Will the first signs of the air cargo peak season appear by the end of August?

Articles source： author： 2024-08-13 Page View：36

Introduction：Freight rates have risen for the sixth consecutive month. Will the tailwinds for air cargo continue into the peak season?

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1. Review of the Air Cargo Market in July

According to Xeneta’s latest market analysis, the quick recovery from the global IT disruption in July did not have a significant or lasting impact on the recovering air cargo demand, with air freight rates rising for the sixth consecutive month.

In July, the global average spot air freight rate reached $2.66 per kilogram, a 20% year-over-year increase. This was once again driven by strong global air cargo demand, with July air cargo volumes growing 13% year-over-year due to robust e-commerce demand in Asia and a low demand base in the same period in 2023.

In contrast, the growth in global air cargo capacity supply in July was much slower, with an increase of only 2%.

The combination of growing demand and the slight increase in capacity supply is expected to boost the global dynamic load factor. In July, the dynamic load factor was 5 percentage points higher than the same period last year, reaching 59%. (The dynamic load factor is a metric used by Xeneta to measure capacity utilization based on the volume and weight of air cargo and available capacity.)

As the peak summer holiday season began in July, global air cargo demand slowed down month-on-month. A similar situation occurred in the ocean container market, where container space has become easier to book in recent weeks, and spot rates on major routes from the Far East to Europe and North America have either declined or remained flat.

On July 19, a global IT disruption affecting Microsoft systems caused widespread disruptions, with flight delays and cancellations lasting for over a week. The resulting cargo backlog led to a 4-percentage-point increase in the load factor for some affected airlines compared to the previous week. It wasn’t until July 28 that the load factor essentially returned to pre-disruption levels.

As usual, short-term panic among shippers and freight forwarders drove up rates, pushing air freight rates to the highest level of the year so far in the last week of July, with the global average spot air freight rate rising to $2.7 per kilogram.

2. Trends Outlook for the Second Half of 2024

The strong year-over-year growth in air cargo demand is expected to continue into August and September, partly due to the low base last year.

Looking ahead to the second half of the year, the longer transit times of container ships, reduced schedule reliability, and disruptions in the Red Sea could continue to pose risks to global supply chains. While the container market has already entered the early stages of the peak season, the current situation may persist until the Golden Week in China in October. Additionally, potential strikes along the coasts of Hamburg in Germany, the US East Coast, and the Gulf of Mexico, coinciding with the much-anticipated air cargo peak season, could further drive up air freight rates.

Xeneta’s Chief Air Cargo Officer, Niall van de Wouw, stated, "For the air cargo market, all eyes are now on whether the first signs of the peak season will appear by the end of August, which would be a welcome boost for airlines, as demand and growth in the first seven months of this year have been unexpectedly strong. In July, if the IT disruption had taken longer to resolve, we might have seen slightly different results, but the air cargo market has once again shown resilience after seemingly avoiding a major disruption. As we approach the peak season of the year, airlines might just be beginning to believe that their tailwinds will continue."

In terms of regional air freight spot rate trends in July, the Middle East and Central Asia to Europe routes continued to lead in year-over-year growth. The average spot rate in July soared by 126% year-over-year to $3.16 per kilogram. Ongoing disruptions in the Red Sea route have helped keep air freight rates high.

The Southeast Asia to North America and Europe routes ranked second and third in terms of growth. The surge in cargo demand resulted in spot rates more than doubling year-over-year, reaching $5.78 per kilogram and $3.85 per kilogram, respectively.

Following closely was the Northeast Asia market, supported by strong e-commerce demand and the recovery of general cargo volumes, with spot rates to North America and Europe increasing by about 30% year-over-year, reaching $4.39 per kilogram and $4.17 per kilogram, respectively.

As expected, spot rates for the return legs of these routes and the transatlantic routes declined year-over-year, primarily due to sufficient capacity on the return legs and increased bellyhold capacity on passenger flights to meet summer holiday season demand.