The latest weekly data showed that the impact of air cargo’s black swan event, the Red Sea disruption to ocean freight services eased in April by it was still the fourth straight month of demand growing 11% year-on-year.
Airlines injected cargo capacity as they launched their summer schedules, which increased supply by 5%, causing the dynamic load factor to drop from 62% in March to 59% in April.
Global air cargo spot rates grew year-on-year for the first time since August 2022, up 5% due to a combination of Middle East conflicts and strong e-commerce demand.
The average global spot rate was $2.59 per kg, the highest level this year, with Xeneta saying this should be viewed in the context of a weak market in April 2023.
Niall van de Wouw, Chief Airfreight Officer of Xeneta says the demand and supply growth were to be expected in April after a strong month in March, adding that April may be an interlude to a quieter period for the market.
He says, “The growth in the spot rate was very much driven by regional developments as well as a case of market sentiment tending to follow market fundamentals. This is what happens in jumpy market conditions. The freight rate in April was a reaction to high first quarter volumes, but we expect rates to ease.”
Shippers and forwarders are coming to terms with ocean freight services being diverted from the Red Sea, which will impact air cargo demand.
Van de Wouw says, “We have clearly seen a push for airfreight capacity around the Indian subcontinent because of the Red Sea disruption, but this impact is easing as businesses which depend on ocean freight are now planning in longer lead times. So, we expect the recent surge in demand for airfreight in this region to lessen.”
The share of spot rates were down four percentage points to 41%, which was still 10 percentage points above pre-pandemic levels.
The Asia Pacific to North America market had the largest spot share decline, down 10 percentage points on April last year, bringing it one percentage point above pre-pandemic levels.
Europe to North America was down five percentage points and is still 20 percentage points above pre-pandemic levels.
Xeneta says this reflects market expectations of milder freight rate adjustments for the transatlantic markets due to adequate cargo capacity and freight rate levels getting closer to pre-pandemic levels.
Shippers and forwarders are turning their attention to the fourth quarter, says van de Wouw, who are planning early after the experiences of last year.
“Before then, there was no prior experience of the order of magnitude of the e-commerce behemoths and their impact on air cargo’s traditional peak season market. This year, the traditional market is looking to de-risk and will plan to be better prepared,” he says.
He adds, “Q4 is just around the corner in planning terms and freight forwarders are already looking beyond the summer to secure market share because they are concerned about what e-commerce is going to do out of southern China and Hong Kong later in the year.”
One surprise is the price validity period of new contracts between shippers and forwarders, with more short-term contracts and agreements containing mechanisms to deal with market rate changes throughout the contract.
Van de Wouw says, “Shippers will prefer longer-lasting relationships with freight forwarders that know their business, delivering good operational performance at a competitive rate level. Freight forwarders want predictability of their revenues to avoid having to go to tender each quarter to secure the business. So, these mechanisms can work for both parties.”
Airlines face a balancing act, says van de Wouw, saying, “If airlines think Q4 is going to be busy again, they’re not going to sell all their capacity now. They must decide how much they want to commit now, knowing they can possibly get up to 50% more revenue for that same capacity on the short-term market in Q4.”
