1.High Demand vs. Limited Capacity

Logistics professionals and analysts predict that the air freight market, which performed well in the first half of the year, will continue to grow in the final months of the year. The booming Asian e-commerce sector has driven continuous growth in air freight, with demand peaking during the holiday shopping season, leading to tight capacity and rising freight rates. However, other factors also influence air freight.

For example, while many companies in the U.S. and Europe have pre-ordered inventory to avoid supply chain constraints, potential demand is expected to translate into more air freight activity. However, with fall orders being placed only a few months in advance, it remains uncertain whether there will be a sudden drop in cargo volumes. Moreover, complex macroeconomic signals make economists skeptical about whether consumer spending can remain strong.

Atlas Air CEO Michael Steen stated: "The current trend in air freight will continue. With limited capacity in wide-body freighters, volumes will increase, and freight rates will be affected. The scenario of high demand and limited supply will continue into 2025 and beyond."

Impacted by air freight trends, FedEx and UPS have imposed higher peak season surcharges compared to previous years, indicating that integrated parcel carriers anticipate significant domestic and international freight volumes during the holiday season. UPS management expects record-breaking parcel volumes in December, while Cathay Pacific also expects strong demand during the peak season.

According to Xeneta, air freight demand grew by 13% year-on-year in July, driven primarily by sustained e-commerce volumes from China and as an alternative to sea freight. In what is typically an off-season for air freight, demand growth has been remarkable, with air freight volumes seeing double-digit growth for eight consecutive months.

In contrast, air freight capacity growth has only increased by 2%, leading to tight capacity on some trade routes. As demand outpaces supply, Xeneta's dynamic load factor (capacity utilization rate) rose 5 percentage points to 59%.

The International Air Transport Association's (IATA) lagging data aligns with Xeneta's findings. Air freight volume in June 2023 was up 14% from 2022. IATA uses a different measurement method and indicates that demand for the first half of the year grew 13.4% year-on-year, up 4.3% from the same period in 2022, reaching levels seen during the pandemic-driven peak in 2021. June marked the first time in over three years that double-digit annual capacity growth was achieved, primarily driven by passenger airlines increasing belly cargo capacity by 16.8%, while freighter capacity grew by just 4.1%.

According to BMO Capital Markets research, freighter flight hours in July grew by 3% year-on-year, improving from June and matching May’s figures, though higher than the negative figures seen from February to April.

Taiwanese logistics company Dimerco Express noted that the increase in e-commerce demand has led to a shortage of wide-body freighters, which are fully booked until the end of the year. Airlines have responded by splitting agreements with freight forwarders into smaller portions, especially on the China-to-U.S. route.

Global average spot prices reached $2.64 per kilogram in early August, close to this year's high, roughly on par with last year. Rates have since slightly declined but remain about 11% higher than a year ago, even surpassing pre-pandemic levels. Freight rates from the Asia-Pacific region are higher than the global average. For example, according to TAC Index, rates from Shanghai to North America have increased by more than 25% year-on-year, while rates to Europe have risen by 44%.

The largest increases in outbound rates were seen in Asia and the Middle East in July (source: Xeneta).

Freightos' research director Judah Levine noted that by the end of July, air freight rates from Hong Kong to North America were about $5.72, while to Europe, they were $4.50, well above the average summer levels and expected to rise to peak season levels in the fourth quarter.

Several passenger and combined airlines saw their cargo revenue increase for the first time in a year during the second quarter. For example, Asiana Airlines, All Nippon Airways, Lufthansa, Delta Airlines, Korean Air, and United Airlines saw revenue grow by 12% and 16%, while revenue declines for other airlines were smaller compared to previous quarters.

According to Xeneta, shippers and freight forwarders on the Northeast Asia-to-Europe market are feeling price pressure, with outbound flights nearly 90% full, but the load factor on return flights is only 43%, down 18 percentage points from 2019. This explains why outbound freight rates are three times higher than return rates. In such cases, freight forwarders are passing on higher rates to customers with long-term contracts, with benchmark rates rising by 30% year-on-year to $4.42 per kilogram.

2. Freighter Airlines Reallocate Capacity

Xeneta noted that despite the rate imbalance between outbound and return legs, airlines still generate higher per-flight revenue in the Asian market than in other markets. International e-commerce from Asia is booming and heavily relies on air freight to deliver parcels to consumers. Currently, e-commerce accounts for one-fifth of air freight volume, and this proportion continues to grow annually.

