News / Air cargo weaker, but FedEx says it's ready for more 'economic headwinds'

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Air freight rates have edged down again alongside higher inventory levels, economic uncertainty and an expected surge out of China that so far has failed to materialise.

The TAC Index this morning fell 1.6% from China to Europe and nearly 4% from China to the US, while the overall index fell nearly 1%.

But rates remain at higher levels than last year, 32% higher and analysts say the e-commerce sector is waning – but yields are still high.

Pointing to SF Express and last week’s Q4 results from FedEx, Frederic Horst, MD of Cargo Facts Consulting, wrote: “Recent results show a continuation of what’s been happening since late last, and early this, year – volumes down, but yields up. The drop in e-commerce and increase in B2B penetration is not necessarily a bad thing.

“It’s more a normalisation of the B2B share. The B2B surge that took place in 2020 and part of 2021 has been abating. Pre-pandemic, B2B’s share in express networks was under 50%, but increased to around 65% in 2020. Since then it has come down a bit.”

FedEx said it expected to see further supply chain disruption, but would also implement “a flexible strategy” in the face of possible economic headwinds.

The company saw full-year to 31 May revenues of $93.5bn, up 11.3%, while adjusted net income rose 12%, to $5.5bn.

Brie Carere, chief customer officer, said: “We anticipate consumers will keep spending, and their spending will continue tilting toward services from goods.

“We expect more consumers to return to stores. With this backdrop, we do expect pressure on B2C volumes. Through May, industrial activity has been solid. But today’s June flash of PMI was a sharp decline.”

She added that companies were slowing down inventory restocking, which “will dampen freight demand”.

She added: “Our international businesses continue to navigate a dynamic environment. Global trade growth has slowed from disruptions related to lockdowns in China and the conflict in Ukraine, limiting the flow of goods and reducing international export volumes.”

However, she also expected a slow return of passengers and, therefore, belly capacity, with the recovery expected to “take some time”.

“Belly capacity on passenger airlines is expected to remain constrained in fiscal year 2023, resulting in a pricing environment still favourable to FedEx, if a little less than before.

“The Europe-to-Asia lane is estimated to recover in Q1 calendar year ’24, and belly capacity on transpacific airlines is estimated to recover in Q3.”

However, she said, commercial capacity on Europe-Asia would not recover fully until Q1 25. Volume growth was slowing, she added, with FedEx forecasting low single-digit growth. But pricing remained high.

“We expect the pricing environment will remain rational here in the US and also around the world. We believe the systemic changes, especially e-commerce peak surcharges, are durable changes for the industry. We are closely monitoring both inflation and fuel prices. And, as a reminder, we adjust our fuel surcharge weekly in response to market rates.”

Fuel prices have edged up again this week, according to IATA’s jet fuel monitor. Prices are 20% up on a month ago, and 129% on a year earlier.

FedEx added that it would be prepared to “pull some levers” in response to a potential deepening recession. New CEO Raj Subramaniam said the environment was “constrained”.

“But we will adjust networks,” he said. “We’ll take down flights as required and just match the capacity to demand. And that’s the beauty of having a big network, we’re able to flex up and down. We have demonstrated that historically as well.

“And so, yes, there’s a range of outcomes we are ready to deal with. We are definitely not assuming a prolonged deep recession.”

CFO Mike Lenz added: “I think with speed at which we were able to adjust among all of our networks during the pandemic gives us every confidence that we can react faster than we may have thought in the past, and we are absolutely prepared to do so.”

You can see FedEx’s full results here.

For more on the air cargo market, listen to this clip from The Loadstar Podcast of  Erion Hormoviti , executive director airfreight from Ascent.