US port strike contributes to storm in air freight market: Xeneta

The global air cargo market in September met analyst expectations and was the first month in 2024 not to see double-digit growth due to strong year-on-year comparison, but demand still rose nine percent year-on-year, according to the latest data from Xeneta.

“Airlines and shippers now face a difficult balancing act between protecting their customer relationships and being tempted by short-term revenue boosts from increasing market volatility, including strikes at U.S. East and Gulf Coast ports this week,” says the update.

Niall van de Wouw, Chief Airfreight Officer at Xeneta, said: “September is already old news. October is a whole new ball game. Due to the fear-of-missing-out effect, rates on some trade routes could rise very quickly due to winter air freight capacity leaving the market, US longshoremen striking and conflict in the Middle East East is escalating, potentially leading to further disruptions to maritime freight in the Red Sea.

“I have great respect for the people who try to overcome these challenges every day and keep the world moving efficiently. How much more can the market take, especially when there are so few future forecasts? Reports suggest it could take four to six weeks for supply chains to recover from just a week-long strike at U.S. ports, bringing us into November, the busiest month of the year for air cargo volumes. It's a difficult situation. Covid was worse, but this is an accumulation of many events and things can change very quickly. FOMO is a powerful force.”

Growth slowed (somewhat) in September
As expected, global air cargo demand growth showed signs of weakening slightly in September, reflecting the strong peak in demand that began in September 2023, the update said. “However, recent monthly volumes were impacted by continued e-commerce demand, the shift from sea to air due to container shipping disruptions, typhoon disruptions and a freight rush ahead of China's Golden Week holiday (June 1-7). October) supported.”

Global air cargo supply grew just three percent year-on-year in September – the slowest growth rate this year as airlines began adjusting their flight schedules in preparation for winter. Xeneta expects to reduce freight capacity across the Atlantic by 20 percent this winter to accommodate lower passenger demand.

“The dynamic load factor – Xeneta's measure of capacity utilization based on the volume and weight of cargo flown alongside available capacity – continued to increase due to the ongoing imbalance between supply (+ three percent) and demand (+ nine percent). It increased by three percentage points year-on-year and two percentage points month-on-month, reaching 60 percent in September.

As a result, the average global spot price rose 26 percent to $2.71 per kg in September, the fourth straight month of double-digit growth and the highest increase this year. “And this came against a backdrop of U.S. Gulf Coast jet fuel prices declining -37 percent year-over-year in the same month.”

Interest rates in Asia, North America and Europe are rising
Looking at the corridor level, spot rates from Asia to North America and Europe topped the chart in September, outperforming the other major global corridors by more than US$2 per kg. “Most rates from Asia to North America and Europe recorded single-digit month-on-month increases in September, with the exception of a slight decline from Southeast Asia to North America. As for year-over-year trends, all of them experienced double-digit growth.”

Several backhaul corridors from North America and Europe to Asia experienced notable month-over-month spot rate growth: Europe to Southeast Asia (+11 percent), North America to Northeast Asia (+ six percent), and North America to Europe (+ four percent). ). Year-on-year, the largest decline was seen in trade from Europe to Northeast Asia, which fell -11 percent due to increased trade imbalances.

Test the fourth quarter
Global events, says van de Wouw, will now put preparations for this year's peak season to the test. “As already mentioned, companies are better prepared this year and the rules of the game between airlines and freight forwarders and between freight forwarders and shippers have been clarified. There are now more precise agreements on how to deal with the storm the market is likely to face.

“There are agreements on tariffs, surcharges and the time frames in which they can be applied, but it will be a difficult balancing act between maintaining relationships and being tempted by the short-term benefits that these market conditions bring .”

“The macroeconomic outlook for 2025 is not fantastic, particularly as it impacts the broader freight transport market. That could make the current volatility and opportunities for fare increases very tempting for airlines. We are already feeling signals that peak surcharges are being accepted by freight forwarders and shippers because capacity providers clearly have the upper hand.

“The agreed rules mean there is less room for the temptation of big tariff increases during a hot peak season. But we see a part of the market where you have to pay to play, and that could become a potential Wild West. Shippers or carriers could end up there due to unforeseen demand and it could be an expensive game.”

A sustained strike at U.S. ports, he says, could provide a significant bonus for airlines crossing the Atlantic from the U.S. to Europe, where load factors would otherwise likely remain below 65 percent even after excess summer capacity is cut. “Due to the low base, there is plenty of scope for these tariffs to increase if conditions become more difficult and goods need to be dispatched. Then the interest rates could triple.”

These factors together continue to support a potential double-digit growth rate for the global air cargo market in 2024, according to van de Wouw.