Air freight experiences unusual New Year ‘peak season’

Strong demand and unusually tight capacity mean rate negotiations between shippers, forwarders and carriers ‘are much more short term again – the number of spot rates has increased drastically compared to previous years’, analyst notes.

Exceptional global air cargo load factors in the last two weeks of January saw 2021 begin with an unusual New Year ‘peak season’ as demand and supply were closely matched, according to the latest weekly market data from industry analysts CLIVE Data Services and TAC Index.

CLIVE’s ‘dynamic loadfactor’ analyses for the first four weeks of the year ending 31 January, based on the volume and weight perspectives of cargo flown and capacity available, shows a load factor of 66%, up 9% pts year-on-year. The global dynamic load factor for the last two weeks of January, however, saw an exceptional 10-15% points rise over the same days of January 2020.

Strong, and historically atypical, demand for the start of a new year indicates that air cargo’s slow road to recovery continues. Global volumes in January 2021 were -4.5% compared to the same month a year ago, similar to December, and maintained month-on-month improvements following the -13% gap in year-on-year chargeable weight data reported by CLIVE Data Services in November.

Available global air cargo capacity in the four weeks to 31 January was down by 18% compared to 2020.

Niall van de Wouw, Managing Director of CLIVE Data Services, said flights in January were “very full for the time of year”, which he indicated might be related to consumers spending more on high-value products than services such as travel and leisure at the start of the year.

He noted: “January’s load factors might be considered odd compared to previous years, but they are also not surprising when you look at the current dynamics in the industry. One airline recently mentioned to me that they had ‘November volumes in January’.

“But it’s not free money,” van de Wouw stressed. “The market is very demanding and constantly changing, also because of the regulatory COVID landscape. Airlines are having to ‘fly by sight’ as you simply cannot know what is around the next corner.

“When we read that some carriers are telling customers they cannot guarantee their capacity commitments in January and February, this tells you how full flights are. On a lane level, for example, westbound and eastbound load factors across the Atlantic were higher in January than they were in November and December at 88% and 76% respectively. Capacity is tight and we sense no underlying currents which will swiftly change this.”

Air freight rates showed a corresponding peak in the last week of the month after a sizeable fall at the start of January, said TAC Index. It highlights that HKG-EUR air freight rates dropped by 14% from Jan 4-18 before picking up by 12% to the month end (Feb 1). Meanwhile, HKG-DFW declined 21% from Jan 4-18 but rose again by 17% by the end of the month. And PVG-NOA (Shanghai-North America) rates dropped from Jan 4-18 by 29 % but by Feb 1 had recovered again by 19%.

Robert Frei, Business Development Director at TAC Index, commented: “The current market emphasises the difference in monthly and weekly indices. On some sectors ex- Hong Kong and China, if we looked only at the monthly change in air freight rates, we would see a near 25% drop in January over December. If we were not aware of the strong increase in the last week of January, we could possibly assume that, despite the upcoming Chinese New Year, there is a continuing negative trend.

“But market consensus has it that rate negotiations between shippers, forwarders and carriers are much more short term again – weekly or even per shipment – and, as a result, the number of spot rates has increased drastically compared to previous years. In our numbers we see big spreads.”

The latest TAC Index data shows all rates into North America increased in the last week of January. The only exception was ex-LHR, which suffered a -7% fall. On all other lanes, air freight rates in the last week recorded increases from +3% on HKG-NOA and +9% from FRA-NOA to +20% on the PVG-NOA lane, back to the same level last seen in September 2020.

Post Brexit air freight rates also showed the high demand for capacity to the UK, according to TAC Index, based on its look into rates from Asia to Europe compared to Asia to London. In the last week of January, this showed: HKG-LHR: +28% and equal to May 2020 levels; HKG-EUR: +6%; PVG-LHR: +19%, matching October 2020 levels; PVG-EUR: +7%.

As also reported today, the latest figures from Freightos and WorldACD indicate volumes have recovered quickly from an early January dip, although average prices have softened slightly from their very high levels at the end of last year.

Following the pre-holiday December rush, demand for air cargo dipped at the start of January but is now back to levels slightly higher than their levels in December, according to freight digitalisation and marketplace provider Freightos, with figures from WorldACD also indicating that volumes by mid-January had recovered to well beyond their level towards the end of December.

Although average air freight prices have remained well above their typical rates for this time of year in the early weeks of January, following the holiday rush, demand for air cargo out of Asia dipped for much of January, Freightos noted.

“Rates fell accordingly, but even before prices began to stabilize or climb to most Europe and US destinations at the end of the month on pre-Chinese New Year volumes, they still remained at least double typical seasonal rates – as absent passenger travel is still keeping capacity constrained,” Freightos added. “WebCargo eBooking search volume data likewise indicates that demand out of Europe declined to start the month before gaining about 7% on December levels.”

Meanwhile, the latest figures from WorldACD, covering the five weeks up to Sunday 24 January, indicate that following a 19% decline in volumes in the final week of 2020, which straddled the New Year period, volumes recovered in week 1 with 18% week-on-week growth, followed by a further 11% increase in week 2 and another 3% further rise in week 3, compared with the previous week, while worldwide capacity increased by 2%.

On a regional level, cargo from the Central & South America region “did best with a volume increase of 11% week-over-week, while business from Middle East & South Asia and North America showed the lowest increase (1%)”, WorldACD noted.

Prices soften by 10%

Although average prices remain far higher than normal for the time of year, WorldACD said average weekly yields started to drop by mid-December, and by mid-January they had fallen by almost 10%. It said the average worldwide yield or rate in week 3 was slightly lower than in week 2, it added.

This performance in January follows on from a progressive recovery in the air freight market last year leading to a December where volumes were almost as high as those of the previous year.

Indeed, WorldACD noted that “with a worldwide year-on-year (YoY) weight change of only minus 3.7%, still below December 2019”, December’s performance was “the first weight change percentage in single digits since February”.

As whether this was “a return to normalcy”, WorldACD highlighted that “rates per kg (in December) continued to show the stunning growth level that made 2020 such an extraordinary year. They increased by more than 80% (year on year, YoY), from US$1.80 to US$3.27, the highest YoY rate increase since May.”

The Amsterdam-based organisation added: “For the first time since March, there were origin regions showing YoY volume growth, modest though they were: Asia Pacific +0.2% and North America +2.1%.”

Source: Lloyd´s