Air freight rates are expected to continue to decline this year as belly capacity continues to return to the market.
In his monthly Baltic Exchange column, Bruce Chan, director and senior research analyst covering global logistics and future mobility at investment bank Stifel, said international passenger flights to and from China are about 20% below 2019 levels.
The year will continue to see capacity continue to return to the market, Chan said, while Stifel's base case is a "gradual recovery" in demand with growth of around 5%.
Given these trends, the investment bank expects rates to continue to return to 2019 levels, but not as high as IATA's expectations that global air cargo yields will decline by around 20%.
The Attacks on ships in the Red Sea, which have led some ship operators to bypass Africa rather than take the Suez Canal route, could mitigate some of this decline. This is expected to lead to a shift of some sea freight to air.
“[Rate] comparables will still be challenging early in the year, particularly in January, so we expect significant year-on-year declines to continue on key outbound routes from Asia, averaging in the 20-30% range,” he said.
“A mitigating factor could be higher initial demand for air cargo services due to the Suez and Red Sea disruption, leading to a temporary capacity squeeze and a temporary increase in rates. For the remainder of the year, IATA’s forecast is for global air cargo prices to decline by around 20% year-on-year.
“We think the rate cuts won’t be that severe, but they will likely still be downright negative as passenger capacity continues to trickle into the market. Based on what we’re seeing today, a return to annual air freight rate growth likely won’t happen until 2025, but a lot can happen in that time frame.
TAC index data shows that in the first week of the year, rates from China to Europe fell by about 27% compared to a year earlier, while from China to the United States they fell by 19%.
Overall, Mr Chan said the air freight market presents a complex outlook as the trend towards offshoring continues as companies seek to reduce supply chain risks while e-commerce continues to evolve.
“The evolution of e-commerce, including direct-to-consumer Chinese shipping to the U.S. by companies like Shein and Temu, is creating an elongated peak, which we expect to persist,” he said.
Damian Brett
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