Forwarders and cargo owners have prepared for the peak season with a strong sense of foreboding. Predictions point to robust demand, which will strain limited capacity and drive pricing higher. It could soar higher yet on disruptive developments like the lingering impacts of the brief shutdown of container terminals along the U.S. East and Gulf Coasts.
Much of the anticipated surge is associated with rampant e-commerce traffic, much of which is flowing through Hong Kong.
“Hong Kong will likely have a record year. There are no signs of a slowdown,” said Sebastien Podgorski, the Montreal-based vice president of airline solutions at WebCargo, the air freight booking and pricing arm of Freightos.
DHL is also bracing itself for a tsunami of parcels. It projects 8.8% growth in global e-commerce traffic this year.
Were it not for ecommerce, the picture would be starkly different. This year’s strength in air freight demand has been divorced from global economic indicators around industrial production. Recent manufacturing purchasing managers indices for the U.S., China and the European Union have been stuck in contraction, pointing to weak industrial demand ahead. Yet, the combination of soaring e-commerce volumes and disruptions in container shipping is feeding strong demand for air freight.
Elevated air freight pricing out of the Asia Pacific region has drawn air freight capacity to the area. “We’ve seen capacity pulled from North America and Latin America to Asia Pacific,” reported Podgorski.
Cathay Pacific is adding five weekly flights across the Pacific for the peak season. CMA CGM has launched a Boeing 777 freighter service from Hong Kong to Chicago, while in the Asia-Europe sector, Air France KLM Martinair Cargo fielded a 747 freighter in mid-September for three weekly flights from Amsterdam via Dubai to Hong Kong. This is set to rise to four weekly frequencies in late October.
In one of the more unusual moves, Lufthansa Cargo has deployed a 777 freighter that flies from its Frankfurt base to Ho Chi Minh City to continue to Los Angeles before returning to Frankfurt.
Integrators and forwarders have also upped their capacity arrangements. DHL is adding freighter lift out of Asia to Europe and North America as part of a €100 million (US$108 million) investment to beef up its capabilities for the peak season.
Hong Kong-based Dimerco launched a dedicated all-cargo charter between Shanghai and Chicago for the peak season.
The question is whether or not these freighter additions can compensate for the lack of momentum in bellyhold capacity growth.
IATA statistics show that expansion in belly lift has continued to slow this year, falling further and further behind the expansion in demand.
In July, international air freight capacity grew by 10.1%, whereas international traffic increased by 14.3%. According to Podgorski, trans-Pacific demand out of the Asia-Pacific region has climbed 20% over last year, while capacity grew only 14%.
The situation is particularly dire in China, where international flying has been stymied by tepid travel demand.
International passenger airlines have been slow to ramp up their China flights after the pandemic restrictions were lifted, and some have even cut back flights. In addition to weak passenger demand, many contend with extended flight times as they are unable to traverse Russian airspace.
One factor that alleviates the pressure on capacity is the early end of this year’s container peak season. Pricing for containers started to decline already in the second half of July, signalling that the season was winding down, as many cargo owners brought their goods in early to avoid problems like disruption from a port shutdown along the U.S. East and Gulf coasts.
On the other hand, Dimerco pointed out in its latest market report that the migration of manufacturing from China to Southeast Asian countries has swallowed up limited international lift from points like Ho Chi Minh City, forcing customers to route their exports from there via Asian gateways like Hong Kong.
“This has placed significant pressure on freighter services in key transit hubs like Taiwan, Korea, Japan and Hong Kong, impacting outbound capacity from these locations as well,” Dimerco observed, advising shippers in these areas to plan their capacity needs well in advance.
The tight capacity situation and expectations of strong demand point to a marked increase in air freight pricing. Observers have noted for some time that airlines showed reluctance to make space commitments to hold backspace on flights that they can sell at more advantageous rates in the spot market as the anticipated scramble for capacity unfolds.
Niall Van de Wouw, chief air freight officer at Xeneta in Amsterdam, urged shippers to finalize their preparations.
“There is a storm coming to the outbound China air freight market. Shippers need to take action now and have a clear plan in place for when the storm hits, such as working with their vendor to minimize the use of spot market capacity, which will likely come at spiralling costs,” he warned.
Xeneta’s rate database showed the China-U.S. spot rate for air freight on September 8, 2024, already 30% higher than a year ago.
“Rates are quite high, close to Covid levels,” said Podgorski, adding that he expects this trajectory to hold in the coming weeks. He also anticipates challenges in the receiving gateways.
“All this volume puts tremendous pressure on Europe and the U.S. to this volume to its final destinations,” he said. “Operations will continue to be a challenge.”
By Ian Putzger
Correspondent | Toronto
