The air cargo market continues to deflate under global economic pressures

The air freight market continued to post record 18 months of gains in October as the global economy slows and consumers tighten their wallets while spending more on services.

The industry is in the midst of a typical peak season with little sign of increased shipping activity. Demand and interest rates are falling at a time when both are normally rising. Cargojet CEO Ajay Virmani this week described the run-up to Christmas shopping as a “controlled peak”.

Volumes in October, measured using a formula that combines weight and shipping dimensions, fell 8% from the same period last year, the eighth straight month of demand decline, market research firm Xeneta reported this week.

The downtrend worsened from September, when volumes fell 5% year-on-year and 0.3% compared to three years ago.

Matching last year’s record levels, which were fueled by pandemic-related shortages and supply chain disruptions, was unsustainable, but demand in October also fell 3% below levels in 2019 – a weak year for air freight.

The capacity recovery also faltered. Available belly and cargo space remains 7% below pre-pandemic levels, according to Xeneta, one of the reasons rates remain relatively high.

The additional airlift from the reintroduction of more summer passenger flights combined with lower demand means the planes are less crowded – and less profitable. Volumetric load factors in October were 61%, 7 points lower than a year ago and 1 point worse than 2019, Xeneta said.

Global air freight rates for immediate delivery in October were down year-on-year for the second straight month. A slight increase in the second half of the month was caused by an increase in special freight tariffs, while general tariffs continued to decline, Xeneta said.

A slight strengthening in Asia-Pacific export routes to Europe and North America in the second half of October likely had more to do with a rebound from China’s Golden Week holiday, when factories are closed and not shipping, than a late peak pick-up.

Freighto’s Global Air Index shows average spot rates of $3.15/kg through October 31st.

The bottom line is that global air freight rates have fallen by two-thirds since December and by about 25% since that time last year to $3.15 per kilogram, but are still nearly double due to lack of capacity and airlines and carriers 2019 level Airport labor shortages, limiting flight and warehouse productivity. The decline in air freight rates is not as dramatic as that in ocean freight, where the reduction in port congestion and falling demand have reduced rates by 70% to 85% year-on-year.

The price between China and the US west coast is usually around US$2 to US$3 per kilogram, and around US$5 per kilogram in high season. Prices are in the $6 range this year, according to Freightos, an online booking and payment platform for air and ocean freight. Prices in the broader Asia-American market typically top out at $2 per kilogram by the peak of the season, rising to $13 last year compared to around $5 last week.

The cost of air transportation from Hong Kong to North America and Europe is down 32% and 13% respectively year-on-year.

Weakness on the southern China-US trade route is reflected in a significant number of charter cancellations by logistics providers, Flexport said in a customer update, while charters to European destinations are added.

Prices from Asia to Europe have held up more than to North America due to the additional cost of EU routes due to the closure of Russian airspace, Xeneta noted.

Europe-to-US air freight spot rates were $3.11 per kilogram in October, down 27% from 2021 levels, while Asia-to-Europe rates rose 25% to $5.09, according to Xeneta data USD per kilogram declined.

Asia-US posted the sharpest decline among the top three volume corridors, with the average spot rate down 45% from October last year.

Air logisticians have lowered expectations for 2023 as consumers spend less on goods, export manufacturing contracts and freight shifts back to cheaper maritime services where there is again ample space on many trade routes. With so much economic and geopolitical uncertainty, it will be difficult to predict the direction of freight rates in the new year.

New charge supply

Airlines are adding more cargo capacity on several routes. Air Canada recently announced an increase in flight frequencies from Toronto to Dubai, Mumbai, India and Lima, Peru, which began Tuesday.

IAG Cargo, the cargo division of International Airlines Group, announced the resumption of service from the Iberia hub in Madrid to Caracas, Venezuela, and Rio de Janeiro, using an Airbus A350 and A330-200 respectively, three times a week. The main exports to Europe are flowers, papayas, mangoes and figs.

Delta recently increased frequencies to daily from Atlanta to Buenos Aires, Argentina on a Boeing 767 and three times a week to Santiago, Chile on an A350.

Qatar Airways began twice-weekly cargo operations to Riyadh, Saudi Arabia, using Boeing 777 aircraft.

And Air China will resume cargo flights from Shanghai Pudong International Airport this month, according to Flexport’s announcement. Air China’s service has been suspended for several months.

Click here to read more reports on FreightWaves/American Shipper by Eric Kulisch.

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