Disruptions to ocean freight services due to the closure of Red Sea shipping lanes rose air cargo spot rates this year. In early May, average ocean container spot rates from Northeast Asia to the USA West Coast were more than double the level witnessed 12 months earlier, says Xeneta.
CT Bureau
The Transpacific air cargo trade has been buffeted by many air cargo market winds since the second half of the last year and is now entering the traditional slack summer months this year with increased air cargo spot rates.
After a temporary decrease in March post-Lunar New Year, the eastbound
corridor from Northeast Asia to the USA has witnessed spot rates rebound by more than 30 per cent cargo year-on-year. According to a report, Wenwen Zhang, Shipping Analyst, Xeneta, said, “The question is whether we will see the air cargo market follow the traditional pattern of cooling down during the summer season or whether the rates will remain high due to factors such as disruption to ocean freight services due to the Red Sea conflict, a still-resilient USA economy, and the e-commerce boom out of China.”
Disruptions in ocean freight
Disruptions to ocean freight services because of the Red Sea crisis have increased manifold to the growth in air cargo spot rates in this year. In the first week of May, average ocean container spot rates from Northeast Asia to the USA West Coast were more than double the level witnessed 12 months earlier as disruption in the Red Sea continued to impact the world’s major trades. Ocean freight container schedule reliability also remained low. In March, schedule reliability for services from Asia to the USA West Coast was just 49 per cent. In the USA East Coast, it was even worse at 38 per cent (source: Sea-Intelligence).
Given any improvements in ocean freight container service, reliability and trustworthiness will be slight at best in the coming months and with an increase in air cargo rates, it does not come as surprise that some of the shippers have turned to air freight to protect their supply chains.
There has been movement in the cost difference between ocean container and air cargo services. In early May, the average air cargo spot rates on the Transpacific trade was nine times more expensive than ocean container spot rates. Before the escalation of the Red Sea conflict, air cargo was 22 times more expensive. This calculation is based on one 40 feet equivalent shipping container holding 8,000 kg of cargo. No summer slack has yet been witnessed for the Transpacific air cargo market.
Air cargo rates from prominent e-commerce origins—Southern China and Hong Kong—have increased since the end of the last year’s peak season. During the first week of May of this year, general cargo spot rates to the USA from both Southern China and Hong Kong were US$5.24 per kg and US$4.23 per kg, respectively. Although the air cargo spot rates appeared to have peaked in both the trades, they are still 85 per cent higher than in the corresponding period of 2019. Due to the slow recovery of the belly capacity from mainland China to the USA, the average spot rates from the Southern China to the USA exceeded that of Hong Kong to the USA during the peak season by the end of last year and the Red Sea conflict.
This actually reverses the traditional air cargo rate levels between the two regions seen before the increase in e-commerce. This sentiment has also extended to neighbouring air cargo hubs as the shippers seek out other available cargo capacity. The average general cargo spot rate from Vietnam to the USA in the first week of May zoomed up by nearly 60 per cent.
The general cargo spot rates on other routes from Eastern China, Taiwan, Singapore, Thailand, South Korea, and Japan were less expensive. They were around 15 to 50 per cent below those from e-commerce hubs in China during the first week of May of this year.Therefore, the shippers as well as the freight forwarders could explore these additional air routes in a bid to optimise capacity utilisation and improve cost management. This will also better prepare the shippers and the forwarders for another potential ‘strong’ peak season ahead.
