“A storm is coming for the air freight market…”

Xeneta lists out five key steps for shippers to navigate the year-end peak season.

“A storm is coming for the air freight market…”
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Storm clouds are gathering as the air freight market heads towards what is expected to be an extremely challenging year-end peak season, according to the latest update from Xeneta.

"The storm has been building since Q42023 when a surge in demand resulting from the Red Sea Crisis and massive growth in e-commerce in China took shippers by surprise. Since then, the market has witnessed spiralling freight rates in many Asian air cargo corridors – even during the traditionally slacker summer period.

"The full force of the storm is yet to hit but global dynamic load-factor – Xeneta’s measurement of capacity versus cargo flown - is already four percentage points higher than 2023 with freight rates out of Asia Pacific up 25-40 percent. When the storm arrives, there are serious concerns whether air supply chains will be able to meet demand, leaving shippers in a precarious position."

How will the storm hit?
In August, outbound China e-commerce trade value hit its second-highest level on record, falling just seven percent short of the all-time high of $8.7 billion reached in December 2023 (source: China Customs), the update added.

"E-commerce volumes out of China during the upcoming peak season should be expected to set new records as consumers in the West look to the Far East for low-cost goods in the run-up to Christmas and New Year.

"Meanwhile, conflict in the Red Sea is still impacting ocean container services, meaning the mode shift to air freight will remain and add to the perfect storm."

With the expected surge in freight rates, airlines will redeploy capacity to the most profitable trades as Qatar Airways and Air France-KLM have done recently by cancelling flights to Latin America and putting them on Asian routes where there is massive e-commerce demand.

"This will result in reduced capacity to and from Latin America and Africa to the benefit of Asian markets, but to the detriment of shippers on the secondary corridors where there will likely be an inflationary impact on air freight rates."

Global air cargo supply grew by only three percent year-on-year in September - its slowest growth rate this year as airlines began their flight schedule adjustments in preparation for winter. Xeneta expects a 20 percent reduction in cargo capacity across the Atlantic this winter, to reflect lower passenger demand, the update added.

Niall van de Wouw, Chief Airfreight Officer, Xeneta mentions five key steps shippers can take to help navigate the storm…

1. Make sure you have all terms and conditions (T&Cs) in place with your vendors ahead of the peak season. This means you know the rules of the game upfront, so there will be no moving goalposts when the chaos hits and vendors look to manage the situation. This work to confirm T&Cs will be multifaceted depending on your shipment profiles, trade lanes and predictability of your volumes. If both sides agree to T & Cs upfront, it means you can work in partnership to navigate the storm when it does hit by putting all of your energy into operational delivery.

2. Where possible avoid the air freight hubs most sensitive to any e-commerce boom. For example, when flying cargo between South East Asia and North America, try to avoid the Hong Kong and South China air freight hubs. This means identifying airports where the load factor is lower than these air freight hubs and asking your vendor for alternative routes. One of the biggest mistakes a shipper can make is to ignore the threat of e-commerce - companies such as Shein and Temu may not be a competitor in your chosen industry but they represent a major risk to supply chain resilience.

3. Keep your conversations quantitative where possible. When the market rapidly rises, all sorts of stories will start to circulate in the industry on what shippers are willing to pay to get their cargo onboard aircraft. Imagine you are an airline pilot - trust your instruments and keep calm. In logistics, that means making decisions based on data and solid market insight. When rates are spiralling and capacity is limited, the fear of missing out (FOMO) is a powerful emotion, but it is one you must control. Data is your most powerful ally when there is so much uncertainty in the market.

4. Where there is risk, there is almost always opportunity. The massive e-commerce volumes being shipped out of China means there is a significant trade imbalance between fronthaul and backhaul markets. Use this to your advantage during conversations with your vendors – if you are using backhaul trades where volumes are scarce, then you should be able to secure better access and rates on the fronthaul where available capacity is limited. Do not underestimate your hand at the negotiating table - in many respects the volumes you can offer a vendor on a backhaul is even more valuable than the fronthaul because it is harder to come by and vital to achieving overall profitability.

5. Postpone tenders until 2025 and give the market a chance to calm before you enter negotiations. Current market sentiment influences both sides of the negotiating table and vendors will understandably use the peak season turmoil to paint a gloomier picture for 2025. Recency bias gives greater importance to the most recent event, so both shippers and vendors discussing the market in 2025 are going to be influenced by what is happening around them in the here and now. As long as you have your T&Cs in place, you can bide your time and wait out the storm. The market may look very different in early 2025 and you will be much better placed to enter negotiations with clarity and decisiveness.

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