Shippers will hold the upper hand in the next round of winter airfreight rates negotiations after another month of falling demand in July saw volumes drop -2% month-over-month, and the general global air freight spot rate decline at a hastening pace of 40% or more for a fourth consecutive month, according to the latest weekly market analysis by CLIVE Data Services, part of Xeneta.
The air freight market intelligence provider noted that last month saw global air cargo capacity recover by +7% compared to a year ago, as airlines' summer schedules stepped up to meet heightened passenger traffic.
In line with this, the July global average dynamic load factor — which measures cargo load factor based on both volume and weight perspectives of cargo flown and capacity available — was at 55%, on a par with June 2023 but -3% pts below the level of a year ago.
It added that more capacity at a time of falling volumes placed added pressure on airfreight rates.
The -41% drop in July versus the same month in 2022 pushed the average air cargo spot rate down to US$2.20 per kg. This compares to a rate of US$2.31 per kg recorded in June.
"The month of July rarely provides any surprises in terms of unexpected performance levels in the global air cargo market, but what will be concerning airlines and forwarders is the constant month-on-month decline in average rates and the quickening pace of this fall since the turn of the year," said Niall van de Wouw, chief airfreight officer at Xeneta.
"Going into the usually critical winter rates negotiation period, it's clear shippers will have the upper hand. We are already seeing more shippers relaunching contract negotiations with their logistics service providers to push down airfreight rates," he added, noting that shippers are also looking to agree to longer, 12-month commitments to reduce their costs.
"Airlines will know they can expect the same pricing turbulence from forwarders," van de Wouw added.
The Xeneta chief airfreight officer noted that "the airfreight rates merry-go-round will be intense this winter."
"Many freight forwarders, who at the peak of the pandemic chose multi-year contracts to secure airline capacity, are now reportedly bleeding cash, so they are under significant pressure to renegotiate rates which reflect the reality of today's freight market and the expectation that the current market environment could continue for the foreseeable future into 2024," van de Wouw said.
The CLIVE analysis said looking at weekly developments in July, the global air cargo spot rate bottomed out in the second week of the month, while in the final week, ending on July 30, it ticked up 3%, possibly reflecting an easing decline in cargo volumes and slower paced growth in capacity versus previous months.
In addition, the recent rise in jet fuel prices might also have contributed to the increase, having already been seen in some shippers' monthly rate revisions.
"With shippers enjoying leveraging their enhanced buying power after the pricing pain of the pandemic, Xeneta expects a pushback on the fuel surcharge adjustments, too," van de Wouw said.
Zooming into the corridor level, Northeast Asia (including China) trade lanes registered the biggest rate declines compared to last year.
The report noted that both China to the US and the US to China airfreight spot rates fell 60+% from a year ago. China to Europe and Europe to China took the third and fourth places, with spot rates down over 55% year-on-year.
The volatile market conditions are being reflected in the Q2 performance levels being reported by airlines and global forwarders, with the 'top 3' airfreight forwarders — Kuehne+Nagel, DHL Global Forwarding, and DSV — all registering contraction of around 50% in their Q2 2023 air revenues compared to the same period a year ago.
Air cargo rates expected to remain muted
CLIVE noted that while forwarders are clearly suffering from the significant drop in general airfreight volumes, those targeting higher-yielding clients and commodities are still gaining higher margins, despite also seeing a drop in volumes.
"For the remainder of this summer, Xeneta anticipates airfreight volumes will remain muted," the Xeneta chief airfreight officer said, adding that this is indicated in the latest manufacturing Purchasing Manager Index (PMI) from China — which ticked up to 49.3 in July from 49.0 in June, indicating a continuing decline in the country's manufacturing, and extending this fall in production to a fourth consecutive month.
