Geopolitical uncertainties and the current unpredictability of ocean shipping could boost air cargo demand as shippers flock to more reliable services.

Xeneta said this could lead to 2024 heralding the start of a "new economic growth cycle" for the global air cargo industry after a 9% year-on-year increase in air cargo demand at the end of 2023, and the general air cargo spot rate reached its "highest level in nine months."

"While the geopolitical environment and cost of living pressures continue to present significant hurdles to global trade, the predictability of air cargo means the industry stands to benefit from escalating international disruption, albeit producing only modest gains in volumes," said Niall van de Wouw, chief airfreight officer at Xeneta.

"To say 2024 is a 'new dawn' is perhaps a little too optimistic, but I certainly think it's the start of a new cycle for airlines and forwarders — and shippers are likely to also appreciate the stability returning to the market so they can more accurately predict the transportation costs for the products they are selling," he added.

Xeneta noted that weekly market data for December shows the global average air cargo spot rate peaking at US$2.60 per kg, up 6% on its November level, boosted by the 9% annual growth in demand.

The general air cargo spot rate, however, continued to record a double-digit year-on-year fall of -18%.

van de Wouw said, nonetheless, that December 2022 provided a low comparison base given the very muted demand seen 12 months ago.

+1-2% growth in demand for 2024

"December 2023 data shows the market was slightly busier than anticipated, but we shouldn't be tempted to draw too many conclusions from what happens in the final month of the year because the Christmas and New Year holidays make it an odd month," he said.

"This latest data appears to reflect stronger but temporary local market performance on key lanes as opposed to signalling a global economy that is doing much better," the chief airfreight officer at Xeneta added.

"Our market outlook forecast for 2024 remains unchanged with an anticipated +1-2% growth in demand and a +2-4% rise in supply," van de Wouw said.

The Xeneta report said while discounted e-commerce shopping boosted export volumes, particularly from Asia during the Christmas season, it is worth noting that general retail sales outside of e-commerce remained subdued, especially when adjusted for inflation.

van de Wouw said global air cargo capacity in December "stayed at a similar level" to previous months, climbing 6% year-over-year versus the global supply still under recovery in 2022.

The global dynamic load factor — Xeneta's market performance indicator —which measures air cargo capacity utilization by considering both cargo volume and weight perspectives of cargo flown and capacity available, dropped to 59% in December.

Looking at regional rate performance, the data provider, Xeneta, found that prime regional lanes performed strongly in the final month of 2023.

The general air cargo spot rate from Europe to the US stood at US$2.42 per kg in December, up 21% month-over-month.

"The reduction in capacity helped to push up rates on this lane. Similarly, corresponding spot rates from China and Southeast Asia to Europe both rose +9% to US$4.49 per kg and US$2.91 per kg, respectively," the report said.

It added that the crisis impacting ocean container shipping in the Red Sea and disruption through the Suez Canal has yet to influence air cargo rates as the surge of air cargo demand for the holiday season was close to its end by the start of these events.

Triggered by strong e-commerce demand, the China to the US air spot rate rose another 6% in December to US$5.12 per kg.

In line with this, the airfreight spot rate ex Southeast Asia to the US climbed 14% to US$4.50 per kg as outbound Southeast Asia shipments tend to transit via other Asian countries before heading into the US.

Xeneta said the China to the US corridor was the only lane among those referenced to see its December air cargo spot rate climb above its December 2022 level, up 13%.

"But similar to these other corridors, the air cargo spot rate on this corridor mostly peaked in early December. By the week ending December 31, the China to US spot rate fell by a considerable 20% to US$4.54 per kg from its peak three weeks earlier," it said.

Meanwhile, the report said with rising expectations of market normalization, more shippers preferred to commit to longer-term, fixed-rate contracts in the last quarter of 2023.

Over-six-month contracts accounted for 45% of the total contracts signed, up 5 percentage points from the previous quarter. Six-month contracts amounted to another 28% of the total market — which was in "stark contrast" to the pandemic era when most shippers had to manage rates valid for up to one month only.

Xenata said by the fourth quarter of 2023, the share of up-to-one-month rates was only 14%.

"There's still a lot of friction in the global supply chain market, and that means there will be opportunities for some sectors," said van de Wouw.

He noted that if big ocean carriers are not going through the Red Sea, it might delay a million or more containers, with all the knock-on effects.

"And the fact that you don't know how long this situation will continue means some shippers will pay for the predictability of air cargo to lessen the impact of the current ocean freight disruption," the chief airfreight officer at Xeneta added.

"In contrast, air cargo seems to be in a more 'steady state'. It is important for airlines and forwarders to focus on the elements they can control, such as cost and reliability, and to be ready for when the opportunities arrive," he further said.

van de Wouw also questioned whether ocean carriers would continue to invest their profits from the pandemic to get a stronger foothold in the air freight market.

"The overall outlook for supply chains in 2024 remains very difficult to forecast amidst all this market uncertainty. This is generally not good for investments and shippers/consumers alike, but it might be good for airfreight's share of global trade," the Xeneta executive added.