Date: Friday, October 7, 2022
Source: American Shipper
It’s the time of year when retailers typically make their final push to ship goods from abroad in time for holiday shopping and freight rates are highest, but so far signs of peak season in air cargo are difficult to find. Instead, rates continue to slide as global economic clouds dampen demand and airlift supply rises with the recovery of passenger travel.
Air freight spot rates tumbled 9% year over year in September to below the 2021 level for the first time this year, Xeneta, an ocean and air freight rate benchmarking and data analytics firm, reported Wednesday.
The cost to ship by air lowered another 2.8% in the past week and is now 21.6% less than a year ago, according to the Baltic Air Index. A year ago rates were up about 80% on a yearly basis.
Analysis by WorldACD, another provider of air freight data, also shows tonnage and prices slipping marginally again in the second half of September. More notable, however, is that volume is down 12% from last year despite a 6% increase in capacity. Its data also reflects a 10% decline in spot rates to an average of $3.46 per kilogram.
And the International Air Transport Association (IATA) on Thursday provided lagging data for August that reinforced earlier evidence, including front-line reports from logistics companies, of muted demand. IATA said cargo throughput on airlines fell 8.3% year over year, an improvement from the 9.7% contraction in July. Xeneta previously reported that August volumes contracted 5% year over year and 4% compared to pre-pandemic levels.
Results for the first week of October are likely to be even weaker as cargo airlines cut back activity in China to coincide with the Golden Week national holiday when factories are closed. In a normal year that would be followed by a burst of catch-up flights, but the past has proven a poor barometer for logistics predictions this decade.
Few expected the market to stay at the pandemic-fueled record of 2021, but demand is now trending toward the level in 2019 — a weak year for air cargo.
And yet, despite economic weakness, air cargo rates are still more than twice what they were in 2019.
Several factors are weighing on air cargo transport.
The industry never experienced an expected spurt in exports from China after regional COVID lockdowns were lifted last summer. Power rationing and ongoing quarantine restrictions continue to limit factory output and the Chinese economy is growing much slower than it has in decades. The Baltic Air Index for outbound lanes from Shanghai, for example, dropped 5% last week and is below the 2021 level by 35.7%.
Meanwhile, high inventories, inflation and consumers shifting more spending to services has curtailed demand for international ocean and air shipping. Production in Germany and other European countries has slowed due to energy challenges associated with the war in Ukraine. New export orders — a leading indicator of air cargo activity — are declining in major economies, except the U.S.
Many large shippers preordered early in the year to avoid supply chain disruptions and are being more cautious with new orders because they don’t want to repeat an overstock situation as consumer buying habits shift. Even the robust e-commerce market has cooled as reflected by FedEx (NYSE: FDX) recently announcing a large earnings miss partly due to a slowdown in Express business in Asia and a report that Amazon Air has decreased the pace of its fleet growth.
At the same time, more shipments are migrating back to ocean shipping, where spot rates have fallen much further than in air and ocean freight conditions have improved.
According to Xeneta, September cargo demand based on shipment profiles, fell 5% from last year and was down 2% from the same month in 2019. The shipping downturn timed with a 5% recovery in cargo capacity, which is now only 7% below pre-pandemic levels as international airlines continue to restore service. The combination of weaker demand and rising supply dropped the aircraft fill rate, or load factor, by 7 points to 59%. That is 2 points lower than recorded in 2019.
Before the COVID crisis, the lower decks on passenger aircraft accounted for half the world’s air cargo supply. During the past two years, 70% of capacity was provided by all-cargo aircraft.
(Source: Xeneta/Clive Data Services)
A high-rate disconnect
The little bit of pent-up demand that did occur because of lockdowns in China explains why spot rates from there are higher than for outbound Asia-Pacific to Europe, where prices for immediate purchases by freight forwarders have actually dropped below long-term rates for the first time in two years, according to Xeneta.
Contract rates are actually holding up pricing to some degree on various lanes, John Peyton Burnett, managing director of TAC Index, which tracks airfreight rates and administers the Baltic Exchange’s air index, said on The Loadstar’s latest podcast.
Other factors propping up airfreight prices above 2019 include the introduction of high fuel surcharges by airlines, the lingering shortage in passenger belly capacity, and ground handling delays at airports, and ongoing supply chain disruptions, such as congestion at U.S. East Coast ports and strikes by maritime workers in Europe.