Demand for air cargo grows for third month in a row

Global air cargo market demand rose 11% year over year for a third consecutive month in March, driven by robust e-commerce volumes and concerns regarding the ongoing Red Sea crisis, ocean and airfreight rate analytics platform Xeneta said in a report released today. “In what are typically weaker months of the year for the airfreight industry, these higher volumes outpaced growth in capacity supply in Q1, which increased by 8% YoY,” Xeneta stated in the report. This led to growth in the global dynamic load factor. The load factor in the first three months of 2024 rose 2 percentage points YoY to 59%; March’s load factor rose to 61%. “While this latest monthly data should be balanced against the lower base recorded in the corresponding month of 2023, when we saw weakened global manufacturing activities, Q1 2024 has still seen a surprisingly busy airfreight market,” Xeneta Chief Airfreight Officer Niall van de Wouw said in the release. Van de Wouw said this momentum is expected to continue in the near future, especially if Houthi rebels continue attacking shipping vessels in the Red Sea, leading shippers to turn to air cargo. “Although the market didn’t benefit immediately, the Red Sea disruption was clearly a factor in these latest figures,” van de Wouw said. “Airfreight growth was primarily driven by increased volumes from the Middle East and South Asia as shippers shifted services from ocean to air to avoid Red Sea delays . We also cannot underestimate the importance of e-commerce growth, which shows no sign of abating on its most prominent lanes.” The average global air cargo spot rate in March increased 7% from the previous month to $2.43 per kilogram, Xeneta reported. [caption id="attachment_57142560" align="alignnone" width="1024"] (Courtesy/Xeneta)[/caption] Red Sea crisis drives up spot rates Xeneta reported spot rate changes in the following corridors in March, compared with February: Middle East- and South Asia-to-Europe rates rose 46% to $2.82 per kilogram, up 71% YoY; India-to-Europe rates rose 68% to $3.38 per kilogram; India West Coast-to-North Europe rates fell 9%, but remained 340% above December’s level, prior to the Red Sea disturbance; Middle East- and South Asia-to-United States rates rose 35% to $4.03 per kilogram, up 51% YoY; Europe-to-United States rates rose 3% to $2.12 per kilogram, with Xeneta attributing the modest increase to this corridor being less impacted by the Red Sea crisis; China-to-Europe rates fell 3% to $3.64 per kilogram as the market cooled after the Lunar New Year in February, but rates are still up 5% YoY, boosted primarily by e-commerce demand and a modal shift from the Red Sea; China-to-United States rates fell 2% to $4.06 per kilogram, again due to market cooldown following the Lunar New Year, but rates were up 15% YoY due to e-commerce growth and delayed belly cargo recovery; South America-to-United States rates fell 12% to $1.25 per kilogram as the floral market demand eased, leaving its YoY decline at 7%; and South America-to-Europe rates fell 18% to $1.75 per kilogram, down 11% YoY. Shippers favor shorter-term contracts The March data shows that freight forwarders continued to purchase a larger share of volumes on the spot market, keeping options open in the hopes of a resolution to the Red Sea disruption, Xeneta reported. Forwarders are also planning for the typical imbalance between demand and supply as more belly capacity comes online for the summer travel season. The share of volumes in the spot market in Q1 accounted for 43% of the total market, compared with 31% in Q1 2019, “as expectations of a ‘normalization’ of the cargo market prompted freight forwarders to take short-term risks in the spot market in the hope of longer-term gains,” Xeneta reported. For similar reasons, shippers favored short-term capacity contracts in Q1 over longer-term contracts, with three-month contracts accounting for 41% of all new contracts, up 18 percentage points from the previous quarter. The preference for six-month contracts declined 23 percentage points from the previous quarter. [caption id="attachment_57142561" align="alignnone" width="1024"] (Courtesy/Xeneta)[/caption] Despite these uncertainties, the air cargo market is strong right now, according to Xeneta. “The air cargo market has clearly enjoyed a stronger-than-anticipated start to the year, but there’s a different quarter coming along and more capacity coming in, so we do expect an overall downward pressure on load factor and rates, aside from selected corridors where the continuing rise of e-commerce and the residue of the Red Sea uncertainty will continue to boost rate levels,” van de Wouw said. “But this is now six months in a row that the air cargo market has been stronger than we expected. When is it going to slow down? Only time will tell but, right now, airfreight demand is surprisingly resilient.”

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