Airfreight market “getting pretty nasty” as rates fall

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Airlines are offering lower airfreight rates to avoid losing volumes despite data showing that demand declines have bottomed out.

The latest market analysis from Xeneta’s CLIVE Data Services shows that in June chargeable weight declined 1% compared with a year ago, while capacity was up 8% and dynamic load factors were down three percentage points to 56%.

These figures are roughly in line with the numbers for May showing that the market may have bottomed out.

However, rates continue to decline at a higher rate – 41% last month to $2.31 per kg – demonstrating “jumpiness” in the market.

Niall van de Wouw, chief airfreight officer at Xeneta, said: “The surprise in June is the difference between the sentiment in the market and what the actual data is showing us. It is getting pretty nasty out there and stress levels among airlines and forwarders are clearly rising, but we see a clear distinction between market sentiment and market fundamentals and sentiment is more negative right now.

“Airlines and forwarders are getting jumpy because of falling rates, not so much the volumes. It’s the fear-of-missing-out that is driving the aggressive drop in cargo rates because no one wants to lose volumes, and they also want to get more of the cargo that’s in the market. We can see forwarders taking big risks.”

Spot rates from Northeast Asia to Europe were down 1% from a month earlier and 55% on last year to $3.25 per kg in June.

The Northeast Asia to US air spot rate rose 3% from a month earlier to $4.19 per kg, but this still represented a fall of 49% from a year ago.

The average spot rate level from Northeast Asia to the US remained 70% above its pre-pandemic level.

The Europe to the US air cargo spot rate experienced a large decline of 14% month-over-month to $1.92 per kg in June, down 45% from a year earlier.

“It is the only corridor among the three sectors referenced where the air spot rate (valid for up to one month) fell below its seasonal rate (valid for longer than one-month).”

CLIVE said that some freighter operators were undertaking major reviews of their route and capacity strategies as belly capacity returned to the market.

“Freight forwarders still ‘handcuffed’ by high airfreight rates locked under BSA (blocked space agreements) with airlines, are also facing growing pressure from shippers pushing to relaunch tenders to negotiate freight rates down to the new market level, inspired by the aggressive pricing policies of other forwarders trying to gain their volumes.”

Van de Wouw added: “The air cargo market is a toxic mix at the moment. We see some forwarders agreeing to 12-month fixed rates with shippers, including fuel, that are lower than the rates we see in the market overall.

“That is nearly ‘going to Vegas’ in terms of risk, but forwarders are anxiously looking to secure volumes in the face of fierce competition. Shippers we are talking to are, in general, not looking for a massive overhaul of their supplier base, but they do want to see a benefit because rates and market conditions are so much lower than they were 6-9 months ago.

“The big question now for carriers is do they go for margin or volume? No one wants to be flying empty, and even the most respected airlines seem to be recognizing they have to join the game because if they keep their rates at a high level, they just won’t get the volume.

“Two years ago, airlines were asking ‘what am I going to do with my belly aircraft’ and now it’s a case of ‘what am I going to do with my freighters?’ It’s going to be a long summer for airline cargo departments, and it looks as though it will take a few quarters for the market to move away from the current irrational pricing environment.”

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Damian Brett

Damian Brett
I have been writing about the freight and logistics industry since 2007 when I joined International Freighting Weekly to cover the shipping sector. After a stint in PR, I have gone on to work for Containerisation International and Lloyds List - where I was editor of container shipping - before joining Air Cargo News in 2015. Contact me on [email protected]