Forwarders and shippers brace for Q4 hike in air cargo rates

Photo: Number1411/ Shutterstock

Airlines are looking ahead to air cargo’s fourth quarter peak season to decide how best to maximise returns from capacity out of Asia as spot rates are predicted to go sky high.

With a backdrop of more demand and less capacity, industry analyst Xeneta has warned that shippers and forwarders seeking capacity during the fourth quarter may find themselves “at the mercy of the market”, especially if they looking to move shipments out of Asia Pacific.

Peak season surcharges and major increases in spot rates are expected, said Niall van de Wouw, chief airfreight officer at Xeneta. “There’s a consensus it will be a hot Q4 for air cargo in many Asian markets.”

This market warning comes as Xeneta has reported a sixth straight month of double-digit year on year growth in June, although it noted that the comparison is with an overall weak 2023 market and it expects lower demand growth year on year in the second half of 2024 because the fourth quarter of 2023 was stronger than the previous quarters of the year.

Demand in June, measured in chargeable weight, was up 13% year on year, continuing the upward trend seen throughout the first half of 2024. In contrast, cargo supply grew at its slowest pace in 2024, edging up only 3% year on year.

As a result, the global air cargo dynamic load factor – Xeneta’s measurement of capacity utilisation based on volume and weight of cargo flown alongside available capacity – increased by +4% pts year-on-year.

“June’s growth in demand was not surprising and we would expect to see a continuation of double-digit year-on-year growth in July and August because of low demand in the same months last year. The global machine is humming along nicely at this level – but this is likely the calm before the storm in terms of air freight rates,” said van de Wouw.

“I’ve heard already that certain airlines and forwarders are thinking of implementing a peak season surcharge by the end of August. There’s a consensus it will be a hot Q4 for air cargo in many Asian markets.”

Demand in the fourth quarter could result in massively inflated rates. 

“On the short-term spot market, this could mean +50% increases in rates above what we see now, once the market really heats up,” warned van de Wouw.

He further explained that airlines, and those freight forwarders with their own capacity, are likely to be working on how to best profit from high demand later this year.

“Asset holders will be strategizing; how much capacity they are going to keep behind to sell at a premium when this happens. If you were in an airline’s shoes, you’d make sure you had a good chunk of capacity to sell at the premium likely to be paid on the short-term market,” van de Wouw stated. 

As a result, shippers and forwarders are seeking stability with longer-term capacity contracts to both manage demand and avoid paying higher rates in the fourth quarter peak season.

In fact, shippers are now favouring contracts of six months or more, with a decrease in three-month contracts, stated Xeneta.

Those with capacity agreements in markets that are ‘tight’ already, based on fixed volumes and a peak surcharge, will have reduced risk, explained van de Wouw, while those dependent of the spot market can expect to pay “a hefty premium”.

But if shippers and forwarders go above the set threshold in their capacity contracts then they too could be paying through the nose. 

Forwarders are also taking a risk averse stance and procuring fewer cargo volumes in the spot market. In the second quarter of 2024, the proportion of cargo volumes procured in the spot market accounted for 42% of the total market, showing a -3% pts reduction versus a year ago.

Overall, the verdict offered by van de Wouw is that: “Shippers will pay more throughout Q4, the question is how much more?” 

He added: “As we head into the second half of the year, it might be now or never to consider longer-term contracts. With a mix of ocean shipping chaos, an upturn in manufacturing activities, and fear-of-missing-out, a delicate balance of short and long-term contracts is on everyone’s mind. Only time will tell, but whatever happens, you’re going to be paying a lot more to ship goods from Asia Pacific once September comes.”

Spotlight on spot rates

In June, global air cargo spot rates registered their largest increase of the year so far, climbing 17% year on year to $2.62 per kg.

Measured month-on-month, the air cargo spot rate edged up 2% in June, as the 4% month on month growth of cargo demand continued to outpace capacity supply.

Southeast Asia to Europe and the US markets saw the largest cargo spot rate increases in June, growing 14% versus May to $3.65 per kg and $5.32 per kg respectively. Northeast Asia to Europe and the US also experienced modest spot rate increases, up 5% to $4.26 per kg and 4% to $4.00 per kg.

Conversely, outbound China markets stalled as China to Europe and the US rates both dipped -1% to $4.09 per kg and $4.80 per kg respectively. The Europe to US spot rate fell 4% to $1.69 per kg due to the boost of belly capacity from summer passenger flights.

The e-commerce boom, disruptions in ocean freight due to conflict in the Red Sea, and general improvements in global manufacturers’ activities have been largely responsible for higher air cargo spot rates.

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Rebecca Jeffrey

Rebecca Jeffrey
New to aviation journalism, I joined Air Cargo News in late 2021 as deputy editor. I previously worked for Mercator Media’s six maritime sector magazines as a reporter, heading up news for Port Strategy. Prior to this, I was editor for Recruitment International (now TALiNT International). Contact me on: [email protected]