Challenging air freight market with little room for optimism

Deteriorating global economic conditions may prompt some shippers to turn their back on air cargo, but after successful charters over the last two years, we expect dedicated freighter and part charter capacity to remain a fixture for many of our customers.

The numbers are not good for air freight, recording a 9% drop in global volumes last month (compared to 2021) matched by a similar drop in demand.

And the recovery in capacity also lost some momentum in July; up 4% year on year, but 11% lower than in July 2019. So a simple sum says it is still fairly balanced when all parts are considered.

Of most concern to carriers, the dynamic load factor – a measure of revenue generation – fell to 58%, which is 8% down on 2021.

The erosion in rates continues, with global indexes up 121% on 2019, which is actually a contraction of 35% points on a global scale, since January.

The rebound in transatlantic passenger travel added capacity, which pushed rates down, though capacity will likely decrease after the summer tourist season ends and push rates back up. Subject to demand.

China passenger travel remains very subdued and this market consequently has very little intercontinental passenger flights. Another example of the regionalisation of air freight, as a consequence of the pandemic, passenger sentiment and ability to travel. It impacts the rates and capacity dynamics available on each route.

Inventory levels have risen significantly and some buyers are deferring or cancelling orders, as inflation erodes consumers disposable income amid a general slowdown in the economy and demand for products. However other influences abound, including raw material and component shortages, continued turbulent logistics schedules, anticipation of buying patterns and energy costs rising globally, to highlight just a few of the consequences as we evolve from the Covid pandemic.

While inventories in retail goods like fashion and accessories are up, carriers will be looking to other verticals for opportunities, like the automotive and consumer electronics verticals, which have low inventory levels and shortages of many components.

There are dark clouds hanging over the air cargo industry and even though rates are often elevated, volumes are subdued, which means that rates will slowly but surely roll back, but probably not back to where they were before the pandemic.

When we do get a peak season, it will probably be smaller and shorter than in 2021 and previous years, running potentially for six to eight weeks. There will be a sharp increase in demand, volumes and rates as peak season approaches, but this should level off in the following weeks and stabilise, albeit at higher levels than 2019.

Prices remain well above pre-pandemic levels for the slow season, kept elevated by high fuel prices, congestion due to ground handling disruption and some shortages of capacity in some lanes , due to the absence of passenger traffic.

Economic developments will prompt beneficial cargo owners (the biggest volume shippers) to review procurement strategies and those with narrow margins that shifted to air because of the problems with ocean cargo, will go back to ocean, to restore margins. Despite the continued disruption and delays in surface freight movements it has become accepted that supply chain transits are longer and these have now been factored into many businesses plans and stock availability strategies.

Those with the most urgent requirements in the automotive and consumer electronics sectors may prefer dedicated capacity to meet their air freight needs and we will continue to offer the dedicated capacity that will offer the best value and meet our customer’s needs.

Despite the ongoing challenges, we continue to find cost-effective solutions for urgent and time-sensitive shipments, using a blend of scheduled, dedicated and chartered air cargo services. 

We work closely with our global network to continuously monitor market capacity and service opportunities that might benefit our customers.

Evaluating and blocking space on viable services early, including our sea/air platforms and hub services, is a critical factor in achieving the most demanding deadlines. 

Contact Elliot Carlie for insights and advice on how to move your express time-sensitive products globally. Metro are here to support you and always provide and deliver the best available and cost effective solutions to ensure that you receive or deliver your products to market as they are needed. It’s what we do.