In 2024, the global air freight market experienced an exceptionally strong first half. With international shipping demand peaking during the holiday shopping season at the end of the year, the market generally expects this momentum to continue and intensify. This trend is expected to put pressure on capacity, driving up freight rates. The primary driver behind this is e-commerce, particularly the sustained growth in the Asian market. Additionally, other factors are also actively promoting the development of air freight.
Despite many companies in the United States and Europe ordering inventory early to avoid supply chain bottlenecks, such as rerouting routes due to conflict zones in the Red Sea, industry consensus suggests that fundamental demand will translate into more transportation activities. However, the issue of orders placed months ahead of the fall season cannot be ignored, which may actually affect future demand volumes. Mixed macroeconomic signals have also led economists to question the sustainability of consumer spending.
1. Sustained Growth Drivers
In a video interview, Michael Steen, CEO of Atlas Air, stated, 'I believe this trend will continue. Despite limited wide-body freighter capacity, freight volumes will increase, affecting freight rates.' He predicts that the high demand and limited supply situation will extend into 2025 and beyond. This expectation reflects the industry's deep insights into future market trends.
E-commerce in Asia continues to be a significant factor driving air freight growth. Although many companies are placing orders early to avoid supply chain bottlenecks, this does not mean that actual demand growth will be curtailed. Instead, driven by robust e-commerce demand and the alternative effect of ocean shipping, air freight demand increased by 13% year-over-year in July. This growth trend is particularly notable during the traditionally slow season for air freight, with volumes showing double-digit growth over the past eight months.
2. Market Pressure and Rising Freight Rates
As the holiday shopping season approaches, FedEx and UPS have announced increases in peak season surcharges. This move not only reflects the sharp rise in market demand but also indicates the dual pressures of capacity constraints and rising freight rates. Meanwhile, other airlines like Cathay Pacific are optimistic about peak season demand, expecting air freight demand to reach new heights this year.
3. Strong Peak Season Demand: The Core of Market Dynamics
Latest data shows that air freight demand increased by 13% year-over-year in July, with China's e-commerce business volume continuing to grow, one of the main factors driving demand.Typically, July is the off-season for air freight, but this year's performance has been exceptionally strong. This robust demand is influenced not only by the weak transaction volume in July 2023 but also by the significant impact of the maritime alternative effect. Long-term trends reveal double-digit growth, underscoring the critical role of air freight in the global supply chain.
Data from the International Air Transport Association (IATA) shows that air freight volumes increased by 14% year-over-year in June, consistent with Xeneta's survey results. This level of growth not only exceeds last year's figures but is also close to the peak levels seen during the early stages of the pandemic.This indicates that despite economic uncertainties, the recovery of global trade and the booming e-commerce sector are driving the continuous growth of the air freight market. Particularly noteworthy is the 16.8% growth in belly-hold capacity, demonstrating the proactive response of passenger airlines in increasing cargo capacity using existing resources.
4. Capacity Constraints and Rising Freight Rates: Dual Challenges Facing the Industry
With the surge in demand, capacity issues in the air freight market are becoming increasingly prominent.Research from BMO Capital Markets shows that flight hours for dedicated freighters increased by 3% year-over-year, indicating that although capacity has increased, it still falls short of meeting market demand. Meanwhile, Dimerco Express' latest report points out that the shortage of wide-body freighters has become more severe due to increased e-commerce demand, especially on routes from China to the United States. Airlines are forced to break down overall capacity agreements into smaller portions, a strategy that alleviates some capacity pressure but further drives up freight rates.
The trend in global spot freight rates further confirms this. Recently, the global average spot freight rate reached $2.64 per kilogram, approaching the year's high point. This price level is roughly the same as last year but has significantly recovered from earlier low points. Rising freight rates reflect both strong market demand and capacity bottlenecks in the supply chain.
According to Xeneta, since June, global air freight demand has started to slow significantly, raising widespread industry concern. Although air freight volumes in August grew by about 10% compared to the same period last year, the slowdown in this growth rate needs to be carefully examined to determine whether it signals long-term market challenges.
1. Behind the Slowdown in Demand: Seasonal Fluctuation or Long-Term Trend?
According to World ACD, last week's typhoon-related flight cancellations led to a significant drop in shipments from Japan, while legal holidays in several European countries affected shipping activities. These factors suggest that the current slowdown in demand may just be typical seasonal fluctuations. Manufacturing typically declines in summer, and holidays can impact transportation activities. Whether this fluctuation will evolve into a long-term trend remains to be seen based on market developments over the next few months.
Xeneta notes that since mid-June, freight volumes on the Northeast Asia to Europe corridor have peaked, followed by a decline in market purchase prices. This change aligns with the development trends in container shipping, indicating structural adjustments in the freight market. In July, freight rates on the Shanghai to Europe route decreased by 10% month-over-month but remained 34% higher than the same period last year. This trend reflects the easing of maritime congestion and a shift in freight volumes to sea transport.
2. Price Volatility in the Air Freight Market: Will High Levels Persist?
Air freight rates from South Asia and the Middle East to North America and Europe have remained high since April, with recent weeks seeing a slight decline. This phenomenon may be due to the shift of freight volumes to sea transport as maritime congestion eases, resulting in reduced demand. However, rates from China to the United States, although declining, remain at levels typically seen only during the peak fourth quarter season due to strong e-commerce transactions. This indicates that despite price declines, peak season demand still supports air freight.
3. The Relationship Between the Global Economy and Air Freight: Will Economic Cooling Drag Down Freight Demand?
In his latest report, Fadi Chamoun, an analyst at BMO Capital Markets, mentioned that while e-commerce remains a positive driver for air freight, the global industry still faces severe oversupply issues. Economic cooling in the United States and weakening consumer spending in Europe could put pressure on air freight demand. Xeneta also pointed out that if demand growth is not as strong as expected, air freight growth might slow down, potentially impacting the long-term trajectory of the air freight market negatively.
Facing the complex market environment, airlines and freight forwarders need to make strategic adjustments.
First, airlines should optimize their route networks, increasing capacity on high-demand routes. On routes from China to the United States, flexible resource allocation strategies should be adopted to improve capacity utilization efficiency.
Second, freight forwarders should collaborate with airlines to develop strategies through flexible capacity allocation and reasonable freight rate adjustments to meet market demands. Additionally, airlines should consider introducing more freighters to enhance overall capacity and ensure long-term competitiveness.
Finally, closely monitoring global economic conditions and policy changes and adjusting strategies accordingly will be key for airlines to maintain competitiveness. In an uncertain economic and policy environment, responding flexibly to market changes will help stand out in intense competition.
Overall, the air freight market in 2024 faces multiple challenges, including slowing demand, price volatility, and economic cooling. However, peak season demand and robust e-commerce growth continue to support air freight. Industry players need to optimize resource allocation, strengthen cooperation, and adjust strategies flexibly to address current market pressures and seize future growth opportunities. Only through forward-looking strategic planning and efficient execution can the air freight industry achieve sustainable long-term development.