Air cargo capacity likely to exceed demand for foreseeable future

Airfreight limped into 2023 with weak expectations, and the first two months of the year have done nothing to change that, according to the latest market advisory from Denmark-based forwarder Scan Global Logistics. Airfreight rates have softened. The Drewry East-West Airfreight Price Multiplier increased to 16.6, indicating how much the cost advantage of ocean freight has become in recent months. Hence, relatively speaking, airfreight rates have had a softer landing than seen on the ocean freight side , the advisory noted. Valentine’s Day boost One bright spot, however, was Valentine’s Day, with strong demand for cut flowers from Africa and Latin America headed northbound, which impacted volumes positively. [caption id="attachment_97063" align="alignright" width="300"] (Photo: Scan Global Logistics)[/caption] SGL described this as “ a mere blip on the radar in the big picture ” as overall tonnage and rate levels year over year remain significantly below 2022. At the same time, SGL said it is important to highlight that market rates remain above pre-COVID-19 levels. Re-opening China drives increased capacity Meanwhile, the post-pandemic increase in capacity continues with the re-opening of China’s mainland. “ While it may be the case that this, on paper, looks to increase the imbalance between supply and demand, projections are also that a corresponding increase in trade with China will occur, with these two parameters expected to even out each other, ” the advisory stated. Price trends remain stable “ On the trans-Atlantic trade from Europe to the U.S., rates continue to remain fairly stable, albeit with ocean freight rate decreases likely acting as a catalyst for the same on the airfreight side,” according to the the advisory. “In turn, we see market rates trending downward in most Asian destinations. But here as well, some destinations remain more stable, namely [South] Korea and the majority of southeast Asia countries. For Africa, only minor fluctuations are noticeable, and the market will remain stable and the same goes for exports to Latin America.” Looking ahead The change from winter to summer flight schedules typically triggers a gradual increase in capacity toward the mid-summer months , especially from Europe to the U.S., and this year that is likely to come on top of soft demand, the advisory stated. However, some counterbalancing factors continue to exist in the form of uncertainty over full freighter capacity , elevated fuel prices and staff shortages. “We maintain a view that supply will exceed demand for the foreseeable future, which also leads an increasing number of customers to gauge the possibility of locking in rates for three to six months as opposed to ad hoc procurement, which has become the norm over the last three years,” according to the advisory. One factor to look out for is the potential threat of labor strikes in the air transport sector over wage demands, particularly in Germany, France and the U.S., the advisory added.

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