day transit to about 21 days.

Dubai-based Emirates, the second-largest airline in the world excluding express carriers, moved 30% more volume in the first two months of 2024 versus the same period last year, Jeffrey Van Haeften, the company’s senior vice president of worldwide commercial cargo, told the South China Morning Post.

Zeck noted it is difficult to determine the impact on airfreight from the Suez Canal bypass since major freight forwarders say they have not seen a noticeable shift from ocean to airfreight.

Others also say that the ocean disruptions have not led to widespread or long-lasting surges in demand. Rates on the China-to-North America lane increased about 25% in the second half of January to about $6 per kilogram and have since fallen back to $4, while rates from China to Europe have receded to about $3 per kilogram after rising to $3.60, which suggests the Red Sea impact is not a huge factor, according to Freightos. And the impact of the Red Sea diversions could decrease in the coming months as the market enters a slow season. 

Kuehne+Nagel, the world’s largest logistics company by revenue, recently said the rerouting of ships past the Red Sea has raised interest in other options, such as sea-air movements, but has not resulted in any material increase for air cargo. But several European airlines told analysts on earnings calls that they did experience a notable volume increase because of the Red Sea situation.

One outlier from the growth trend is the trans-Atlantic corridor. In the first two months of this year demand from Europe to North America was down by 4% compared to the same period in 2023 and 5% lower than 2019 levels, Xeneta reported.

Supply problem? 

One variable that could undermine revenue growth for airlines and logistics providers is ongoing influx of cargo capacity, primarily from passenger airlines adding flights to their networks. At least half of global air shipments move in the lower hold of passenger aircraft. Available space is currently 9% higher than a year ago at this time and twice as high for traffic out of Asia, said WorldACD. IATA’s calculations show even more supply on the market as of January, with overall capacity up 14.6% and international capacity up nearly 26%.

Excess space means providers have to lower prices to attract business. The supply situation is expected to worsen, especially for the trans-Atlantic market, as passenger airlines ramp up for the busy summer season. Airlines typically hike capacity between North America and Europe by 50% from the winter to summer seasons.

Air Canada expects cargo revenue this year to be more a function of volume than yield because of the capacity situation, said Mark Galardo, executive vice president for network planning and revenue management, during the quarterly earnings briefing in February.

Similarly, the IATA anticipates a continued decline in rates throughout the year, projecting a 21% decrease in yields as carriers reintroduce capacity to the market.

Looking ahead

The momentum in business is positive for an industry that endured a painful freight downturn for more than a year, but the underlying demand dynamics remain fragile amid sustained geopolitical and economic uncertainty.

Air cargo demand could cool a bit as international trade heads into the slow summer season, but leading indicators suggest the sector can continue its recovery as the year progresses.

Inflation in Europe has fallen, which is expected to boost consumer spending in that economic region. Global manufacturing has increased for three consecutive months and reached the 50 threshold in the Purchasing Managers’ Index for January, indicating the sector is finally expanding. Meanwhile, the low U.S. unemployment rate of 3.9% suggests consumers still have the ability to purchase goods and services at current levels. Rising credit card debt, however, could eventually lead some to spend less.

Signs also point to higher volumes this year for electronic products, a big category for the airfreight sector. International Data Corp. forecast that shipments for augmented reality and virtual reality headsets are expected to jump 44.2% to 9.7 million units this year, after declining 23.5% in 2023. It said that the worldwide smartphone market will swing back to growth in 2024, rising 2.8% year over year. Gaming PCs will grow a modest 1%, while gaming monitors will continue their growth trajectory, reaching 22.2 million units and growing 13.6% this year.

The National Retail Federation on Wednesday forecast U.S. retail sales will increase this year between 2.5% and 3.5% to about $5.25 trillion, slightly below the 3.6% annual sales growth in 2023 and 10-year annual pre-pandemic average. The figures cover services and merchandise. Non-store and online sales, which are included in the total figure, are expected to grow between 7% and 9% year over year to about $1.48 trillion. 

Container lines have adapted to the alternative Red Sea route around Africa, which has not materially added to their costs or contributed to global inflation.

U.S. ports handled 1.96 million standard containers in January, up 4.7% from December and 8.6% year over year, suggesting continued import strength. The National Retail Federation’s Port Tracker forecasts container volume will grow 7.8% year over year in the first half of 2024.

Lower inventories are also a positive contributor to increased trade as manufacturers and retailers cleared out excess supply last year and are ready to place new orders if they detect consumer strength. S&P Global Market Intelligence reported that the effect of destocking can be seen in U.S. seaborne imports of sports shoes, which increased by 4% in January and 17% in February after dropping by 17% in the fourth quarter of 2023.

Still, Trade Data Service predicts 2024 will be strong for international air cargo if cross-border e-commerce and manufacturing hold up and the global economy stays on a path to 3% growth. Airfreight volumes could grow about 10%, according to the consultancy’s latest forecast.


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