Rising Air Cargo Rates: E-Commerce Demand and Maritime Constraints Drive Surge
The air cargo market is currently experiencing a surge driven by a blend of factors, including increasing e-commerce demand and maritime constraints. This surge, while beneficial for the short term, raises concerns about its sustainability and impact on peak season growth.
E-Commerce Demand and Supply Chain Constraints
The fervor for e-commerce is a significant factor propelling the air cargo market. Despite this, other market drivers may not maintain their current momentum. Many shippers are preemptively ordering fall inventory to avoid delays caused by longer ocean transit times, port congestion around the Red Sea, and potential dockworker strikes at U.S. East Coast ports. However, this pre-buying might cannibalize future growth rather than indicate sustained elevated trade activity.
Growth Metrics and Market Dynamics
Current growth figures may be somewhat misleading. The market is rebounding from a low base set in the first half of 2023, when cargo volumes were down 10% compared to 2022. This recovery phase suggests that growth gains will be more challenging to achieve in the latter part of the year. Nevertheless, tight capacity and rising prices on main trade corridors are driving businesses to secure transport deals ahead of the peak shipping season.
Airfreight Volume Increases
June saw a 13% year-over-year increase in airfreight volumes, with a 3% increase in shipping supply, according to freight market tracker Xeneta. This marked the seventh consecutive month of double-digit growth in chargeable weight carried by airlines. The International Air Transport Association (IATA) reported a 14.7% increase in distance-based air cargo traffic in May, underscoring a strong recovery.
E-Commerce and Maritime Disruptions
E-commerce continues to fuel air cargo demand, especially direct-to-consumer shipments from China. Additionally, Houthi rebel attacks on commercial shipping in the Red Sea have caused some shippers to switch to air transport or sea-air combined moves. Extreme weather near the Cape of Good Hope has further delayed container ships, potentially impacting capacity if conditions persist.
Impact of Rising Ocean Rates
Ocean shipping costs have skyrocketed, narrowing the cost gap between ocean and air freight. Analysis by Rotate shows that airfreight rates are now only six times higher than ocean freight, compared to the usual 12 to 15 times. This has made air cargo a more attractive option for businesses.
Capacity Challenges and Forward Planning
Securing guaranteed space with airlines is becoming increasingly difficult, with Chinese e-commerce platforms pre-buying long-term capacity. Shippers and forwarders without capacity agreements could face significant rate increases. As a result, businesses are opting for longer-term contracts to avoid freight rate fluctuations during the peak season.
Future Outlook
Despite the current surge, IATA forecasts a potential deceleration in the second half of the year. Air cargo traffic is expected to increase by 5% in 2024, while capacity will grow by 8.6%. This supply-demand imbalance is projected to reduce average shipping prices by 17.5% from the previous year.
Conclusion
The air cargo market is navigating a complex landscape of increased demand, maritime constraints, and rising costs. While the current surge is driven by e-commerce and logistical challenges, the sustainability of this growth remains uncertain. Businesses must strategically secure capacity and plan for potential fluctuations to navigate the evolving air cargo market effectively.
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