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Slide in air cargo volumes, rates eases amid pent-up demand

Data from IATA, research firms shows market conditions firming in what remains historically strong year

The amount of global air shipments declined during the prior two months in line with slower economic growth and seasonal patterns, while a surprisingly muted post-shutdown recovery of Chinese manufacturing has dampened potential rate increases, according to new market data. More recent indicators, however, suggest the slack period could end soon.

Although weaker volumes combined with a gradual recovery in international passenger belly capacity put downward pressure on prices in June, air transport is still significantly more expensive than before COVID. Compared to the 33% price decline of near-term ocean container moves since September, air freight has been relatively stable. Average cargo rates worldwide actually firmed up the past two weeks and are almost 20% higher than this time last year, World ACD said in a weekly update. Experts attribute the higher rates to the persistent shortage of available widebody airliners that began with the COVID crisis.

Air cargo volumes have now dropped for four consecutive months after huge gains in 2021 relative to 2020 and pre-pandemic levels.

The International Air Transport Association reported Thursday that cargo volume shrank 8.3% in May compared to the unusually strong 2021. That was an improvement from the 9.1% negative growth in April — a figure the group revised upward after initially calculating an 11.2% decline for the month. 

Other air freight data providers issued figures showing the shipping downturn continued in June. 

Viewed through a normal lens, not against the outsized gains of 2021 resulting from COVID distortions, the air cargo market is still poised for a strong year. Summer is typically a slow period for international shipping, which picks up in the third quarter as retailers move orders for the school and holiday shopping events. IATA last month forecast airlines would carry record tonnage in 2022, aided by a strong second half. Revenues are expected to taper off with lower yields but still be nearly twice the value achieved in 2019.

Global cargo-ton kilometers. A CTK is one metric ton of cargo carried one kilometer and is a proxy for volume.

IATA said seasonally adjusted throughput ticked up 0.3% in May from April, a positive sign after two consecutive months of decline and a cumulative drop in demand of 7% between February and April. 

A 2.7% increase in capacity, including 5.7% more space on critical international long-haul flights, supported carriage of more goods, but businesses continue to have difficulty quickly securing uplift because the available supply of aircraft capacity for cargo remains about 12% below 2019 levels. A significant portion of increased transport supply comes from sustained reintroduction of passenger flights for the summer travel season following the widespread easing of COVID travel restrictions. IATA said passenger demand in May increased 83% from last year and that international capacity reached 64% of 2019 levels as the travel recovery accelerated. 

But the Ukraine war has reclaimed some of that new capacity because Western sanctions have knocked Russian all-cargo carriers AirBridgeCargo (ABC) and Atran, as well as smaller, affiliated companies CargoLogicAir and CargoLogic Germany, out of business. ABC parent Volga-Dnepr, an operator of ultra-large cargo jets, is severely restricted in the number of countries it can fly to.

A key reason for the month-over-month uptick in airfreight is China’s ending of COVID lockdowns in May and June, enabling the resumption of more factory production and airport activity. Asia-Pacific airlines were beneficiaries of the change, with cargo volumes down 6.6% in May compared to the 15.8% decline in April. Growth in trade from emerging markets, especially Latin America, also helped offset declines in other parts of the world. 

Ongoing drags for the air logistics system include a downturn in new export orders — a leading indicator of air cargo shipments — in major economies except China. Airfreight analysts say severe staffing shortages and congestion in Europe, such as Germany’s Frankfurt airport is experiencing, and North America continue to subtract from volumes that otherwise would be loaded on aircraft. Once supply chain disruptions abate, more cargo can get through the system.

Mixed signals for airfreight heading into July

The market conditions carried over into June, but there are indications the demand contraction has bottomed out. And in air cargo, as with politics and real estate, dynamics differ by location. 

Muted demand in the Asia-North America market contributed to a 5.7% decline in North American volumes, but the Europe – North America route remains strong, IATA said. U.S. air volumes are up 12% through May, but tonnage declined 4.5% in the Asia-Pacific corridor for the April-May period while European traffic increased 15.5%, according to the latest data from the U.S. Department of Commerce’s Bureau of Trade Statistics.

