Tension is mounting in the global air cargo market heading into the weaker summer months, with general airfreight rates falling in May to their lowest level since March 2020 as restless airlines and freight forwarders went in search of volumes, according to the latest weekly market analysis by CLIVE Data Services, part of Xeneta. 

The global airfreight spot rate fell 40% in May from a year earlier, reaching its lowest level in over three years of US$2.41 per kg, just days after IATA predicted airline cargo revenues and yields could fall by more than 31% and 29% respectively in 2023.

CLIVE noted that softening global air cargo demand saw a less severe year-over-year drop of -1% in chargeable weight in May, the smallest monthly decline in the past 12 months, but the influx of belly capacity for the peak summer leisure travel market applied more downward pressure on rates.

Global air cargo capacity in May continued its double-digit increase, up 14% year-on-year. 

It added that less demand and more capacity led to an inevitable fall in the dynamic load factor, CLIVE's measurement of global volume and weight perspectives of cargo was flown, and capacity available. It was -5% pts lower vs. May 2022 at 55%.

"There are a lot of ambitious forwarders in the market that want to grow — but they cannot grow with their current customer bases because the airfreight demand is not there, so, as we highlighted in April, they are looking to take a bigger share from someone else," said Niall van de Wouw, Xeneta's chief airfreight officer, adding that it's not only rising capacity which is causing restlessness. 

"At the same time, we see a lot of shippers going to market now because they want to refresh their rates and benefit from the different conditions to 3-6 months ago."

"Challengers for their business — not the incumbent freight forwarders — smell a chance to buy volumes and are going in and offering low rates. And, whether they get the business or not, the overall rates drop because shippers often stick with their current provider but expect them to adjust their rates accordingly to this lower market level," he added.

The CLIVE report noted that the year-on-year decline of freight rates on most of the major fronthaul lanes in May outpaced the industry average.

In line with deteriorating PMI readings, the outbound Southeast Asia market experienced the largest year-on-year rate fall among top fronthaul corridors. Its spot air cargo rates to the US and Europe fell 68% and 62%, respectively, over the month.

Northeast Asia (excluding mainland China) to the US saw cargo rates slump 60% from a year ago.

The report said the only exception is the China to the US corridor. It recorded only a 31% decline from a year earlier, which is below the industry average of -40%.

CLIVE said, furthermore, this is the only corridor among these major lanes to experience a price surge from a month ago.

"This is influenced by a small window of opportunity for air cargo in May, which stemmed from the latest dockworker absences due to persistent US west coast labour contract negotiations and weight limits set for passing through the Panama Canal due to low water levels," it added.

However, CLIVE noted that with ocean freight demand matching the fortunes of air cargo, any benefit of some goods switching from ocean to air is likely to be short-lived and have little meaningful impact at a global level.

Market slow, but no panic

"Shippers are the dominant players in the market right now, as freight forwarders and airlines are nervous about missing/losing the volumes that are actually offered in the market," van de Wouw said.

"It's a time of ‘stick or twist’ for airlines and forwarders. Do they become more short-term driven and flick the ‘let’s-just-buy-the-volumes’ switch, or do they sit it out? Do they take drastic action or hold their course? If companies become trigger-happy in using such tactics, we could see more downward pressure on the air cargo market than the actual changes in demand/supply," he added.

van de Wouw noted that in his conversations with airlines and forwarders during Transport Logistics in Munich in mid-May, the sentiment was that "the market was slow, but there was no panic."

"But the overall market sentiment seems to be changing. Now, more airlines and forwarders are clearly getting nervous, are accepting the fact that hopes of an uptick in peak season demand later in the year are dwindling," van de Wouw said.