Airfreight Market Roundup: China dips while SE Asia stays strong

A white United Airlines plane takes off , view from behind.

China gave the airfreight market a headfake last week. It gave the impression capacity was tightening to the point that rates would seek higher ground for the rest of the year in response to peak season shipping. 

Instead demand tailed off as Apple slightly delayed the launch of its iPhone 12, with capacity slightly exceeding actual volumes. It was a similar story in many markets, according to WorldACD, with yields inching down or staying flat.

It may seem that shippers are catching a break on rates under the circumstances, but consider that any pause comes during a year that has seen significant inflation because of the shortage of aircraft to fly goods, especially as manufacturing bounces back from production slowdowns associated with the coronavirus pandemic. In August, spot prices were 67% above the rate for 2019 and 22 points higher than in July. As of Sept. 7, spot pricing was 54% greater than a year ago, according to investment bank UBS.

But freight agents don’t expect the lull to last long with ocean capacity extremely tight and rates at record highs, and with the Chinese factories set to close for the Golden Week holiday in early October retailers are pre-ordering supplies and booking more space the week afterwards. 

Meanwhile, rates in other key markets such as Tapei, Singapore, Hanoi, Vietnam, Manila and Southwest Asia remain very strong due to limited capacity and increased demand as many shippers repositioned manufacturing at the height of the U.S.-China tariff wars, forwarder Flexport said in a weekly message to customers. 

Shippers in those markets to the U.S. and Europe are only able to obtain rates on a weekly, or even shipment-by-shipment, basis because of the capacity shortage.

And the Latin American market is heating up a bit, with carriers returning capacity into select markets to serve north and southbound flows,Flexport said.

Still, the airfreight market is not monolithic.In other regions there is more capacity than demand. Carriers are beginning to offer multi-week contracts and do creative deals on weak lanes such as the trans-pacific westbound. 

Hong Kong indicator

Lagging data from the Hong Kong Airport Authority is further evidence that the air cargo market continues to recover month by month from the COVID recession, although still well beyond 2019 business levels. 

In August, Hong Kong Airport processed 374,000 tons, a 3.5% drop from the 2019 amount even though freighter movements increased 21.5% to 5,960. That’s because so much freight depends on passenger flights. During the month, passenger traffic was 98.6% less than the same period a year ago, a result of Hong Kong’s entry restrictions for non-residents, as well as immigration restrictions and quarantine measures in other countries.

The lack of passenger flights killed transshipment traffic, hurting regional throughput.  Still, overall exports grew 8% in August after a 2.7% decline in July and a 2% drop in June, year-over-year. 

Notable international capacity increases include German logistics giant DB Schenker implementing a large air charter program from four Chinese cities to Chicago and Frankfurt, and United Airlines announcing plans to fly 33% of its schedule in October compared to October 2019, which is an uptick from the 29% of its schedule it plans to fly this month. 

Overall, United said it expects to by at 40% capacity in October, six points more than in September. The airline also plans to resume eight routes to Hawaii, pending approval of the state’s pre-arrival COVID testing program.

“We continue to be data-driven and realistic in our approach to rebuilding our network,” said Ankit Gupta, United’s vice president of domestic network planning. “Because October is typically a slower month for leisure travel, we’re adjusting our schedules to reflect these seasonal changes in customer demand while resuming service or adding capacity on routes where we’re seeing increased customer demand for travel.”

Click here for more FreightWaves/American Shipper stories by Eric Kulisch.


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