Airfreight rates will see an extended downtrend this year as continued return of passenger services in the market is expected to further drive capacity.
Writing for the Baltic Air Freight Index (BAI), Bruce Chan, director and senior research analyst covering global logistics and future mobility at Stifel, said this demand-capacity imbalance could see air cargo rate growth not happening until 2025.
In his column, Chan said absolute air freight rates are "much closer" to pre-pandemic levels and have reverted to more normal seasonal patterns.
However, he noted that the path toward normality "was painful," given the historic increases in 2021 and much of 2022.
"We underestimated the duration of the rate trough," Chan added.
He also pointed out that capacity will continue to mount as more passenger flights are put back into service — such as in China, where international passenger flights are still about 20% below pre-pandemic levels.
"IATA forecasts for the year anticipate approximately 5% growth year-on-year in freight tonne kilometres, which is in line with our base case for a gradual recovery in 2024. However, capacity is still down versus 2019, in our view, with international passenger flights in and out of China about 20% below 2019 levels," Chan said.
"Therefore, the market is still oversupplied, which will be a headwind to rates despite a modestly optimistic outlook for volumes," he added.
"There are green shoots for rate recovery and market stabilisation this year, but there are also plenty of uncertainties. Comparables will still be difficult in early 2024, but they will get easier as the year progresses."
Chan noted that further complicating the outlook for 2024 and beyond is the emergence of "new structural changes to supply chains."
"Nearshoring continues to be a hot topic as shippers seek to de-risk global supply chains, underscored by the recent conflict in the Middle East and the cessation of operations by various container lines in the Red Sea," Chan said, adding that the evolution of e-commerce, including Chinese direct-to-consumer shipments to the United States is also creating an elongated peak — and will likely "stick around."
"So, there is a lot to consider, we think, in forecasting the rate trajectory in 2024. But here is our best guess for the year ahead: comparables will still be difficult early this year — especially in January, so we expect to see a continuation of significant y/y declines on major Asia outbound lanes, averaging in the 20-30% range," Chan said.
He added that a mitigating factor could be higher early demand for air freight services due to the Suez/Red Sea disruption, driving capacity temporarily tighter and rates temporarily higher.
Air cargo rate growth not until 2025
Chan pointed out that for the remainder of the year, IATA forecasts call for approximately 20% y/y declines in global air cargo pricing.
"Our inclination is that rate declines won't be quite that bad, but they will likely still be squarely negative as passenger capacity continues to filter into the market."
"Based on what we see today, a return to annual air cargo rate growth probably won't happen until 2025, but there is a lot that can happen in that timeframe," the director and senior research analyst at Stifel further said.
