Have air cargo rate and volume declines bottomed out?
07 / 07 / 2023
The big two questions posed in the latest Baltic Exchange air cargo market update were whether rates and volumes had reached the bottom.
Tackling the question on demand, Bruce Chan, director and senior research analyst covering global logistics and future mobility at investment bank Stifel, outlined three scenarios.
Chan’s bull thesis is based on a recovery of demand for a better-than-expected peak season due to the absence of one last year.
The base case scenario, which Stifel thinks is the most likely, sees a more gradual improvement.
“The base case is that we are close to a bottom on the demand side, so even if a recovery will be long, drawn-out, and arduous, we shouldn’t see major deterioration in volumes from here,” he said.
“Under this scenario, we do not expect any major restocking to begin in earnest until the end of the year, if not later.
“From a supply standpoint, under this scenario, we believe that overcapacity – indeed the return of capacity – continues through the year, especially out of Asia, which, together with decline fuel prices, will continue to pressure cargo rate indices.”
Meanwhile, the bear scenario anticipates some form of demand pullback, which would continue to downward acceleration in rates.
TAC Index editor Neil Wilson said the big question of the moment was whether airfreight rates had reached the bottom or whether there were further declines ahead.
Wilson said the global macro outlook painted a mixed picture, with inflation easing in most countries and unemployment remaining low.
This has led to consumers with cash to spare, which means further interest rate rises could be ahead.
Meanwhile, GDP growth is continuing to slow and air cargo supply continues to rise with returning belly capacity.
“On the other hand, the outlook for rates may not be that bad,” Wilson said. “There are some signs that the capacity glut is starting to be addressed, with news of some big players cutting back.
“FedEx, for instance, announced in late June a net cut of 29 units from its fleet by parking 20 planes and sending nine old MD-11 freighters for early retirement.
“Sources suggest this is becoming part of a wider trend for old ‘rust bucket’ freighters to be brought in for ‘heavy check’ servicing – perhaps never to reappear given the high cost of maintaining and running them.”
He added: “Another factor that some are starting to debate is whether the run-down of inventories may have started to run its course.”