Summer capacity boom hits airfreight rates

Source: Xeneta

With the start of Northern Hemisphere airline summer schedules at the start of April, the addition of additional services has meant the addition of significantly more bellyhold capacity in the market.

In fact, industry analyst CLIVE Data Services, part of Xeneta, has reported that “a flood of summer bellyhold capacity on major lanes”, coupled with a 4% drop in demand in April, means that the industry is facing a challenging four or five months.

CLIVE believes that the global air cargo market may have to wait will October for any meaningful recovery.

In April, airfreight spots rates fell by 41% compared to the same month of 2022, as a 7% rise in cargo capacity resulted in lower load factors and a 14th consecutive month of falling year on year volumes, the analyst’s figures revealed.

CLIVE’s ‘dynamic load factor’, which measures global volume and weight perspectives of cargo flown and capacity available, fell 5 percentage points in April compared to the same month of 2022 to 57%, continuing a more than year-long decline.

The extra summer schedule bellyhold capacity had its usual impact on the air cargo market linking Europe to North America, with capacity up 26% in comparison to March 2023.

CLIVE’s data reveals a 10 percentage point decrease in load factor across the North Atlantic to 57% in April, compared to the 67% level recorded to major North American airports in March.

This pushed April’s general airfreight spot rate on the westbound transatlantic lane down to $2.29.

While air cargo market performance in April recorded a level of seasonality expected for the time of year, volumes were also impacted by the Easter, Eid, Pesach and Ramadan public holidays all falling so closely together, but this didn’t disguise the general slump in market conditions, declared Niall van de Wouw, Xeneta’s chief airfreight officer.

“This is a market that will test companies,” he said.

“If you look at Europe-North America, what other industries see supply increase from one month to the next by 26%, very much outside of their control?

“This is a tremendous jump in capacity and, consequently, we saw a corresponding 12% fall in spot rates on these routes.”

Van de Wouw continued: “Shippers will be happy, freight forwarders less so, while the strong return of the leisure passenger market, and signs of improving corporate travel and lower fuel prices, is making passenger airlines upbeat and providing the long-awaited boost they needed.

“Of course, we should not forget that freight rates are still elevated but the influx of belly capacity this summer means the air cargo market may have to hang on until October, when winter schedules begin and capacity is reduced, for the next signs of an upturn in volumes and yield,” he opined.

Whether a rise in demand comes in the fourth quarter of this year, as some in the industry are predicting, remains uncertain.

“If you listen to their earnings calls, you’ll hear shippers pushing back on expectations of a big inventory replenishment later in the year,” van de Wouw reported.

“So, these are really tough times for air cargo. The market is in the doldrums; we do not currently see this changing until much later in the year or early 2024.

“The air cargo market is readjusting and this will also open up new opportunities, but we see a difficult few months ahead.”

He concluded: “Right now, we don’t see any ripples on the water to indicate more wind to give the market an uptick in volumes in the near future.”

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