According to a recent report by Xeneta, in June, the global air cargo market experienced its sixth consecutive month of double-digit growth, with demand measured in chargeable weight increasing by 13% year-on-year.
However, the report also finds that cargo supply grew at a slower pace of only 3% year-on-year. This imbalance has led to a 4% increase in the global air cargo dynamic load factor, indicating higher capacity utilisation based on the volume and weight of cargo flown alongside available capacity.
The calm before the storm?
Despite the impressive growth figures, experts warn that the market may be experiencing the calm before the storm.
“June’s growth in demand was not surprising, and we expect to see a continuation of double-digit year-on-year growth in July and August due to low demand in the same months last year,” said Niall van de Wouw, Chief Airfreight Officer at Xeneta. He added, “The global machine is humming along nicely at this level – but this is likely the calm before the storm in terms of air freight rates.”
Anticipated rate increases for Q4
As Q4 approaches, Xeneta anticipates that the air cargo market is to heat up, particularly in many Asian markets. Airlines and forwarders are already considering implementing peak season surcharges by the end of August.
Commenting on this, Xeneta’s Chief Airfreight Officer said:
“I’ve heard already that certain airlines and forwarders are thinking of implementing a peak season surcharge by the end of August. There’s a consensus it will be a hot Q4 for air cargo in many Asian markets. We expect lower demand growth year-on-year in the second half of 2024 because of such a strong Q4 2023 comparison, but if you haven’t arranged your Q4 capacity by now, you could be in for quite a ride. Shippers will pay more throughout Q4, the question is how much more?”
Regional rate variations
According to Xeneta’s report, the e-commerce boom, disruptions in ocean freight due to conflict in the Red Sea, and general improvements in global manufacturing activities were the primary drivers behind the significant increase in global air cargo spot rates in June.
These rates saw their largest increase of the year, climbing 17% year-on-year to USD 2.62 per kg.
On a corridor level, Southeast Asia to Europe and the US markets saw the largest cargo spot rate increases in June, growing 14% versus May to USD 3.65 per kg and USD 5.32 per kg, respectively. Meanwhile, rates from Northeast Asia to Europe and the US also experienced modest increases, up 5% to USD 4.26 per kg and 4% to USD 4.00 per kg.
Conversely, outbound China markets stalled, with rates dipping 1% to USD 4.09 per kg to Europe and USD 4.80 per kg to the US. The Europe to US spot rate fell 4% to USD 1.69 per kg, attributed to increased belly capacity from summer passenger flights.
Strategic shifts in contract lengths
Given the market uncertainties and potential for an air cargo rate boom in Q4, Xeneta’s report notes that shippers are adjusting their preferred contract lengths. In Q2 of 2024, contracts lasting more than six months topped the list, with an increasing share of 28%.
This shift, it is said, indicates a strategic move to avoid extreme freight rate fluctuations expected during the year-end peak season.
Finally, Xeneta also observes how freight forwarders are procuring fewer cargo volumes in the spot market.
For example, in Q2 of 2024, the proportion of cargo volumes procured in the spot market accounted for 42% of the total market, showing a 3% reduction versus a year ago.
“As we head into the second half of the year, it might be now or never to consider longer-term contracts. With a mix of ocean shipping chaos, an upturn in manufacturing activities, and fear-of-missing-out, a delicate balance of short and long-term contracts is on everyone’s mind. Only time will tell, but whatever happens, you’re going to be paying a lot more to ship goods from Asia Pacific once September comes,” concluded Van de Wouw.