According to the latest Xeneta data, volumes declined by 8% year-over-year in October. Currently, there are no signals to indicate an upturn in 2023, as year-over-year demand fell for the eighth consecutive month.
The drop in demand, measured in chargeable weight, was also 3% below the pre-pandemic level in 2019. Compared to last year’s levels, global air cargo capacity continued to recover in October but at a slower pace and remained -7% below the pre-covid 2019 level.
Join Niall van de Wouw, Chief Air Freight Officer at Xeneta, and Wenwen Zhang, Air Freight Analyst at Xeneta, as they explore both macro and micro economic factors and learn which lanes are experiencing the biggest disruptions and how they will affect your air freight rates in the new year.
Key webinar Insights
The factors that have caused rates to fall 20% YoY
Which lanes have seen load factor increase, and which have seen it fall -16%
What is top of mind for air freight professionals — insight straight from the Xeneta Summit 2022
Market development so far...
October saw a second consecutive month of lower global airfreight spot rates below last year’s level. The slight uptick in week three was mainly caused by the rise of special cargo freight rates, while general rates continued their downward trend.
“We are six weeks away from Christmas, and there is no indication there will be a peak. Demand worsened in October over the -5% reduction we reported in September, but this is not likely to surprise the market given the global economic outlook, although it’s clear that rates remain at a higher level than some observers would have expected in the current conditions," said Niall van de Wouw, Chief Airfreight Officer at Xeneta.
Airfreight is certainly not currently suffering the decline of the ocean, where Xeneta has recorded rate drops of 60%-70% in the last nine months. Ocean freight is responding to the market conditions much faster than air is and normalizing quickly from a rates point of view. The outlook for air cargo remains uncertain. We don’t see pressure on capacity, and we don’t see an increase in rates,” he added.
No peak season and no peak season surcharges
With no peak season in sight, we do not see the peak season surcharge for this year. The prices reflected below for the last three years are collected from both forwarders and shippers.
In 2021, the orange column in all four quarters, especially during the pandemic, showcases the newly created covid surcharges enforced into the market due to the capacity issue. If we focus on Q4 2021, we can see a peak season on top of a peak season represented by the orange column, spilling over to Q1 2022.
However, we no longer see this peak season surcharge from Q2 until the beginning of November this year. Xeneta experts suggest to keep this trend in mind while negotiating short-term or long-term contracts with freight forwarders.
Also, up until Q4 this year, the air freight base rate substantially increased compared to Q4 before the pandemic due to the steel-constrained capacity outbound Asia and labor shortage on the ground inside airports. We also have the surging oil crisis, inflation, and an ongoing war, which would add to the operating cost.
US air cargo demand is more resilient than in Europe
The evaluation of the dollar against many currencies globally also played a role here, noted Niall van de Wouw, Chief Air Freight Officer at Xeneta.
"Goods out of the US became much more expensive in Europe, or we can say the cost for goods out of Europe did not increase much for the US consumers. Also, the energy crisis in Europe is not as profoundly present in the US currently. These two elements forced the European consumer to be a little bit more careful in spending their money than the US consumer, which is then reflected in the air carbon volume."
Shorter-term deals are in demand
We see that there is still a lot of volatility in the market, and the air volume continues to trend downwards from last year. The cargo capacity has been increasing, with the freight rates dropping by 20% from last year's level. Currently, the freight volume shipped from forwarders to airlines is still continuing in the spot market.
After the initial air freight market shock from the pandemic, the spot volume has jumped 15 percentage points up until Q4 this year. Even in a downward-trending market, there is a substantial spot volume compared to the pre-pandemic time.
The shippers also share a similar perspective. Contracts with over six months duration have vanished from the Q4 this year. Both shippers and freight forwarders are waiting to fix long-term contracts due to the high volatility in the current market.
When presenting at our Xeneta Summit 2022, Niall asked our customers if they agreed that the US and European consumers would be consuming less in 2023 compared to 2022.
Most customers agreed that the demand for air freight would be lower for multiple reasons in the next year. Uncertainty being one of the reasons, customers expect a surplus of capacity to extend in 2023. These two trends suggest a possibility of a lower load factor, but the extent of it is yet to be seen.
On the supply side, a shortage of staff can be another reason to affect the demand for air freight in 2023. There might be sufficient capacity in the air, but without the capacity on the ground or warehouse staff, we can witness bottlenecks. This would make the supply chain less smooth and therefore put more pressure on prices.
Want to learn more?
Join our upcoming 'State of the Market' webinar and learn how you can take a competitive stance in this weaker market using reliable market insight.
PS: Can't attend live? Sign up to receive the recording.