Be alert to quantitative signals from marketplace in 2025: Xeneta

The impact geopolitical tensions can have on air freight can be seen from the sudden escalation in the Red Sea in December 2023. "2025 is likely to see more of the same," says the latest air freight update from Xeneta.

Niall van de Wouw, Chief Airfreight Officer, Xeneta says: "The best approach to a period of high uncertainty is to be alert to quantitative signals from the marketplace as it could avoid shippers over-reacting and creating a vicious circle of escalating rate."

The report highlights Trump tariffs, criminal activity and weather and climate change as key challenges for 2025.

"Trump has vowed 60 percent tariffs on imports from China, which could prompt shippers to relocate production to Southeast Asia, South Asia or South America (or reroute semi-finished products manufactured in China to the U.S. via these regions after final assembly or repackaging).

"Trump is proposing tariffs on all imports into the U.S., but they will be at a much lower level from the rest of the world compared to China.

"Shippers will also look to avoid tariffs by frontloading imports before they come into effect and by setting up supply chains which circumvent the tariffs, as we have seen in the most recent year where goods were exported first to nations such as Vietnam or Mexico and then re-exported to the United States."

Criminal activity
Rising geopolitical tensions have led to increased criminal activities in the air cargo supply chain, the update added.

"Security concerns due to incendiary devices found in European parcel networks mid this year have prompted stricter security measures for air cargo, such as heightened advanced information filing in the U.S. and EU.

"With heightened global tensions, the threat of further criminal activity remains. If any similar attempts were to succeed, it would have a profound impact on the aviation safety regulations, causing delays or even restricting certain goods from being transported in passenger belly holds."

Severe weather and climate change
As highlighted in the Xeneta 2024 Outlook (published November 2023), weather events will continue to disrupt air cargo supply chains.

Due to climate change, the regularity of severe typhoons and hurricanes witnessed in 2024 is likely to persist - causing delays, cargo backlogs and increased air freight costs, the update added.

"Rising environmental regulations will further burden those shippers who have deprioritised making the shift from air to ocean due to the ongoing ocean freight disruptions in 2024.

"For example, the EU's ReFuelEU initiative will require aviation fuel suppliers to blend a minimum of two percent sustainable aviation fuel (SAF) in EU airports starting in 2025, increasing to 70 percent from 2050. As SAF is three to five times more expensive than fossil fuel, this regulation is expected to increase air freight costs by one-three percent."

Supply-demand
Global air cargo demand outlook is an increase of four-six percent YoY while capacity will increase three-four percent YoY. Delays in delivery of new and converted aircraft will impact supply growth, the update added.

"While the demand growth is expected to slow in 2025, importantly it will still outpace air cargo capacity supply. Measured in available cubic meters, this is down from an estimated four percent in 2024."

Demand and supply growth will not be spread evenly across the world's air cargo corridors - quite the opposite, the update added. "If you are a shipper using an ex-Asia corridor, you will have to consider very different supply/demand balance shifts compared to a business shipping goods out of South America."

Slower capacity growth in 2025 also stems from supply chain issues and manufacturing delays for new and converted aircraft. "Looking further ahead, increasing environmental regulations could impact future growth of global air cargo capacity. For instance, International Civil Aviation Organization (ICAO) aircraft emissions standards on all in-production aircraft are set to take effect in 2028 and will bring an end to the production of Boeing’s current 777 freighter and 767 freighter."

Wenwen Zhang, Airfreight Analyst, Xeneta says: "It is unlikely that the tight air freight market of 2024 will ease in 2025. It would be wise to manage the expectations of your internal stakeholders that your transportation spend might be higher next year."

E-commerce story to continue
The rise of cross border e-commerce has been dramatic in 2024, and this will remain a key driver for demand growth in 2025.

"The International Trade Administration of U.S. Department of Commerce estimates global B2C and B2B e-commerce to grow 14 percent annually until 2026, with South Asia and Southeast Asia to experience the fastest growth. China accounts for more than one third of global e-commerce volume, with growth of 35 percent in the first 10 months of 2024."

Increasing regulatory scrutiny could impact e-commerce growth, the update added. "The U.S. is increasing scrutiny by tightening customs and border checks on vaguely described shipments. It is also proposing new de minimis legislation, which is seen as a loophole allowing large volumes of e-commerce goods from China to enter the US without incurring import duties."

Zhang says: "“E-commerce is a local phenomena but impacting shippers around the globe. You better stay up to date on how airlines are developing their network as changes could tighten capacity in markets that have no direct link with the e-commerce volumes."

Red Sea conflict and air cargo
Conflict in the Red Sea has seen a mode shift from ocean to air during 2024, the update added. "With little prospect of a large-scale return of container ships transiting the Suez Canal, this will remain a key theme in air cargo demand in 2025.

"That said, the mode shift has already been largely established; so while Red Sea disruptions will continue, it is unlikely to contribute much to air cargo demand growth in 2025."

The trend is already seen on the Middle East to Europe corridor where year-on-year volume growth has decelerated from more than 40 percent in Q1 to 21 percent in Q3, before falling further to eight percent in November.

van de Wouw says: "The Red Sea effect on the air freight market has plateaued and might even recede in 2025. This could provide a bit of breathing space for shippers, but the threat of further disruption remains given the geo-political climate."

Growth in semiconductor demand
A rebound of the traditional airfreight market will be supported by demand for semiconductors related to generative AI and advanced computer processing, the update added.

"SEMI (industry association for semiconductors) has estimated global shipments of silicon wafers – a fundamental material in the manufacture of most semiconductors and associated electronic devices - will grow around 10 percent in 2025, following an estimated two percent decline in 2024.

"With the majority of semiconductor materials shipped by airfreight, this will fuel the growth of air cargo demand, particularly on corridors out of Asia."

Impact of GDP growth and inflation on air freight demand
Air cargo demand growth in 2025 is further supported by sustained global GDP growth. The International Monetary Fund (IMF) has projected global GDP growth to remain stable at 3.2 percent in 2025, on par with 2024, the update added.

"Sustained GDP growth will support growth in airfreight demand in 2025, but disinflation (the slowdown of inflation) will also be key. The IMF projects global inflation to fall to 4.3 percent in 2025, down from 5.8 percent in 2024, with advanced economies returning to their target inflation levels sooner than developing markets."

Stabilising goods prices will support consumer spending, which then ripples through airfreight. Elevated wage growth, which is in part driving elevated services price inflation, is also expected to ease in 2025. However, disinflation could be disrupted by rising commodity prices resulting from geopolitical trade tensions and labour shortages due to U.S. immigration control, the update added.

Growing maturity in market
"If 2024 has taught us anything, it is to expect the unexpected and be ready to act decisively to meet emerging challenges. The growing maturity in the market in 2024 has helped to maintain a level of stability during what could have been an extremely messy peak season. Air cargo is operating at full steam but shippers and air freight vendors have established more proactive, data-driven relationships."

If 2025 brings further disruption, then it must be seen as a huge positive that these stronger relationships are in place. This is not to say next year will not be hugely difficult but the industry has the best chance of overcoming these challenges by working together, rather than having winners and losers, the update added.