Canadian cargo airline Cargojet recently began operating three weekly flights from Hangzhou, China, to Vancouver for Great Vision HK Express, providing logistics services for Chinese e-commerce retailers. Cargojet's financial report stated: "Cooling inflation and continued interest rate cuts have increased consumer discretionary spending, particularly in e-commerce services. Early market signals suggest a strong close to the year."

High freight rates in the Asia-Pacific region have prompted some freighter operators to shift aircraft away from transatlantic routes. Air France-KLM Group announced it would suspend several routes to Latin America next month to free up Boeing 747 freighters for Hong Kong routes due to e-commerce demand. Lufthansa Cargo and Cargolux will also reallocate some freighter capacity to Asia starting in November to respond to the e-commerce boom and higher freight rates. Latam Cargo will add two weekly freighter flights starting October 1, connecting Europe and Latin America.

Atlas Air recently announced the leasing of three Boeing 747-8 freighters from BOC Aviation to meet strong e-commerce demand, with plans to deploy them by the end of the third quarter. Atlas is currently the largest supplier for e-commerce platforms and is benefiting from cross-border online sales, which will undoubtedly be positive for the fourth quarter.

Atlas Air operates numerous weekly freighter flights, primarily serving Chinese e-commerce platforms such as Shein, Temu, and Alibaba Group's logistics divisions Cainiao, YunExpress, and courier company SF Group.

Global manufacturing expansion has also driven growth in the air freight market, with factory output in the U.S. and Asia outpacing Europe, and export orders rising. Some airlines and logistics providers reported that besides e-commerce, air freight volumes for various products remained strong.

Jans Kleine-Lasthues, Chief Operating Officer of Air Freight at Hellman Worldwide Logistics, said: "Demand in the fashion industry is very strong right now, making this one of the busiest fashion seasons in years. This is partly due to the Red Sea situation lasting longer than expected. Many garments are produced on the Indian subcontinent, and transportation time has significantly increased to bypass Africa."

3. A Continued Turning Point for Global Freight

According to Xeneta, global air freight demand has slowed since June as sea freight capacity became easier to book, and spot rates on major trade routes stabilized or declined. Air freight volumes in August slowed compared to recent months, growing by about 10% year-on-year. However, this change may just be a typical seasonal fluctuation, as manufacturing levels typically decline during the summer (due to the holiday season).

This year, many shippers delayed ordering to ensure holiday inventory wouldn't be delayed due to Red Sea-related delays. Some shippers have also taken steps to avoid disruptions caused by potential dockworker strikes on the U.S. East Coast, Gulf Coast, and in Hamburg, Germany, or to import goods before new U.S. tariffs are introduced. It remains to be seen whether these factors will affect peak season demand. Some argue that long-term port strikes could put pressure on the busy U.S. air cargo network if shippers change the way they transport urgent goods.

Air freight prices from South Asia and the Middle East to North America and Europe have remained high since April but have fallen slightly in recent weeks. This may reflect reduced demand as sea freight congestion eases and volumes shift from air to sea. The Baltic Air Index showed that air freight rates on the Shanghai-to-Europe route fell by 10% in July compared to the previous month, though still 34% higher than last year. Rates from China to the U.S. also declined but remained at levels typically only seen in the fourth-quarter peak season due to strong e-commerce volumes.

Xeneta pointed out that spot market purchase prices for freight forwarders had peaked and are starting to decline, as cargo volumes on the Northeast Asia-to-Europe corridor reached their peak in mid-June. This cooling trend mirrors developments in sea freight, where spot rates peaked at the end of July before falling by 2% in August.

At the same time, rising export orders have started to slow due to the cooling U.S. economy and weak European consumer spending. If demand is not as strong as before, it could signal a slowdown in air freight growth. However, Xeneta speculates that continued geopolitical turmoil, strong demand for low-value e-commerce goods, and the early Chinese New Year in 2025 will be enough to keep air freight rates elevated.

BMO Capital Markets analyst Fadi Chamoun noted that while e-commerce remains a positive driver for air freight, global air freight still requires broader industry demand, particularly from the industrial sector, for a sustained turning point in the cycle.

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Public account: Cross-Border E-commerce Logistics Baixiaosheng