Dive Brief:
- Air cargo capacity increased in April as carriers launched summer flight schedules, further driving down spot rates, according to an email update from Xeneta’s Clive Data Services earlier this month.
- Overall capacity jumped 7% YoY in April, largely driven by additional summer bellyspace with the increase in passenger flights. Capacity in the Europe to North America tradelane was up 26% compared to March 2023, according to Clive Data Services.
- Increased capacity paired with lower load factors pushed spot rates on the lane down to $2.29 per kilogram. “This is a market that will test companies … This is a tremendous jump in capacity and, consequently, we saw a corresponding -12% fall in spot rates on these routes,” Xeneta’s Chief Airfreight Officer Niall van de Wouw said in the report.
Dive Insight:
The saturated market and 14th consecutive month of falling volumes signal a “challenging 4-5 months ahead” for air cargo carriers, according to the report. In turn, any ongoing hope for a rebound in demand prior to the upcoming Q4 peak season continues to fade.
“If you listen to their earnings calls, you’ll hear shippers pushing back on expectations of a big inventory replenishment later in the year,” van de Wouw said. “So, these are really tough times for air cargo. The market is in the doldrums [and] we do not currently see this changing until much later in the year or early 2024.”
Although rates are still elevated, spot prices have only continued to soften since April. As of May 15, the current rate for shipments from Frankfurt to the U.S. is roughly $2.15 per kilogram, down 38% YoY, according to the TAC Index. Rates on the London to U.S. tradelane, on the other hand, stood at $1.91 per kilogram, down 54% YoY.
Meanwhile, rates on shipments between China and the U.S. were at $4.20 per kilogram, also down 54% YoY, the TAC Index reported.
Despite the downward trend, customers have continued to opt for ocean freight as they can’t “afford the air freight cost at this point,” Steen Christensen, Seko Logistics COO International, said during a May 22 media call.
“Air freight volumes … have also seen a compression in demand and that leads to the need for longer-term [block space agreements] not necessarily being as urgent as we thought it would have been just a couple of weeks ago,” Christensen said. “So, a lot of spot market negotiations [are] ongoing on a daily basis, and I don’t see an end to that in the next, I want to say, two to three weeks, at least.”
As customers continue to delay long term contracts, air cargo continues to readjust itself according to the changing market. While Q4’s peak season remains uncertain, the changes will “open up new opportunities, but we see a difficult few months ahead,” Xeneta’s van de Wouw said.
