A surprise summer of growth in global air cargo volumes showed no sign of abating in August as demand rose +5% year-on-year for a second consecutive month, but falling spot rates are likely to be a more telling indicator of the market outlook as shippers, airlines, and forwarders continue to battle against economic uncertainty, say industry analysts, Xeneta.
Despite the rise in cargo volumes, alongside a similar +4% year-on-year growth in capacity supply, the average global spot rate fell for a fourth month in a row, down -3% to USD 2.55 per kg. And it’s these freight rates which may signal a challenging next few months for the air cargo market, according to Xeneta’s Chief Airfreight Officer, Niall van de Wouw.
The August decline in spot rates is likely even steeper once currency effects are considered: all rates are converted into dollars, which have lost -4% against other currencies over the past year. Shift in trade flows may be weighing on air cargo rates. Consider China-U.S. air cargo, for instance, which, in August, was priced at USD 4.30 per kg. Many e-commerce shipments have been re-directed to the China-Europe corridor due to U.S. de minimis bans, where the rate was USD 3.65 per kg. Such reallocation drags down the global average. A -7% drop in jet-fuel prices may have also helped keep airlines’ costs down, muting pressure on rates for now.
“It is often said that airfreight is a bellwether for macroeconomics, but I don’t think it is at the moment,” he said.
“We’ve now reported +5% growth in demand for July and August and it would be easy to take some comfort from these volumes were it not for the current market conditions. Right now, volumes are certainly not as bad as people feared, but also not as good as people hoped. In our April data, on the back on the U.S. administration’s ‘Liberation Day’ tariffs announcement, we asked ‘how bad will it get?’ for air cargo demand. We still cannot answer that question,” van de Wouw added.
The big group of shippers influencing airfreight growth
“More than ever, shippers are falling into three categories right now,” Niall van de Wouw said. “There are those who will always say ‘no way’ to airfreight because their products simply cannot justify the higher cost of air versus ocean freight. Then there are traditional air cargo customers who always ship goods by air because of its speed and value for their high-priced or more perishable or time-sensitive products.
Between these two views sits a bigger group of shippers who will use ocean to move their goods if they can, and airfreight if they must. It is this segment of the market which is driving the upturn in airfreight demand we are seeing.
“Air cargo’s higher demand remains the result of mode shift we saw in July, with a bit of support from e-commerce. It is not an indicator of increased economic activity. It’s just that airfreight is getting a bigger share,” he continued.
“Many shippers looking to lessen the impact of tariffs just do not know how the market will look in 3-4 weeks’ time because of the lack of clarity. Consequently, I think more businesses are deciding to take a hit and move their products by air – but this good news for the air cargo market remains under constant review. Overall, it’s hard to see where strong, sustainable airfreight growth will come from,” he said.
Download the August Economics Briefing (pdf).