Capacity forecasted to be extremely tight for the remainder of 2020. Ex-Asia air cargo rates are on the rise again, with the trend set to continue through the peak season, according to the latest freight market update issued yesterday by US forwarder, Flexport.
“Several Chinese carriers are doing heavy maintenance on several freighters during the summer which has been the catalyst driving rates up in the past two weeks. This is now a full capacity driven market and capacity is forecasted to be extremely tight for the balance of 2020. There are a massive number of new product launches planned for the fourth quarter – notably by Sony (Playstation 5), Apple (iPhone 12) and Samsung – which will consume a great deal of capacity,” it said.
Flexport had previously noted that it expected rates to continue to increase slowly over July/August and then accelerate higher in September as several major products were launched.
Another factor contributing to the capacity squeeeze is that there are fewer ‘passenger freighters’ flying as their operationhas become uneconomical for airlines because of higher fuel costs.
Meanwhile, figures from the latest weekly market update (issued on 27 July) from Freight Investor Services (FIS) indicate high single-digit increases in prices between China and the US in contrast to a very minor gain and even a decline in rates between China and Europe.
China-US prices were up more than 8.6% (US$0.41) in the previous seven days to US$5.16 per kilo while on the specific ex-Shanghai route to the US, rates rose by almost 8.3% (US$0.38) to US$4.97 per kilo. Hong Kong-US prices were up by more than 9% (US$0.45) to $5.35 per kilo.
China-Europe prices rose just over 0.6% (US$0.02) to US$3.29 per kilo while Shanghai-Euope rates were down by more than 2.3% (US$0.08) to US$3.32 per kilo.
“A boost in ex-APAC prices, perhaps the last thing shippers will want in this market, lifts the curve upwards, whilst trans-Atlantic prices continue to dip. As we move further into a grey-zone where fresh demand meets changeable capacity,” FIS commented.
It continued: “We would see that this could create a bit of persistence on the carrier side of the market in holding on to spot pricing, creating a bit of instability in forecasting considering the lack of more than month-long fixed-price contracts.
“Near-term volatility has created an action point for businesses wishing to hedge current spot market purchasing. Meanwhile, rising fuel prices (jet kerosene average prices are up 10.8% since last month) will potentially squeeze the margins of passenger freighter and full freighter operators alike, until these costs are either hedged or passed on to the customer.”
Data released by the International Air Transport Association (IATA) on air freight trafic last month showed some sign of recovery “but at a slower pace than some of the traditional leading indicators would suggest.”
Global demand, measured in cargo tonne-kilometers (CTKs), fell by 17.6% in June (-19.9% for international operations) compared to the previous year. That is a modest improvement from the 20.1% year-on-year drop recorded in May.
Global capacity, measured in available cargo tonne-kilometers (ACTKs), shrank by 34.1% in June (‑33.9% for international operations) compared to the previous year. This was on par with the 34.8% year-on-year drop in May.
Belly capacity for international air cargo shrank by 70% in June compared to the previous year due to the withdrawal of passenger services amid COVID-19. This was partially offset by a 32% increase in capacity through expanded use of freighter aircraft.
IATA also noted that global manufacturing demand stabilized in June.
The new export orders component of the Purchasing Managers Index (PMI) rose by 11 points compared to May, the strongest monthly increase since the series began in 1999 while the PMI tracking global manufacturing output rebounded in June to its highest level since January
“Cargo is, by far, healthier than the passenger markets but doing business remains exceptionally challenging. While economic activity is re-starting after major lockdown disruptions there has not been a major boost in demand,” said Alexandre de Juniac, IATA’s director general and CEO.
“The rush to get personal protective equipment (PPE) to market has subsided as supply chains regularized, enabling shippers to use cheaper sea and rail options. And the capacity crunch continues because passenger operations are recovering very slowly.”
All regions recorded declines in June. Airlines in Europe and Latin America suffered the sharpest drops in year-on-year growth in total air freight volumes, while airlines in Asia-Pacific and the Middle East experienced slightly less dramatic declines. Airlines in North America and Africa saw more moderate drops compared to the other regions.