Pictured: Niall van de Wouw, Chief Airfreight Officer of Xeneta
Hosting its 2024 review, "2024 Peaks, 2025 Predictions: The Air Freight Trends Shaping the Future" on Thursday 19 December, the growth in demand was called extraordinary while supply in capacity has been lagging as it had largely recovered to 2019 levels by early last year.
Wenwen Zhang, Airfreight Analyst at Xeneta said this has increased load factors and spot rates have gone up at double-digit rates since the second quarter.
Glyn Hughes, Director General of The International Air Cargo Association (TIACA) joined Zhang and Niall van de Wouw, Chief Airfreight Officer of Xeneta on the call.
Van de Wouw asked Hughes how many people would have predicted 13 months of double-digit growth if they were asked in October 2023 and Hughes responded that if a survey was conducted, people would have been despondent as 2023 was not a good year until the Red Sea crisis.
Hughes said it is almost possible to pinpoint the day air cargo demand picked up.
Shipping channels closed as the Red Sea was too dangerous to use and ships had to take much longer routes with the Cape of Good Hope.
This took 5-8% of the maritime capacity out, pushing up rates and sailings become longer and more expensive.
“The difference between air and maritime cargo became much less and when those differences become less, air cargo fortunes tend to improve,” said Hughes.
This came despite high inflation in much of the world with energy prices and interest rates, which makes recent performance phenomenal.
Hughes said, “What this tells us is that the industry was under stress. When you have got that degree of demand, in some cases four times the increase in capacity, to see that degree of growth through the year is an exceptional performance. Nobody would have foreseen this.”
Volumes continued to growth in the peak season while capacity has been flat since September, which is putting the dynamic load factor at the highest rate for almost two years.
The growth in airfreight rates has been less intense as airlines have been redeploying capacity since the start of the peak season, which shippers have agreed block space agreements and locked in rates before the peak season, said Zhang.
Van de Wouw said some players have expressed disappointment as rates did not grow but this is a good thing as increased rates last year put relationships between shippers and freight forwarders under pressure.
This has largely been avoided this year, with van de Wouw saying, “Compliments to the industry for being able to navigate this because on paper it had all of the ingredients of a toxic mix but I would say thankfully that has been avoided.”
Dynamic load factors out of Asia Pacific were in the high 80% range in November with more capacity getting added to meet demand, keeping load factors stable.
Hughes said that 90% is realistically the highest dynamic load factors can go, adding that this showed the other challenge as load factors going into Asia Pacific are much lower.
Europe to Asia Pacific was 43%, Middle East and Central Asia to Asia Pacific was 33%, and North America to Asia Pacific was only 50%, which shows where exports come from.
What will happen in 2025?
Asking what will happen next year, van de Wouw pointed out that air cargo is not in charge of its own destiny as it is affected by factors out of its control.
Very little freight travels by air compared to maritime so a small shift in the latter has a major impact on the former, he said.
It is also important to differentiate between cargo, parcels and e-commerce as airlines may have seen double-digit growth but freight forwarders may not have done because they handle less e-commerce and more traditional freight.
Discussing factors that could affect air cargo next year, van de Wouw said many people are concerned about the return of President Trump as he is promising to implement tariffs but this trend started years ago and the tariffs from his last term were not revoked under President Biden.
E-commerce is projected to grow at an average of 14% annually for the next few years, which shows the growth potential though crackdowns by US and European regulators could put a dampener on growth.
Maritime freight disruption often benefits airfreight and the Red Sea crisis is unlikely to be resolved any time soon, said van de Wouw, who added that port strikes are an ongoing concern in the US.
Hughes said risk mitigation strategies are essential as the air cargo industry has to adapt to changes.
There needs to be vigilance about keeping threats to life and equipment, along with illegal produce, out of aircraft, which requires open dialogue with governments keep supply chains moving safely.
It is almost inevitable that US ports will go on strike in January in protest against greater automation a matter of days before President Trump returns to office so there could be at least a week of disruption at 77 ports.
Hughes said, “The amount of cargo that would confine to ships or ports would be huge. My concern is I don’t think we have got the capacity to move more than a microscopic percentage of that so we might find that people are pre-empting that.”
The transatlantic is largely a belly capacity market that limits capacity and disperses it across flights so the air cargo sector would not be able to provide much relief.
President Trump is promising tariffs of at least 60% on many markets, which is likely to result in retaliatory measures and could accelerate China+1 strategies, potentially creating greater air cargo volumes across southeast Asia.
Van de Wouw admitted predictions can be quickly overtaken by reality so emphasised that, at the time of the presentation (Thursday 19 December), air cargo is predicted to grow 4-6% in 2025, mainly driven by e-commerce.
Capacity is expected to grow 3-4%, which means load factors are likely to remain high, placing pressure on capacity so van de Wouw has told shippers to have higher budgets and manage expectations of their CFO as the spend on airfreight could be higher than this year.
Shippers are dealing with the uncertainty by signing contracts lasting 6-12 months with freight forwarders for 50% of contracts in Q4 of 2024 while almost 50% of rates secured between forwarders and airlines were procured on the spot market.
For forwarders, signing long-term contracts with shippers while they procure spot rates from airlines can erode margins, which concerns Hughes as 2023 had excess capacity they could go on to the spot market with confidence that they would get a good rate.
This year, the lack of capacity could produce challenge scenarios for forwarders as the industry looks at its highest level of two-year growth on record.
To counter challenges, airfreight index-linked contracts is making a breakthrough, something van de Wouw was quoted in the media saying would happen in 2018.
At the time, the financial institutions were pushing for indexing. Now the pressure is coming from within the industry because of years of volatility.
Quoting a colleague, indexing is not a price guarantee but it is a guarantee that your goods will get moved, said van de Wouw as rates will always be good enough to secure capacity.
Hughes concluded the presentation by saying this shows maturity in the market as people want fair and transparent commercial relationships and to understand how rates are determined.
He said, “We are very blessed with having lots of data and intelligence. I think indexing and similar mechanisms will help maintain that stability we need in the market so we don’t get huge peaks or troughs because everybody needs to earn a fair return to keep capacity there in good times and bad, and keep the interest from shippers in good times and bad.”