Airfreight market may be turning corner as rates climb

Big freighter planes lined up side by side

The air cargo market took an expected dip in January, then plunged in February as demand from China dried up due to the coronavirus and is now beginning to rebound on certain lanes, according to the latest data from multiple sources.

How the dynamic market is viewed will depend on where one sits. Shippers and their logistics providers are expected to pay much more to move their goods, while all-cargo carriers will be able to command top dollar.

After six weeks of manufacturing and logistics gridlock in China due to massive quarantine efforts and other coronavirus precautions, factories are beginning to operate near full capacity. But with more than 130 passenger airlines having shut down operations in China and Hong Kong through March and April, cargo space in those aircraft has evaporated. 

Freighter operators that have resumed full schedules include Lufthansa Cargo, Qatar Airways, Emirates and Cargolux. 

Preliminary data and anecdotal reports from logistics companies indicates airfreight rates are surging for exports from China, especially to Singapore, Korea and North America, according to price benchmarking service The TAC Index.

“We are seeing unprecedented  demand for airfreight intra-Asia,” which is an indicator of what may happen on intercontinental air cargo markets, John Peyton Burton, TAC’s managing director, said in an email.

Freight Investor Services, a London-based market intelligence and financial risk management provider, has also detected rapid upward movement in freight rates from China. Prices are up $0.33, or 12%, to $3.06 per kilogram on the transpacific lane, lead by a 20% spike ($0.48 to $2.92/kg)) from Shanghai. 

Hong Kong-to-U.S. rates are up 5.6%, or $0.17, to $3.20/kg.

During February, inbound air rates to China skyrocketed in the face of steep demand for freighters to carry medical supplies, sanitizers and protective gear needed to quell the coronavirus outbreak – a marked contrast from normal patterns in which air exports exceed imports.

Freight Investor Services noted that despite the upward trend, prices are still well below the $3.40/kg level seen at this time last year.

CLIVE Data Services, first out of the box with February traffic figures, said global cargo weight (measured in gross weight or by a dimensional formula) fell nearly 9% versus 2019 as the coronavirus. The Netherlands-based company normalized actual volumes to take account of the early Chinese New Year and extra day in February due to the Leap Year. 

Green shoots in December volume and the calming of trade tensions between China and the U.S. generated optimism among transportation providers that 2020 would be better than 2019, when demand fell 3.3% – the industry’s weakest performance since 2009. 

In January, air cargo throughput decreased 3.3% compared to the same month in 2019, according to figures released this week by the International Air Transport Association. Data compiled by market intelligence firm World ACD measured a decline of almost 6% in air cargo weight for the month, with a drop in yield of 5.6%.

The 10th consecutive month of year-over-year declines in cargo volumes was predictable given that the Chinese Lunar New Year fell in January, 11 days earlier than last year. During the nearly two-week holiday, factories close and city residents travel to their hometowns to spend time with family, creating a lull in shipping activity. Under normal circumstances, freight would have picked up in early February. 

The Asia-Pacific region lost the most cargo traffic in both measurements, with IATA reporting a 5.6% decline based on freight-ton-kilometers and World ACD figures showing a 13.5% drop in chargeable cargo weight – based can be based on volumetric features depending on the shipment’s characteristics. 

The Association of Asia Pacific Airlines similarly reported international air cargo demand fell 4% in January, with increased capacity lowering load factors to 53%.