Moderate strengthening of demand since August has buoyed the sagging air cargo market, however the seasonal surge in retail shipments for the vacations appears to be a 3rd the traditional level and more industry players are resetting expectations for an actual recovery until the autumn of 2024, or later.
Market intelligence provider Xeneta said airfreight volumes bumped up 2% in October from September and increased 2% 12 months over 12 months (y/y), however the sequential growth was subpar compared with peak seasons the previous five years. Midway through November, air cargo traffic stays barely ahead of last 12 months’s disappointing fourth quarter, a compilation of surveys shows.
With consumer purchasing power stagnant amid nagging inflation and a cooling macroeconomic environment exacerbated by the brand new war between Israel and Hamas, a spending shift to services and experiences, few signs of serious retail restocking, and shippers favoring low cost ocean shipping, the freight sector now realizes air shipping probably won’t rally for at the very least one other nine to 12 months.
Although airfreight volumes and rates have slowly leveled off because the double-digit declines to start out the 12 months and at last crossed over to growth, the annualized drop in cargo revenues in the course of the third quarter reflects the uphill conditions faced by airlines and logistics providers.
Major U.S. and European airlines starting from Air Canada to United Airlines, Air France-KLM and Lufthansa Group reported revenue declines of 25% to 40% for cargo in the course of the three-month period, with the Lufthansa Cargo freighter unit barely breaking even. Korean Air’s cargo revenue fell 51%. Logistics behemoth Kuehne+Nagel said revenue for arranging air cargo moves dropped 46% y/y, while DSV said airfreight tonnage inched up from the second quarter but was down 14% versus the year-ago period.
“Most management teams thus far have been tempering expectations for a better-than-expected peak season, and pushing out the timeline for freight recovery. Over the past several weeks, equities markets have largely reflected that sentiment, too,” said Bruce Chan, senior research analyst covering logistics at Stifel, in his monthly contribution to the Baltic Air Freight Index newsletter. “We proceed to imagine that demand will remain muted, capability broadly abundant, and, while we might even see some signs of episodic tightening from week-to-week or from lane-to-lane, the general peak won’t offer much to put in writing home about.”
The load factor, a measure of how full a passenger or freighter aircraft is, climbed to 59% in October but remained 2 points below last 12 months’s level, in line with Xeneta. Yr thus far, the fill rate is the bottom it’s been in five years, a sign of persistent weakness within the air cargo market.
The International Air Transport Association reinforced the sense of marginal growth with lagging numbers that showed a 1.9% increase in cargo traffic for September (Xeneta previously reported zero growth), the second month of y/y gains after a 19-month slide, despite global trade continuing to shrink.
For the total 12 months thus far, volumes are down about 8.5% versus 2022 and are 2% to five% lower than January through October 2019, before COVID, in line with various freight data firms.
Lackluster manufacturing reflects the widespread softening of worldwide goods trade and lackluster transport demand, with the Purchasing Managers’ Index for brand new export orders still in contraction territory across major economies. And lots of retailers in earnings reports stated that spending on discretionary goods is slowing, with more household dollars being spent on essentials.
Worldwide tablet shipments, which predominantly move to market by air, posted a decline of 14.2% y/y within the third quarter, but that was up 18% from the previous quarter, in line with preliminary data from the International Data Corp. Chromebook shipments also contracted for a y/y decline of 20.8%.
The recent upswing in air cargo demand, combined with slower growth in widebody passenger capability as airlines shift to less intensive winter schedules, has led to improved shipping rates. Rising operating costs, resembling jet fuel and labor, are also creating upward pricing pressure. The worldwide average air cargo rate is about 23% lower, y/y, in comparison with 40% to 50% lower for much of 2023. Capability is about 13% higher than a 12 months ago.
Muted gains in global air cargo activity belie significant regional variation. Rates out of Asia, particularly south China, have accelerated since late summer as Chinese e-commerce marketplaces moved goods ahead of the Christmas season, in line with logistics firms and price reporting agencies.
China-U.S. prices climbed 70% from early August to about $7.18/kg, in line with the Freightos Air Index. Up to now six weeks, Shanghai-North America rates increased 17%, pushing the year-to-date performance into positive territory for the primary time. Rates on the Hong Kong-U.S. and Shanghai-U.S. lanes are actually essentially ultimately 12 months’s level. Two huge snow storms delayed operations at Alaska’s Anchorage airport this month, cutting cargo capability and contributing to cost inflation on trans-Pacific routes.
![](https://www.freightwaves.com/wp-content/uploads/2023/11/21/Screenshot-2023-11-21-084746-1200x409.png)
The Baltic Air Index, powered by TAC, shows rates from Hong Kong to North America increased about 13% since September, greater than double the common sequential growth on those corridors over the past five years, excluding a drop in 2022.
Analysts note that the positive pricing has more to do with a straightforward comparison to last 12 months at the moment, when the market was tumbling from an incredible high, than from strong demand now. Last 12 months at the moment, demand was tumbling 12% from the highs of 2021. And a few of October’s bump was attributed to the Golden Week holiday in China, as reopened factories pumped out more goods to make up for lost production time.
Meanwhile, rates on the China-Northern Europe trade lane recently fell 20%, back to their early September level, then rebounded 25% last week to $4.23/kg on more indications of demand improvement, especially from e-commerce shipments. Asia-Europe pricing is up greater than 30% since mid-September.
