New heights: 2022’s evasive winter peak

Gear? Check. Capacity? Check. Volumes? Still needed. But it’s time to go. Airfreight stakeholders strap in each year before the holiday rush, reevaluating shipments, inventories and capacity for the consumer splurge market that gives rise to peak season highs. This year, while forwarders anticipate a rise in demand tied to the holidays, the peak season of pre-pandemic years remains elusive . Instead, forecasts predict a “muted peak” on the horizon, as retail and e-commerce continue to feed demand while general airfreight movement stays solid. Stakeholders are entering this year’s period with uncertainty, Audrone Keinyte , chief executive at Bluebird Nordic and BBN Cargo Airlines Holdings, told Air Cargo World. Express carriers and integrators especially are being cautious, “because the peak season is not as such as it used to be,” she said. Moritz Claussen, co-chief executive of digital booking platform cargo.one, agrees. “It's been the problem over the two years since COVID; it feels like the past two years have [been] peak season,” he told Air Cargo World . Ranging peaks Prior to the COVID-19 pandemic, peak season was defined by a surge in holiday-related retail shipments that began at the end of August and continued through the fall. “You’d see volume spikes of 15% to 20% depending on their cargo,” Brandon Fried, executive director of the Airforwarders Association trade group, told Air Cargo World , recalling previous peaks. Traditionally, cargo space between Europe and North America would constrict during the peak season, according to a September report from market analyst Xeneta . But now, it's changing. “For the pre-COVID period, it was typically stable — normally before Chinese New Year — but from 2020, the peak season has been defined less by the calendar year and more by special products or events,” a spokesperson for freight forwarder Dimerco told Air Cargo World. 2020 was the peak of the so-called “preighter, ” or passenger-to-freighter conversion aircraft. As carriers looked to recoup lost revenue from pandemic-restricted passenger flights and shippers strove to find capacity wherever they could, the preighter came to the rescue. Cross-border e-commerce jumped into the spotlight in 2020, surging as brick-and-mortar retail locations remained closed and COVID-19 prompted a second wave of stay-at-home orders. Dimerco saw the 2020 peak take place with the surge in PPE shipments from China , recalling long lines from Shanghai Pudong Airport (PVG) stretching more than 2 kilometers, the spokesperson said. Following 2020, the entirety of 2021 was a peak season itself for many airfreight stakeholders, as a record-breaking number of volumes moved through airports and PPE and e-commerce demand created unusual spikes . The year was a “period of irrational exuberance,” as Fried put it. Stakeholders were willing to pay extraordinarily high rates to move freight despite the limited capacity, throwing the market off-kilter. Consumer tech products were another driver of the 2021 peak , Dimerco’s spokesperson said, as new ly released versions of the iPhone and PlayStation driving more than 200 freighter charters that year between September and November alone. Limited capacity from Asia-Pacific created a rocky landscape for the 2021 peak as well. During the week of Dec. 13, 2021 , airfreight rates from Shanghai Pudong Airport (PVG) to Europe and the U.S. were $8.62 per kg and $16.22 per kg, respectively. The same week 2019 saw rates at $2.86 per kg and $3.31 for Europe and the U.S. Trans-Pacific charters ranged between $2 million to $3 million . Seeing the summit This year’s peak, however, is being deflated by recession worries and inflation in the U.S. and European Union, high energy costs resulting from the war in Ukraine and higher inventory levels, according to a September airfreight market report from Dimerco. The global growth forecast set by the International Monetary Fund will shrink from 6% in 2021, to 3.2% in 2023 and diminish to 2.7% in 2023, the "weakest growth profile since 2001," according to the Oct. 11 World Economic Outlook report. There is “no indication that demand will pick up from a macroeconomic perspective,” Niall van de Wouw, chief airfreight officer at market analyst Xeneta, said in the company’s September report. In Asia, “there’s no sign of a peak season at all,” Dimerco’s spokesperson said, adding that lifted lockdowns for Shanghai and other parts of China in the past few months “ did little to increase freight volumes .” “For example, one of the world’s top consumer electronics brand’s customers had arranged a charter over a few months ago in anticipation of a rise in orders, but when that charter was scheduled to fly, it went out more than half empty due to the [slow] market,” the spokesperson added. Regionally, Asia has seen macroeconomic weakness this year tied to COVID-19 lockdowns in major Chinese cities along with a slowdown in manufacturing. A Freightos survey of 200 importers and exporters found 55% of businesses planned to place peak season orders early this year, with 74% citing delays during the 2021 peak as motivation to move shipments earlier. Similarly, Dimerco reported high inventory levels are limiting new purchases from stakeholders. Inflation is also playing a role in this year’s peak, experts agree. Two-thirds of small and medium-sized businesses saw a decrease in customer demand, according to Freightos. “High interest rates and then high inflation are curtailing the orders or inventory purchases,” Edip Pektas , chief innovation officer at ground handler Alliance Ground International (AGI) and founder of digital air cargo capacity exchange Airblox, told Air Cargo World. Moreover, San Francisco-based forwarder Flexport note d inventory balances have increased globally, partially because sales have fallen below original demand expectations , but also because businesses are looking to avoid repeating stock-outs during the holidays. “Most of these retailers are not going to be caught shorthanded again; they’re waiting for the next spike, and it doesn’t take much,” Airforwarders Association’s Fried said. And forwarders have seen the impact of near-shoring in the U.S. region, particularly in Central America and the Caribbean , as manufacturers and retailers move supply