Favorable conditions for air cargo include ongoing ocean shipping congestion and concerns of labor unrest at U.S. West Coast ports, where stevedores are negotiating a new contract, continued low inventories in many retail categories and the need for more shipping to make up for the COVID pause in Chinese manufacturing. The Purchasing Manager’s Index shows China’s manufacturing sector expanding again in June after shrinking for three months.

 Airfreight market analytics firm Xeneta’s Clive Data Services reported that June global volumes fell 8% year over year, following May’s 7% decline. The company’s Clive Data Services unit has arrangements with many carriers to capture current data from widebody passenger and all-cargo aircraft, in contrast to IATA’s lagging data from carriers. Cargo capacity increased 6% from 2021 but is still down 11% from pre-pandemic levels, it reported Wednesday.

Compared to 2019, June demand was down 7% following an 8% drop in May.

The supply-demand dynamics are captured in Clive’s load ratio analysis showing 59% of each aircraft’s available cubic volume is filled with cargo — nine points lower than in 2021 and two points less than in 2019.

With demand softening as available space increases, freight rates dropped five points from May and three points from the 2019 comparison. Rates are still 129% above the pre-pandemic level and 13% above 2021. 

Another benchmarking firm, World ACD, said that aircraft payloads fell 9% during the second half of June versus last year. Average rates remain broadly stable despite an 11% recovery in cargo capacity. Since May 1, rates have only dipped 10 cents to $3.90 per kilogram and are still 19% above a year ago.

World ACD, which analyzes 350,000 actual transactions between airlines and logistics companies, reported average yields from North America are up 25%, year over year, during the past two weeks despite a 9% drop in volumetric weight and an 18% capacity hike. Similarly, prices from Europe are 12% higher despite a 4% drop in demand and a 21% rise in capacity. 

The trend is most pronounced on the North Atlantic trade lane, where passenger airlines have noticeably augmented flying schedules and cargo rates have dropped 30% since the first week of April. At about $3.50 per kilogram at the end of June for flights from Europe to North America, spot rates were about 5% lower than in 2020, according to Clive Data Services.

With more passenger aircraft offering cargo belly space over the Atlantic, all-cargo operators could redirect freighters to markets where pricing is stronger, such as Asia, said Naill van de Wuow, Clive founder and Xeneta chief airfreight officer. 

The Baltic Air Index also reflects how a dip in extremely high cargo prices still means shippers are  paying more for transportation than last year, or three years ago. 

The cost for cargo flights from Hong Kong to Europe retreated 2.3% to $6.26 per kilogram during the four weeks ending July 4, while the Hong Kong-U.S. corridor fell 9.4% to $7.92 per kilogram. Those prices are still well above 2019 levels as a majority of transactions are driven by spot rates.

Overall, Hong Kong and Shanghai rates to Europe are 44% and 77% above 2021 levels, respectively. On those origins to North America the gap between 2021 rates is smaller, at 11% and 25%, respectively.

That rates didn’t move up much in June surprised analysts and transport providers who anticipated a shipping boom from China to make up for lockdown inactivity. Chinese manufacturing is ramping up more gradually than some expected, possibly due to more conservative ordering as consumers spend again on services and cut back on purchases because of inflation. An easing in fuel prices also tempered an increase in base cargo rates, wrote Bruce Chan, senior global logistics analyst at Stifel, in a column for the Baltic Air Index newsletter

Click here for more FreightWaves/American Shipper stories by Eric Kulisch.

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Eric Kulisch

Eric is the Supply Chain and Air Cargo Editor at FreightWaves. An award-winning business journalist with extensive experience covering the logistics sector, Eric spent nearly two years as the Washington, D.C., correspondent for Automotive News, where he focused on regulatory and policy issues surrounding autonomous vehicles, mobility, fuel economy and safety. He has won two regional Gold Medals from the American Society of Business Publication Editors for government coverage and news analysis, and was voted best for feature writing and commentary in the Trade/Newsletter category by the D.C. Chapter of the Society of Professional Journalists. As associate editor at American Shipper Magazine for more than a decade, he wrote about trade, freight transportation and supply chains. Eric is based in Portland, Oregon. He can be reached for comments and tips at ekulisch@freightwaves.com