More shippers are looking to lock in air freight rates via longer-term deals with freight forwarders, according to Xeneta’s 2024 Outlook Mid-Year Air Freight Update.
The Xeneta report begins by highlighting global air cargo demand grew 12% year-on-year during the first seven months of 2024.
The report states that several key factors contribute to this unexpected increase in demand.
“The demand surge in the first seven months of 2024 was a result of fast-rising cross-border e-commerce demand from Asia; disruptions in ocean shipping disruptions due to the Red Sea crisis; a broader general cargo demand increase driven by high-tech semiconductors for high-performance computing and the AI boom; and a low comparison base from last year,” reads Xeneta’s 2024 Outlook Mid-Year Air Freight Update.
If this trend continues, Xeneta also believes that 2024 could see double-digit growth for the full year.
Capacity increases not keeping up with demand
On the supply side, Xeneta says that global air cargo capacity grew by 4% in the first seven months of 2024. The supply growth was most pronounced in the outbound Northeast Asia market.
However, the momentum has been waning, with year-on-year capacity growth falling from 7% in January to just 2% in July. The report highlights that the supply growth, which aligns with Xeneta’s earlier forecast of 2-4% for the year, contrasts sharply with the surge in demand.
This imbalance, it is said, has resulted in significant upward pressure on air cargo spot rates, which have defied typical seasonal patterns. Xeneta notes that traditionally, summer months witness a slack in demand and rates; however, 2024 has seen rates climb to unprecedented levels, particularly in outbound Asia markets.
Conversely, the Transatlantic market has not been as affected, says Xeneta, with freight rates showing more traditional seasonal adjustments due to ample cargo capacity.
“In the near term, the air cargo market will remain buoyant as spot rates (valid for up to one month) stay above seasonal rates (valid for over one month), with a widened gap,” says Xeneta.
The continued influence of geopolitics
Looking ahead, the report suggests that geopolitical tensions will continue to exert influence on the air cargo market.
It is anticipated that ongoing conflicts in the Middle East and Ukraine, coupled with potential union strikes at U.S. East and Gulf Coast sea ports, could further tighten air cargo capacities during the year-end peak season.
Additionally, Xeneta says the potential for more U.S. protectionism, especially under a Trump presidency, could trigger a rush to import goods from China.
“Geopolitics such as US protectionism will almost certainly come into play. For example, a Trump presidency would likely cause a rush to import goods from China ahead of new tariffs,” reads Xeneta’s report.
Xeneta adds that while weakening consumer demand might exert downward pressure on rates, it remains uncertain if this will counterbalance the upward forces that have dominated 2024.
Use of sustainable aviation full is far from common
The report also addresses the environmental impact of the current shift back to air cargo. In 2023, many shippers attempted to transition from air to the cheaper and less carbon-intensive ocean container shipping.
However, the disruptions in ocean freight have reversed this trend, with air cargo once again becoming the preferred mode for time-sensitive shipments. Despite ongoing efforts towards sustainability, the green transition in air cargo is progressing slowly.
The report, citing IATA sources, also underlines the fact that the use of sustainable aviation fuel is far from widespread:
“Sustainable Aviation Fuel (SAF), a key factor for airlines to meet the 2050 net-zero carbon emissions target, accounts for less than 1% of aviation fuel consumption in 2024.”
More shippers signing longer-term contracts with forwarders
In response to the volatile market conditions, the report notes a strategic shift among shippers and freight forwarders towards securing longer-term contracts.
“Air cargo stakeholders have indeed shown increased interest in longer-term contracts – but the motivations for doing so may be evolving. For instance, over six-month contracts signed by shippers with freight forwarders increased from 41% in Q3 2023 to 54% in Q2 2024. The longer-term contracts signed before January are likely a reflection of the anticipated calmer market. However, the increased interest in longer term contracts after early January is mostly triggered by surging cargo demand from e-commerce and Red Sea disruptions.”
Xeneta adds that as it stands, shippers are keen to have rates guaranteed for the Q4 peak season before the market escalates further due to fears over capacity limitations.
Photo by Bernd 📷 Dittrich on Unsplash