Ongoing air cargo ‘peak season’ shows no indication of slowing down

Resilient Air Cargo Market Driven by E-commerce and Ocean Shipping Disruptions

Air cargo operations along the primary trade routes originating from Asia remain in a peak season state, driven by disruptions in ocean shipping and a persistent increase in e-commerce activity, which have kept spot rates at high levels. 

The significant disruptions caused by the global IT outage affecting Microsoft systems in July, which led to flight delays and cancellations for over a week, did not hinder the recovery of the air freight market. 

According to a market update from rate benchmarking platform Xeneta, the resulting cargo backlogs resulted in cargo load factors for certain affected airlines increasing by as much as four percentage points compared to the previous week, with load factors largely returning to pre-outage levels by July 28. 

Air freight rates from Shanghai to North America have consistently remained above $5 per kilogram since March, with the average rate in July recorded at $5.53/kg, representing an increase of nearly 25% compared to the same month last year, as reported by the Baltic Air Index (BAI). Additionally, average rates from Shanghai to Northern Europe this week reached $3.93/kg, marking a 44% year-over-year increase.

 

Niall van de Wouw, the chief airfreight officer at Xeneta, anticipates that the robust year-over-year increase in air cargo demand will continue into August and September, largely due to the low benchmark established last year. 

“In the air cargo sector, all attention is now directed towards late August for the initial indicators of a significant peak season, which would serve as a delightful addition for airlines following the unexpected surge in volumes and demand during the first seven months of the year,” Van de Wouw remarked in a market update on Thursday. 

“Airlines may be beginning to believe that their favorable conditions will persist,” he further noted. 

Typically, air cargo volumes start to rise in the fourth quarter, with peak demand usually occurring in the final two months of the year. However, the industry has effectively been experiencing a peak season since last December.

Thriving e-commerce

The air cargo tonnage and rates are experiencing growth due to the strong demand from buoyant e-commerce in the US and Europe. E-commerce is competing for space on aircraft with time- and temperature-sensitive products, as well as volume from the modal shift from ocean shippers to Europe disrupted by the Red Sea diversions. 

 

Trade routes from the Middle East and Central Asia to Europe saw a significant increase in air cargo spot rates in July, with Xeneta data showing a 126% year-over-year rise to $3.16/kg. This was attributed to ocean diversions around southern Africa and unrest in Bangladesh causing port and airport backlogs. 

The port of Jebel Ali in the United Arab Emirates is facing congestion at its container terminals, leading shippers to switch to air freight and causing bottlenecks in air cargo, according to Crane Worldwide Logistics. 

During peak vacation season, passenger baggage is being prioritized at Dubai Airport, resulting in delays for regular cargo shipments. However, perishables and higher-paid cargo are receiving priority treatment, as informed by Crane to its customers. 

In July, rates from Southeast Asia to North America and Europe more than doubled compared to the same month last year, reaching $5.78/kg to North America and $3.85/kg to Europe, according to Xeneta. 

Strong e-commerce demand and general cargo volume recovery in outbound Northeast Asia markets led to a 30% year-over-year increase in air freight spot rates to North America ($4.39/kg) and Europe ($4.17/kg) last month, as reported by Xeneta.

Source: Journal of Commerce

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