Date: 15/05/2024

China e-commerce dominating air freight

The air freight market showed another solid performance in April as air freight rates increased again against what should be, from a seasonal perspective, a slower trading environment, said an analysis in Baltic Exchange.
It elaborated:
With respect to cargo exported out of China, freight rates on all major trade lanes were up compared to last year, as well as compared to last month. Hong Kong to Europe (BAI 31) rose about 10% month-on-month (MoM) while Shanghai to Europe (BAI 81) rose by ~8% MoM. Compared to last year, BAI 31 was up almost 20% year-on-year (YoY) and BAI 81 was up almost 30% YoY. Again, freight rates for both trade lanes were virtually up every single week in April. The same is essentially true for air cargo rates from Hong Kong (BAI 32) and Shanghai (BAI 82) into North America. Here, BAI 32 and BAI 82 advanced by up to 4% MoM in April. Also, freight rates for both US-destined trade lanes rose by 4-8% YoY when compared to the previous year, which marks the first time this year that freight rates were up for a couple of weeks.
Volume-wise, air cargo continued its recovery from last year’s slump, according to data provided by the International Air Transport Association (IATA) for March. When compared to last year, volumes in March rose by 10% YoY, which is the fourth consecutive month of double-digit growth on an annual basis. According to IATA, the combined 1Q24 cargo traffic exceeded the record heights recorded in the first quarter of 2021. The Red Sea crisis continues to boost global air traffic on a regional level as the Middle Eastern region, as well as Africa, experienced a 20% YoY and 14% YoY, respectively, increase in cargo volumes, topping the league table in March. From a trade lane perspective, volumes for Middle East – Europe (up 38% YoY), Middle East – Asia (up 20% YoY) and Europe – Asia (up 17% YoY) stood out, most likely due to a combination of the Red Sea crisis and sustained e-commerce volume. On the other side of the table, Asia – North America (up 5% YoY) and North America – Europe (up 3% YoY) showed much slower growth.
From a capacity perspective, available air freight capacity almost returned to the peak levels observed in December 2023. Globally, available air freight capacity in March stood 7% above the levels observed last year. According to IATA, the annual growth in capacity was predominantly driven by bellyhold capacity rather than dedicated freighter capacity. The former rose by 21% YoY while the latter recorded only meagre growth of 1% YoY.
Given the strong cargo volume momentum in 1Q24 that IATA recorded, it is worth mentioning that the volume strength is mostly observed in the e-commerce segment that originates in China. This is clearly evident in the latest quarterly results from the major air freight forwarders who recorded only a meagre low single digit increase in air freight volumes in the first quarter. According to their telling, Chinese e-commerce air freight volume comes with a very low profitability, which is why they are reluctant to engage in this market segment. On the flip side, this means that the non-China non-e-commerce air freight segment is growing at a much lower rate (if at all). To some extent this is also visible in the results from the major European carriers who mostly underperformed market growth, sometimes quite significantly so. Granted, the closure of the Russian airspace for European carriers explains some of the underperformance as Chinese carriers have a cost advantage on the Asia – Europe trade lanes but it also shows that there is little volume to pick up elsewhere, said Marc Zeck, Senior Research Analyst, Stifel.