closer to their final destinations. “As we can see, warehouses in both the U.S. and EU are full, and companies may need months to clear out some of this inventory due to soft consumer demand,” the Dimerco spokesperson told Air Cargo World . “This situation will last through the first half of 2023 at least.” Danger on the mountain While complications around COVID-19 have diminished, rail strikes and maritime congestion threaten the delicate balance of the supply chain. The industry is normalizing, experts agree, but that doesn’t mean airfreight is out of the woods, Fried said. “It can be much more than COVID that can spike, and I think retailers have learned that it’s better to have more supply on hand than not,” he said. “Certainly we’re seeing that in the short-term warehousing market: no warehouse space to be had anywhere because these suppliers are so full.” As the market normalizes to pre-pandemic levels it creates a natural depression in rates and market demand , Fried said . It’s a “buyer’s market,” at present, Xeneta’s van de Wouw said in an Oct. 11 webinar with Scan Global, noting that the global load factor is low at 60%, a decrease of 7 percentage points from 2021 . “The fall in general airfreight rates and load factor are likely to be exacerbated by the continuing return of capacity, even as we head toward a winter season when, traditionally, we would expect to see cargo space in the prime Europe and North America markets cut back,” van de Wouw said. Meanwhile, rates ex-China from Hong Kong and Shanghai have fallen from 2021’s dramatic highs but still remain higher than pre-pandemic levels, according to the Baltic Exchange Air Freight Index. As of Oct. 10, rates from PVG to Europe and the U.S. were $5.56 and $6.20, respectively, 22.5% and 45% lower year over year. [caption id="attachment_57132492" align="alignnone" width="925"] Source: TAC Index[/caption] Dimerco’s Oct. 3 market forecast noted all destinations from Asia to the U.S. and Europe have soft or rising capacity and stable rates, another atypical factor for Q4. And on the e-commerce side of the industry, further B2C volumetric rise is anticipated . Amazon held a second Prime Day this year, Oct. 11-12, offering pre-holiday deals and dissolving its inventories following the record-breaking $73.7 billion spent by consumers on the first Prime Day of 2022. And earlier this week, DHL said it would revise its 2022 EBIT guidance resulting from strong e-commerce shipments . Meanwhile, software giant Adobe’s online shopping forecast for the holiday season predicts earlier discounts in October will reduce the impact of later holiday shopping around Thanksgiving weekend, when Black Friday sales are a typical driver for airfreight volumes in the U.S. Navigating the climb The hallmark of a peak season — higher-than-normal volumes — has yet to be seen . But if and when these volumes need to be moved, airfreight stakeholders are ready to tackle them. For digital booking companies, peak season depends on carrier offerings and how capacity grows in response to airfreight. Booking windows have grown with digital adoption and the challenges related to COVID-19, with shippers planning further ahead by a day or two, and cargo.one’s Claussen told Air Cargo World he predicts this to remain true if capacity is limited during the peak. From a carrier perspective, peak seems “quite well,” Bluebird’s Keinyte said. Bluebird, for one, has continued to charter aircraft and provide capacity for its customers, and has even expanded its network offerings to offer additional services, she said. Express carriers have been charging a “peak season surcharge” since March 2022, forcing customers to shoulder some of the costs, Nate Skiver, founder of e-commerce consultant group LPF Spend Management, told Air Cargo World . “Peak surcharges have been in place since June 2021, and so since then there’s been several iterations — not just from FedEx or UPS , but those are the major players obviously — around a lot of its residential delivery, oversize, big and bulky shipments,” Skiver said. FedEx implemented “peak” season surcharges in March for parcel and freight shipments from Asia Pacific, Europe and India, which it increased in April and has held since. UPS has held similar charges and also implemented a demand surcharge in October. Surcharges will spike for the winter around the beginning of Q4, Skiver said, targeting larger shippers with volume criteria. “Carriers into this last peak to where they're really having the large shippers bear a fair amount, not all of the brunt of this expense [of holiday surcharges],” he said. For forwarders, capacity is still a challenge, Fried noted. “We still have members [of AfA] who are chartering aircraft on a consistent basis,” he said. “A lot of forwarders have decided that it’s just more stable to charter their life and also overfly the congested airports.” Overall capacity is nearing 2019 levels as airlines schedule additional flights for the winter season and summer 2023. Data from OAG found November 2022 will have 25% more flights than November 2021 and 73% more than November 2020. Passenger travel surged in Q3 from Europe and the U.S., and Asia is catching up with bellyhold capacity. Hong Kong and Japan modified travel restrictions in September, creating additional connectivity to key markets, but airlines still have to recuperate their staff and fleets . Preighters, meanwhile, are much less common this year, Fried said. Tied to stricter government regulations on converted aircraft in Europe and North America and the return of passenger travel, they are less in demand, and carriers “need those airplanes back to fly passengers,” he added. Despite more nations in Asia-Pacific dropping COVID-19-related restrictions, it will be a while before capacity and demand pick up from the region because stakeholders in the region still need to secure the labor force to get back to typical operations, Fried said, adding “they’re facing the same talent challenges that everyone else is.” Airfreight stakeholders are watching their steps, remaining cautious about what lies at the top of the 2022 peak as the winter winds remain volatile, deviating from historic standards and requiring flexibility and resilience throughout the climb.

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