Air Cargo Rates Plummet, Predicting a Winter of Discontent

With volumes down and capacity up, July saw global air cargo rates continue their downward trajectory – foreshadowing a tough winter season for airlines, according to market analysis by Xeneta-owned CLIVE Data Services.

“The month of July rarely provides any surprises in terms of unexpected performance levels in the global air cargo market, but what will be concerning airlines and forwarders is the constant month-on-month decline in average rates, and the quickening pace of this fall since the turn of the year,” said Niall van de Wouw, chief airfreight officer at Xeneta.

Global air cargo volumes shrank by 2% month over month in July, while the general cargo global airfreight spot rate fell by 40% or more for the fourth month in a row.

July’s 7% year on year rise in capacity as airlines ramped up their summer schedules to meet passenger demand, along with the fall in airfreight volumes, resulted in a drop in the cargo load factor: down by three percentage points compared to July 2022, although on a par with June 2023 at 55%.

The average air cargo spot rate for the month was $2.20 per kg, a slight drop from the $2.31 per kg recorded in June 2023 but a notable 41% down on July 2022.

The spot rate picked up in the final week of the month, “possibly reflecting an easing decline in cargo volumes and slower paced growth in capacity versus previous months”.

The rise in jet fuel prices may also have contributed to the increase, although CLIVE does not expect any lasting impact on rates from that quarter at this time.

The biggest rate declines occurred on Northeast Asia trade lanes. China–US and US–China rates fell by more than 60% year on year, for instance, while China–Europe and Europe–China both registered a fall of more than 55% compared to July last year.

South America–US and Europe–Middle East and Central Asia registered the smallest rate declines of 19% and 27% respectively, compared to a year ago, CLIVE found.

“Going into the usually critical winter rates negotiation period, it’s clear shippers will have the upper hand,” van de Wouw went on. “We are already seeing more shippers relaunching contract negotiations with their logistics service providers to push down airfreight rates. Shippers are also looking to agree longer, 12-month commitments to reduce their costs. Airlines will know they can expect the same pricing turbulence from forwarders.”

Indeed, freight forwarders are feeling the pinch, with Kuehne+Nagel, DHL Global Forwarding and DSV all reporting a year-on-year contraction of around 50% in their Q2 air freight revenues.

Competition in the general cargo market, as forwarders target higher yielding business, has kept spot rates for this segment below the seasonal rate since May 2022. However, spot rates for special cargoes have remained above the seasonal rate since the start of the Covid-19 pandemic.

CLIVE cautioned: “Those forwarders focused on grabbing volumes almost at any cost to increase their market share will continue to sacrifice their margins to do so, and likely continue to fuel an irrational air cargo market in which global spot freight rates fall deeper the level market fundamentals and conditions would typically expect.”

The company believes airfreight volumes will remain “muted” for the rest of the summer, given the continuing decline in Chinese manufacturing and the fall in new orders for Chinese exports.

Van de Wouw said: “The airfreight rates merry-go-round will be intense this winter, as we have indicated in previous months’ analyses. Many freight forwarders, who at the peak of the pandemic chose multi-year contracts to secure airline capacity, are now reportedly bleeding cash, so they are under significant pressure to renegotiate rates which reflect the reality of today’s freight market and the expectation that the current market environment could continue for the foreseeable future into 2024.”