Almost half of the world’s widebody passenger fleet remains grounded as travel restrictions put the brakes on international travel and severely limit available cargo capacity at the same time. Photo credit: Shutterstock.com.
Air freight rates out of China softened this week, but with half the available international air cargo capacity still grounded in the bellies of passenger planes, forwarders and analysts are predicting space constraints will persist through the fourth quarter as demand rises.
The average spot rate from Shanghai to Europe as of Aug. 24 declined 6 percent compared to a week prior to $3.25 per kilogram, according to the TAC Index, but that is still 18 percent higher than the same point last year. On the trans-Pacific trade, the rate from Shanghai to North America slid 10 percent compared to $4.52/kg, but was up 20 percent year over year.
On the trans-Atlantic trade lane, however, the average rate is heading in the other direction. Frankfurt–North America rates increased 7 percent sequentially to $4.10/kg, and are now up 40 percent year over year and edging closer to the record high of $4.23/kg reached Jun. 29.
Colin Dunne, national air freight manager at global forwarder C.H. Robinson, said the capacity constraints on the trans-Pacific would be tightened further by high demand generated by a return of consumer spending, steady demand for personal protective equipment (PPE), and launches of new products, such as smartphones, smart watches, and other tech products scheduled for late September.
“If the market continues with increased demand throughout our traditional peak periods in the lead up to Christmas, the surge in demand may see the rate per kilogram return close to Q2 levels — particularly as the ocean container market from China continues to be congested,” Dunne wrote in a blog post this week.
The trans-Pacific rate hit a record high of $12.27/kg on May 18, a more than 270 percent year over year jump, as regions of the US began to reopen after COVID-19 lockdowns on top of sustained and heavy demand for PPE. During that same week, Asia-Europe rates were up 340 percent year over year at $11.18/kg.
Fasten seatbelts for a peak season surge
Commodity and derivatives broker Freight Investor Services (FIS) said in a note to customers this week that its forward-looking indexes indicate market demand will remain slack until mid-September and then tighten going into the fourth quarter.
But FIS added a caveat. “Although the market remains bullish for Q4, and you can see the impact of this in the price action on our forward curves, doubt has been thrown on the impacts of projected vaccine cargo or the scale of seasonal product launches that typically spike up rates,” the broker noted.
FIS added there appears to be a lack of consensus as to how high demand — and rates — would go in the fourth quarter, “beyond the fact that the market expects a price spike.”
Patrik Berglund, CEO of rate benchmarking and analytics platform Xeneta, told JOC Uncharted this week that current market conditions were making it more challenging than ever to make predictions for the fourth quarter.
“Spot [air freight] prices are anyone’s guess, but things seem to get worse rather than better,” he said. “It is a market in constant flux and many forwarders seem to be trying to avoid RFQ (request for quotation) commitments longer than three months. Capacity is a major concern, especially for high-value commodities.”
Data from aviation analyst Cirium shows 3,762 widebody aircraft, 43 percent of the global fleet, are currently parked, removing close to 100,000 tons of belly capacity from the market. The International Air Transport Association (IATA) is not expecting passenger demand to return to pre-COVID-19 levels before 2024, as high levels of COVID-19 infection persist around the world and keep travel restrictions in place.
With little passenger revenue to speak of, airlines are trying to make the most of the strong air cargo demand. Forwarders report that carriers are scrapping or renegotiating block space agreements (BSAs), pushing loads to the costly spot market and elevating contract rates closer to spot levels.
The impact of the restrictions on international travel can be seen in the July traffic figures released by the Association of Asia Pacific Airlines (AAPA). Reflecting the depressed operating conditions, airlines in Asia carried only 844,000 international passengers for the month, less than 3 percent of the 33.4 million passengers carried in July 2019.
Contact Greg Knowler at [email protected] and follow him on Twitter: @greg_knowler.
