February data showed that the market seems to be continuing with its reversion to "normal," both in terms of a return toward some semblance of seasonality with a very modest post-Lunar New Year recovery, as well as rate reversion to the pre-pandemic mean.


Writing in a Baltic Exchange market update, Bruce Chan, director and senior research analyst covering global logistics and future mobility at Stifel, noted that from a demand standpoint, the good news is that consensus from transportation service providers seems to be coagulating around a "soft landing" in volumes.


"Consumer activity has been surprisingly resilient, and shippers in that sector are in the midst of a destocking, with restocking activity expected to resume in the latter part of this year," Chan said.


"The bad news, at least for air cargo providers, is that normalising supply chains continue to put pressure on expedited modes, and we continue to see a 'reset' in shipper thinking regarding rebalancing airfreight spending," he added. "In practical terms, we think that means more pressure on air than most other modes."


Citing an IATA report, Stifel noted that total market volumes declined over 15% year-on-year (y/y) in December and over 21% y/y in the Asia Pacific.


Chan said those figures were corroborated by recent earnings reports from freight forwarders Expeditors International and Kühne + Nagel, pointing toward sustained weak demand for Asia-origin tonnage, which has contributed to the downtrend in rates since last year.


The report pointed out that on the capacity side, some carriers have moved recently to curb supply, with a 2% y/y decline in available cargo tonne-kilometres (ACTKs) worldwide and a nearly 4% drop y/y in Asia Pacific for December 2022, further noting data from IATA.


"But those moves are likely a drop in the ocean when considering that belly space continues to flood back into the market as passenger flights resume," it said.


According to airline schedule data, international flights in and out of Northeast Asia are still down 55% since before the pandemic, but capacity is up approximately 80% since October 2022 and approximately 60% since a couple of weeks ago, 


It added that as it translates to rates, core Asia-outbound lanes in February were roughly flat-to-slightly below where they were in 2021 (when they were still on the uptrend post-2020 lockdowns).


But a good portion of current rate levels, Stifel said, has been supported by still-elevated fuel prices.


"So, the 40% and 33% premium of today’s rates on Hong Kong (BAI 32) and Shanghai (BAI 82) to North America, respectively vs February 2019, is probably mostly due to fuel, given that Jet A is approximately 50% higher today than it was four years ago," Chan said.


On a year-over-year basis, North America-destined air freight from Hong Kong (BAI 32) and Shanghai (BAI 82) was down a hefty 49% and 41%, respectively, reflecting the demand and capacity dynamics discussed above.


Meanwhile, the report said Europe-destined freight from Hong Kong (BAI 31) and Shanghai (BAI 81) was down more modestly, at 26% and 32% y/y, respectively, which was reflective of a less peaky market, with less of a vacuum from stimulus-driven activity, less congestion-driven rate inflation, and less inventory restocking to contend with.


Lower intra-Asia capacity 


It said that even Westbound Transatlantic rates from Frankfurt to North America (BAI 22) were down 33% y/y in February, although they appear more stable.


The outlier in rates seems to be certain non-China IntraAsia, with the likes of Singapore to Southeast Asia (BAI 63) up 16% y/y in February, the report added.


Stifel noted that those results are indicative of lower Intra-Asia capacity versus rest-of-the-world, as well as some early supply chain shifts between geographies.


"We believe these supply chain shifts are happening and may be an indication of longer-term nearshoring, reshoring, or offshoring trends; most of the 'nearshoring' activity is still forthcoming, in our view, and will take years, if not over a decade, to play out in full," Chan said.


"While some things are returning to pre-pandemic norms, other things may look quite different in the future," he added.