News / Outlook for airfreight darkens, but 'the sky's not likely to fall in'

Antonov 225 Mriya aircraft. © Dbajurin Dreamstime.com.

After a drop in airfreight traffic in July, the outlook for the sector has darkened, according to industry analysts Clive Data Services.

Deteriorating conditions may prompt some shippers to turn their back on air cargo, but dedicated freighter capacity is expected to remain a fixture.

Clive’s numbers show a 9% drop in global airfreight volumes last month, from 12 months earlier, a decline in traffic matched by a 9% slump in demand.

Meanwhile, the recovery in capacity lost some momentum in July; it was up just 4% year on year and 11% lower than in July 2019.

These developments pushed Clive’s dynamic load factor down to 58%, 8% lower than a year earlier.

Niall van de Wouw, founder of Clive and now chief airfreight officer at Xeneta, which took over Clive in January, said: “The slow slide in rates, compared with 2019 and 2021, continues by a handful of percentages each month. In January, rates were  up 156% on the same month in 2019, now this figure is 121%, or a reduction of 35% points on a global scale.”

Clive’s numbers correspond with findings by Freightos, confirmed its research lead, Judah Levine. Freightos registered a 20% decline in transpacific rates from a year ago, while the Freightos Air Index shows pricing from China to Northern Europe more than 30% lower.

“The rebound in transatlantic passenger travel added capacity and pushed rates down to $3.40/kg, which is 25% lower than a year ago, though capacity will likely decrease after the summer tourist season ends,” said Mr Levine.

He pointed to a contraction in manufacturing in China ilast month and signs of a decrease or shift in demand in the US as major factors driving these developments.

“We’re in tougher economic conditions,” added Neel Shah, SVP global airfreight of Flexport. “Without a doubt demand is down, both in ocean and airfreight.”

Inventory levels have risen significantly – in some cases above historic norms – and some importers have been forced by financial distress to cut orders. At the same time, inflation is sapping consumers’ disposable income, he noted, concluding that “we see a general slowdown in the economy”.

However, the decline is not universal, with significant differences between sectors. While inventories in retail goods like clothing and shoes are up, companies in other sectors, like automotive and many consumer electronics, have low inventory levels and source hand to mouth, he added.

And Mr van de Wouw says the pain is not over yet.

“There are many dark clouds hanging over the air cargo industry, given the state of the world right now. Volumes are subdued and while air cargo rates are still elevated, they are slowly but surely easing back towards pre-Covid levels. From a rates point of view, indicators suggest the market has yet to bottom out,” he warned.

Both Mr Shah and Mr Levine expect the coming peak season to be less strong than in 2021. Mr Shah reckons the peak will probably run for six to eight weeks, with rates “nowhere near last year”.

Mr Levine said: “I suspect there will be an increase in demand, volumes and rates as peak season approaches, but not as pronounced as we saw during peak season last year.”

Neither expects pricing or demand to fall off a cliff in the weeks ahead.

“Despite rate decreases, prices remain well above their pre-pandemic norms for the slow season, kept elevated by high fuel prices, congestion due to ground handling disruptions in many hubs, and on some lanes shortages of capacity, relative to 2019 with the absence of passenger traffic,” said Mr Levine.

Mr Shah believes the elevated levels of the past year were unsustainable, adding: “We’re seeing the industry revert to historical norms, but rates are not going to go back to where they were before the pandemic.”

The developments in recent months have prompted beneficial cargo owners to review their procurement strategies, he said. Those with narrow margins that shifted to air because of the problems with ocean cargo, are going to revert to ocean, while others may accept a higher level of risk and reduce their capacity commitments. Others, such as firms in the automotive and consumer electronics sector, are continuing to look for dedicated capacity.

Flexport has no intention of backing away from dedicated capacity, he said.

“For us this is important. We go after a customer base that values dedicated capacity, and we also need it to accommodate the rapid growth we’re experiencing.”

He is sure other forwarders that signed up to freighter lift are not going to change their stance either.

“So many have taken on capacity on a multi-year basis. This model is not going anywhere any time soon. A little dip in the market is not going to change that,” he said.