Air freight rates show no sign of softening despite dip in demand in May

Current supply and demand dynamics will maintain elevated prices through peak season and into 2022, with analysts predicting systemic market changes that will keep rates at an elevated level in the long term.

The rate of air freight rate growth has slowed on many routes, since peaking at the beginning of May, but rates remain exceptionally high, particularly from Asia.

The effective grounding of the world’s passenger aircraft fleet and the significant removal of much of the related bellyhold space, cut global air cargo capacity by 55% in a single stroke last year.

Lack of bellyhold capacity is still an issue, as slow vaccine rollouts and resurgent COVID variants have kept a lid on passenger numbers recovering. As well as government travel bans globally making it illegal and impossible.

Business travel is also stymied, which is normally a huge contributor to airline income and margins, especially on longer haul flights and it may be that airlines will not be in a financial position to recommission their fleets for some considerable time, particularly as any recovery is likely to miss major tourist seasons and thus any incentive to put more aircraft in the air in the short-term will be less. 

In a further twist Boeing is predicting that the global air fleet will grow by 3.2% annually over the coming 20 years, while cargo demand is expected to increase by around 4% each year over that same time, meaning that available belly freight capacity will fall and suggests that the low freight rates seen in the ten years previous to 2020 may have come to an end.

Consumer driven demand for goods has remained at the highest levels since Q3 2020 and shows no signs of abating, even as we enter what should be the traditional air freight summer lull.

Consumption remains high, inventories low, and supply chain disruption keeping inventories under pressure, with industrial goods, building materials, semiconductors and electronics equipment all in short supply due to breakdowns and delays in the supply chain. This is without considerations of the turmoil and impact of the ocean freight container market woes that are being experienced on a scale unprecedented in history, creating unimaginable delays on products destined for global markets.

The expectation that consumers would pivot from goods to services, leading to slower freight growth in the second half of 2021 is unlikely now, particularly as foreign-holidays and other travel are doubtful, leaving elevated savings intact and available to be disposed of in other ways.

Normal channels of distribution are facing severe backlogs, and shippers with high value or time sensitive goods are struggling to find solutions. Even creative service options, like trucking to inland airports, or moving via tertiary ocean ports are now not always viable. 

With so many shippers prepared to pay ‘whatever it takes’ to move their product, the current supply and demand trends are very likely to push elevated rates through peak season and into 2022, and possibly beyond. 

However there is one positive this week with Birmingham Airport becoming the focus for additional flights and cargo capacity – See the Loadstar article “More time-critical air services could answer prayers of ocean-shy shippers“

The addition of capacity in the form of China Airlines and Cathay Pacific flights returning after quarantine restrictions, may have contributed to a modest decline in Asia-US and Europe prices last week.

We work closely with leading airlines, cargo carriers and key hub partners to offer the widest range of time-sensitive solutions, routes and transit times, at the most competitive rates available in the current market. 

If you have urgent or time sensitive consignments and would like to explore options, transits and costs, please contact Elliot Carlile or Grant Liddell for all options available to ensure that deadlines are always met.