Stress levels among the airlines and freight forwarders is clearly increasing, but we see a distinction between the market sentiment and fundamentals. Sentiment is quite negative right now, says Niall van de Wouw, Chief Airfreight Officer, Xeneta. We can see forwarders taking big risks now, he adds.
CT Bureau
The decline in global air cargo volumes eased again in June but the ‘fear of missing out (FOMO)’ created an irrational airline and freight forwarding market as they indulged in a 41 per cent YOY fall in general air freight spot rate, as per CLIVE Data Services, part of Xeneta.
Air cargo capacity rose 8 per cent YOY in June but despite this surge in availability, the drop in global chargeable weight stayed at -1 per cent, repeating the market performance seen in May. However, the 41 per cent fall in the market average took the global air cargo spot rate down to US$2.31 per kg.
Niall van de Wouw, Chief Airfreight Officer, Xeneta, said June’s air cargo data demonstrates the jumpiness in the market. “The surprise in June is the difference between the sentiment in the market and what the actual data is showing us. It is getting nasty out there and stress levels among the airlines and forwarders are clearly rising, but we see a distinction between market sentiment and fundamentals, sentiment is more negative right now. Airlines and forwarders are getting jumpy due to falling rates, not so much the volumes. It is FOMO driving the aggressive fall in cargo rates because no one wants to lose volumes, and they also want to get more of the cargo that is in the market. We can see forwarders taking big risks.”
A decline in volumes and a slowdown of capacity growth versus previous months provided protection against a big drop in dynamic load factor in June, CLIVE’s market analysis measurement of cargo load factor based on both volume and weight perspectives of cargo flown and capacity available. It fell at a slower pace of 3 percentage points YOY to 56 per cent, a 1 percentage point recovery on the May level.
Xeneta’s latest market data shows the air spot rate from Northeast Asia to Europe of US$3.25 per kg in June was down 1 per cent from a month earlier, and 55 per cent down year on year. The Northeast Asia to US air spot rate, in contrast, rose 3 per cent from a month earlier to US$4.19 per kg, but this still represented a fall of 49 per cent from a year ago.
The average spot rate level from Northeast Asia to the USA remained 70 per cent above 2019—17 percentage points higher than the Northeast Asia to Europe route. But it is worth noting that June saw the mid-low cargo rate—the rate seen at the 25th percentiles of the market—return to 2019 of only US$2.53 per kg on the transpacific route.
The Europe to the USA air cargo spot rate experienced a decline of 14 per cent month by month to US$1.92 per kg in June, down 45 per cent from a year earlier. It is the corridor among the three sectors referenced where the air spot rate fell below its seasonal rate.
Sentiment on the seller side of the market appears to remain pessimistic. Currently, some airlines are reviewing reviews their route and capacity strategies as demand for all-cargo aircraft returned to 2019 levels due to recovery and availability of capacity.
Freight forwarders, still ‘handcuffed’ by high air freight rates locked under BSAs with airlines, are also facing growing pressure from shippers pushing to relaunch tenders to negotiate freight rates down to the new market level, inspired by the aggressive pricing policies of other forwarders trying to gain their cargo volumes.
“The question is do the airlines go for margin or volume? No one wants to be flying empty, and even the big airlines seem to be recognizing they must join the game if they keep their rates at a high level, they will not get the volumes. Two years ago, airlines were asking ‘what am I going to do with my belly aircraft’ and now it is ‘what am I going to do with my freighters?’
