Air cargo may grow even as ocean rates drop

Logistics experts expect the air cargo market to improve this year, despite dropping ocean freight rates. San Francisco-based supply chain giant Flexport ’s March 14 Market Update reported continuing decreases in ocean rate on many trade lanes, with vessel utilization from Europe to North America “in the 65% to 70% range, down from 90% a few months ago.” During the pandemic, many shippers moved away from ocean to air for speed as ocean rates rose and the cost gap between the two shrunk. Now that ocean rates are normalizing, some shippers may return to ocean, but air cargo experts are skeptical. Smaller orders lead to more air cargo usage Shippers are not returning en masse to ocean freight, according to Robert P. Imbriani, vice president of international services at Winnsboro, Texas-based logistics supplier Team Worldwide . “In general, we’re seeing the opposite: an increase in air cargo at a time when the ocean rates are dropping in many trade lanes,” he said. This is partly due to the slowing economy and lessening demand, he said, as orders are not as large as they used to be, and shippers cannot benefit from cheaper bulk ocean prices like before. Smaller orders are leading to more air cargo usage, Imbriani said. He also said that “companies are looking to shorten their order cycle, their payment cycle, and air cargo lends some benefits to that.” While some industries that traditionally have used ocean cargo are returning, Imbriani said he sees more companies continuing to use air cargo. The latest data from CLIVE by Xeneta , released in March, reported that the global average air freight spot rate declined 35% year over year in February to $2.73 per kg. While those spot rates are still higher than pre-pandemic figures, they are falling. Matt Castle, vice president of air at logistics firm C.H. Robinson , said he sees a similar shift, with industries that have traditionally used ocean freight returning to it as the supply chain normalizes. “Both modes are back on the table as reliable options for shippers,” Castle said, adding that events such as seasonal inventory changes and a continued increase in passenger travel “may lead to a slight increase in air demand in certain regions and lanes compared to the start of 2023.” Air cargo is poised to meet an increased demand, as IATA’s latest figures reported a 3.9% YoY increase in air cargo capacity in January and the CLIVE report showed an 11% YoY increase in February. IATA reported a 2.3% YoY increase in capacity for North America carriers in January. Asia Pacific carriers increased their capacity 8.8% YoY and Middle Eastern carriers increased their capacity 9.6% YoY. Latin American carriers had the largest capacity increase at 34.4% growth YoY in January. Europe and Africa were the only regions to see capacity decrease, shrinking by 9.3% and 1.8% YoY respectively. Demand, however, fell 14.9% globally YoY in January, according to IATA. Latin America was the only region to experience increased demand, with 4.6% CTK growth YoY. AfA expects surge in demand, shipments Despite the slow start to 2023, the Airforwarders Association (AfA) also expects to see increases. Brandon Fried , the organization’s executive director, said AfA expects “to see a surge in demand and, hence, shipments in the second half of 2023.” Fried also said that “as demand increases, manufacturers will need essential products, ingredients and machine parts to keep factories running. The speed of air cargo will make that happen and, hence, our industry will see an increase in activity.” According to Flexport’s timeliness indicator, air cargo speeds increased from 7.8 days to 7.9 days for Transpacific Eastbound (TPEB) routes and decreased from 9.8 days to 9.6 days for Far East Westbound (FEWB) routes from March 5 to March 12. Meanwhile, ocean speeds decreased from 74 days to 72 days for TPEB routes and increased from 77 days to 81 days for FEWB from March 5 to March 12. Air cargo was 9.1 times faster than ocean on TPEB routes and 8.4 times faster on FEWB routes. Flexport’s update also reported increased air cargo demand in China, Europe and the Americas. U.S. skepticism continues Team Worldwide’s Imbriani said the U.S. will continue to see skepticism toward ocean freight due to issues such as train shortages and delays at terminals. He pointed to the complaint system put in place by the Federal Maritime Commission as part of the Ocean Freight Act of 2022. “They’ve been getting hundreds, if not thousands, of complaints of excess demurrage charges, detention charges, delays at the terminals,” Imbriani said. “While those have gone down some, they still exist here in the U.S.” Imbriani said shippers remain skeptical of ocean and that the reliability and scheduling of ocean is not as consistent as it once was, partly due to blank or ghost sailings. He defined ghost sailings as when companies reposition empty vessels to take advantage of another trade lane or to try and reduce capacity. “The ocean carriers are coming off a time where they made more per container than they ever made in the history of containers. And now some trade lanes are at the lowest or very close to the lowest price in many years,” said Imbriani. “So, they’re making adjustments to try to stabilize the prices, to bring them back up some.”

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