Is November’s global air cargo demand boost sustainable?

"More than anything else, what we saw this November was air cargo’s growing dependency on e-commerce."

Is November’s global air cargo demand boost sustainable?
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A surge in e-commerce volumes from Hong Kong and China inflated global air cargo demand by five percent year-over-year in November as U.S. and European consumers splashed out on low-cost products.

The growth failed to disguise the underlying subdued nature of the market nor quell concerns over its sustainability heading into 2024, according to the latest weekly market data analysis by Xeneta.

"E-commerce behemoths Shein and Temu almost single-handedly accounted for the rise in air cargo volumes and rates out of Hong Kong and China last month, creating some welcome havoc in an air cargo market devoid of a traditional peak season."

China to the U.S. spot rates outpaced their October growth of +10 percent, climbing 11 percent month-over-month to $4.46 per kg. Air cargo spot rates from China to Europe followed a similar upward trend, rising to $3.96 per kg, up nine percent from a month ago, the update added.

"These increases contributed to an overall seven percent month-on-month improvement in the global air cargo spot rate, which averaged $2.45 per kg in November, compared to an increase of two percent in October. Available capacity was up three percent year-on-year."

Demand slightly outpacing supply helped to push the global dynamic load factor to 60 percent, based on both volume and weight perspectives of cargo flown and capacity available, which is on a par with its corresponding level of a year ago, the update said.

"The figures, however, need to be looked at in context due to comparison with the state of the global air cargo market in November 2022," says Niall van de Wouw, Chief Airfreight Officer, Xeneta. “We don’t see November’s data as a fundamental shift in the economy nor the outlook for 2024 for the global air cargo market.

“Seasonality means volumes are up, admittedly slightly more than we expected, but the figures also look better than they really are because November last year was disappointing for airlines and forwarders alike. More than anything else, what we saw this November was air cargo’s growing dependency on e-commerce.”

Van de Wouw continues: “November’s growth was strongly influenced by ex-China volumes driven by two companies. You rarely have a conversation with an airline or forwarder right now that doesn’t reference Shein or Temu because these two e-commerce behemoths seem to be upsetting the market by themselves, supposedly accounting for some 80 percent of air freight volumes ex-Hong Kong on certain days.

“In a tight market, you only need a slight imbalance to push rates up because of the ‘fear of missing out’ that we have referenced previously. This seems to be happening out of China and Hong Kong, which are experiencing quite a boost in rates.

“The big question is: how long can this last? Airfreight is a key part of the e-commerce model because it relies on speed. This need for capacity is creating quite a bit of havoc in the market but this is a local shift and not a bellwether for a changing global economic tide. It is more related to U.S. and European consumers buying more lower value goods from these vendors.

“The improvement is not being driven by an increase in shipments of higher value products, and this is a worry for airlines and forwarders. E-commerce produces big volumes but how can you, in a sustainable manner, deliver an $8 t-shirt to someone’s doorstep from China to the U.S. and make money across the entire supply chain? Even the vendors delivering these goods question its long-term viability.”

The general cargo market shows continuing weak demand, extending a downwards trend since the last week of September this year, the update added.

Global general cargo spot rates (valid for up to one month) have been staying below seasonal rates (valid for over one month). "Under the backdrop of a still-subdued general cargo market, air cargo spot rates for outbound Asia markets grew at slower paces compared to their October levels while the growth of Southeast Asia to both Europe and the U.S. air cargo spot rates slowed down to six percent and eight percent, reaching $2.66 per kg and $3.90 per kg, respectively."

Global airfreight capacity will likely continue to outpace market demand next year due to anticipated weak consumer spending, at least in H12024, and a continuing recovery in belly capacity for certain markets next year, boosted by improving passenger travel, says the update.

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