The low-rate environment is spurring businesses to hunt longer contracts by which they will lock in capability at current pricing, while the freight forwarders they take care of are mostly in search of one-time shipping quotes from airlines on the spot market to get the bottom rate.
More evidence of underperformance this peak season comes from Morgan Stanely, which tracks domestic U.S. flight activity of parcel carriers. UPS and FedEx domestic flight counts increased in October from September, but lower than normal. UPS flight utilization grew 4% versus 6% on average, slowing the y/y decline to fifteen% in comparison with 19% in September. FedEx flight activity increased 3% against a median seasonal gain of seven%. That was an improvement from the 9% sequential contraction in September and put the y/y decline at 6% versus minus 11% a month earlier.
UPS said in its third-quarter report that customers continued to shift volumes out of air to the bottom, with average each day air volumes down 15.8% y/y.
Peak season underperforms
“What we’ve seen in September and coming into October, I’d call a modest increase within the each day activity month over month. But nothing to the extent of what we might see in a historical pre-COVID peak cycle where you anticipate to see 30%-plus increases” for air and ocean demand, said Tim Robertson, CEO of DHL Global Forwarding, on an Oct. 24 conference call with reporters.
And increases in volumes during this 12 months’s mini-peak season were mostly allocated to ocean shipping as shippers sought to make the most of historically low container rates, in line with logistics experts.
Ajay Virmani, CEO of Canadian all-cargo airline Cargojet, told analysts this month that e-commerce and other customers have indicated they expect similar volumes to last 12 months’s disappointing peak season, during which the corporate’s volumes increased 10% to fifteen% within the fourth quarter from the prior three months.
![](https://www.freightwaves.com/wp-content/uploads/2023/11/21/021022-1016-1200x675.jpg)
Robertson suggested that fourth-quarter volume gains may very well be muted because retailers are ordering earlier within the 12 months to avoid potential supply chain bottlenecks and reply to more year-round interest from consumers.
“I believe in the long run, the concept of a single peak could also be irrelevant. Quite we are going to see multiple peaks all year long, as your take a look at the rise of Prime days, fast fashion and continued developments within the e-commerce market,” said Robertson.
Many retailers are forecasting total merchandise can be flat this holiday season, but that revenues can be higher due to inflation and a better mixture of luxury goods sold, added Scott Surredin, the top of DHL Supply Chain, North America.
Any bump in late-year shipping volumes will likely be from retailers placing last-minute orders leading as much as Black Friday and Cyber Monday to replenish stocks for just a few specific products popular with consumers, DHL executives added.
During DHL Group’s recent earnings briefing, CEO Tobias Meyer said the corporate added a handful of charter flights within the trans-Pacific lane due to an unexpected spike in e-commerce volumes.
Equity analysts at Royal Bank of Canada said in a research note that they expect peak season to be flat versus last 12 months, revising their previous assumption for modest freight growth across all modes and geographies.
Beyond pockets of increased air shipping, the air cargo sector still faces an extended climb to real growth.
Strong U.S. growth of 4.9% in the course of the third quarter could represent a high-water mark for the economy as the upper cost of borrowing resulting from Federal Reserve rate hikes on banks finally causes businesses and consumers to cut back spending, including for housing. Economists forecast growth could slow to an annual pace of 1.5% within the October-to-December period. An indication of the approaching slowdown, Joseph Brusuelas, chief economist at RSM, told The Associated Press, was a 3.8% drop in business spending on recent machinery and other equipment last quarter.
COVID stimulus money from the federal government, including through child care credits and student loan deferments, has also ended. More individuals are using up their savings or adding to private debt, and defaults for auto and bank card loans are on the rise.
The worldwide economy has weakened to its slowest pace in eight months, with the service sector losing steam. The International Monetary Fund last month said global GDP growth will tick down a tenth of some extent to 2.9% in 2024.
S&P Global Market Intelligence forecasts tepid growth in trade in 2024, with U.S. seaborne imports expected to extend by just 2.3% y/y in the primary quarter of 2024.
![](https://www.freightwaves.com/wp-content/uploads/2023/11/21/Screenshot-2023-11-21-090321-1200x420.png)
“Most of the forces driving U.S. economic growth within the third quarter will likely reverse in the approaching quarters. While growth is powerful, maintaining the present momentum can be very difficult within the 12 months ahead. In Europe, the approaching months will provide a clearer picture of whether the present economic challenges persist or evolve in 2024,” said Shawn DuBravac, chief economist at IPC, an Illinois-based trade association representing greater than 3,000 members within the electronics industry, within the group’s latest outlook.
Air carriers and freight forwarders have come to the belief that market conditions won’t significantly improve until well into the second half of 2024, said Niall van de Wouw, Xeneta’s chief airfreight officer.
Some ocean carriers say they don’t envision a meaningful freight recovery until 2025. “There aren’t any clear data points showing that the restocking schedule will begin anytime soon, so it doesn’t seem that a recovery will result from near-term growth in demand,” ZIM CFO Xavier Destriau recently said. If true, air carriers likely won’t see significant business improvement until later that 12 months since shippers, absent any urgency to maneuver goods, are expected to direct most recent volumes to container lines.
.
RECOMMENDED READING:
Uptick in airfreight rates creates mirage of market recovery
The post Air cargo’s anemic peak season nothing to rejoice appeared first on FreightWaves.