The global air cargo peak season did not see a big explosion

The peak season for air cargo is looking increasingly healthy, but it is not seeing the normal rebound that usually occurs at the end of the year. Air freight rates have not climbed as expected given the strong demand and limited air capacity.

The main reason for the flat peak season is that the air cargo market has been running at a high level all year round, without seasonal declines. This is because many shippers plan to load inventory in advance to avoid delays and uncertainties caused by continued ocean shipping restrictions, the fall dockworker strike in the United States, and tight capacity on Asian routes caused by e-commerce platforms reserving space on freighters.

The imbalance between supply and demand caused the load factor to rise by 4 percentage points to 63% in October.
Peak season demand may slow down early. According to data from freight analysis companies Xeneta and Susquehanna Financial Group, demand in the second week of November increased by 4% year-on-year. In contrast, freight volumes have increased by 12% through September this year and by 11% in October. Global spot market prices have risen by 20% year-on-year, but the growth momentum has slowed from 25% in September. Freight rates on the core route from Southeast Asia to North America have fallen month-on-month. Among them, freight rates in Hong Kong, China fell by 2%, the first decline since the start of the traditional peak season; Shanghai freight rates fell by 6%, the second consecutive week of decline.

Stanislas Brun said during the International Air Cargo Association trade show: “The peak season is almost over, and there are no major changes.” DB Schenker Global Air Freight Executive Vice President Asok Kumar also said: “Although the peak season has been busy so far, it has not been particularly outstanding.”

Kuehne + Nagel, the world’s largest freight forwarding company, pointed out that shippers’ practice of placing orders in advance will lead to the early end of the peak season. Stefan Paul, CEO of Kuehne + Nagel, said: “We expect the peak season in the fourth quarter of this year to be relatively flat, and the month-on-month and year-on-year growth rates of air and sea freight are likely to remain moderate low-single-digit growth, which contrasts with the more optimistic expectations in the middle of the year.

Can air cargo growth momentum continue?

Airlines are benefiting from consumers’ love for ultra-low-priced products from China, especially as Chinese e-commerce platforms such as TEMU and SHEIN are offering direct mail services, which require a lot of air capacity. Market monitoring data shows that freighter flights departing from mainland China and Hong Kong are fully loaded.

For example, Air Canada’s third-quarter revenue increased by 18% to $181.8 million due to increased yields and shipments in the trans-Pacific market; Korean Air’s cargo revenue increased by 22% year-on-year, while Japan Airlines’ international cargo revenue increased by 28.6%.

DHL Express’s air cargo volume increased by 8.5% in the third quarter, mainly from trade routes in Asia. As a result, DHL deployed more Boeing 777 freighters on major routes to Europe.

Kathy Liu, vice president of global sales and marketing at Dimerco Express Group, pointed out in a November cargo report that capacity on intra-Asia routes is currently extremely tight as airlines allocate more first-leg capacity quotas to long-haul cargo in the hope of obtaining higher revenue.

Despite strong demand, freighter main deck capacity increased by just one percentage point between August and September, according to Cargo Facts Consulting. After peaking at 258 freighters last year, freighter deliveries are expected to see only 150 new deliveries or conversions this year due to supply chain inefficiencies, slow regulatory certification of new conversion designs, strikes at Boeing and quality issues at a major conversion supplier.

In addition, the retirement of older aircraft is accelerating as maintenance costs rise and regulatory restrictions intensify. Cargo Facts estimates that more than 40 freighters will be retired this year, including models such as the MD-11 and Boeing 747-400.

Market conditions also vary by region.
Global spot bookings have averaged more than $3 per kilogram in the past few weeks, with spot rates on Europe to the Americas rising sharply as a result of a shortened winter passenger schedule on transatlantic flights, reduced belly cargo capacity on passenger aircraft, and freighter operators deploying some aircraft from the region to higher-yielding Asian markets.

Due to the reduced capacity, in the week ending November 17, freight rates on the North Europe to North America route have risen by about 50% since mid-October and 27% year-on-year. According to data provided by Xeneta, the current spot freight rate is $2.64 per kilogram, which has exceeded the peak of $2.45 in December in mid-2023.

Meanwhile, the average non-contracted freight rate from Europe to South America has jumped 36% in the past two weeks to $5.88 per kilogram. The increase is mainly attributed to congestion at Sao Paulo’s Guarulhos International Airport. According to WorldACD, Sao Paulo Airport implemented a five-day cargo ban earlier this month, which led to a 57% increase in freight rates to Brazil to $6.58 per kilogram.

The average spot freight rate from European origin to the world has risen by 10% in the past week to $2.71 per kilogram, 23% higher than the same period last year. Spot market prices from China to North America have risen by about 17% in the past three weeks, close to $7 per kilogram.

Airline and freight forwarding executives expect the strong momentum in the air cargo market to continue until the first quarter of 2025. Among them, close attention should be paid to the negotiations between the US East Coast port operators and the dockworkers’ union on the technical terms in the new labor contract. If they are not resolved by January 15, it may lead to strikes and shift urgent freight to air transport.

The slowdown in global manufacturing activity may limit the continued growth of air cargo, which will have a greater impact on export orders in some countries. The November manufacturing purchasing managers’ index fell below the level of the same month last year for the first time in 2024, indicating that the decline in manufacturing activity was more obvious. In addition, Germany has fallen back into recession and overall economic growth in Europe is weak.

As the global economic and supply chain situation evolves, the future of the air cargo industry is still full of variables. This “endurance race” in the air cargo industry continues. How to seize opportunities and meet challenges will determine the future competitiveness and development prospects of air cargo companies.