Air cargo demand up +6% in May, sentiment drives decline in rates

While international trade continued to flow in May and global air cargo volumes rose six percent year-on-year, market sentiment and concerns over what comes next saw airfreight spot rates decline for the first time in a year, according to Xeneta’s latest market analysis.

"Midway through the month, the global air cargo market appeared to have dodged a perfect storm as the U.S.-China 90-day tariff truce began on May 14 after the escalating retaliatory tariffs since April. The U.S. administration lowered its additional tariffs on China from 145 percent to 30 percent while China responded by decreasing its tariffs on the US to 10 percent."

The news, however, came too late to reverse a softening in freight rates, the update added. "The global air cargo spot rate fell four percent year-on-year in May to $2.44 per kg - the first such decline since April 2024. This could, in part, also be attributed to nearly 20 percent year-on-year declines in jet fuel costs."

More downward pressure may lie ahead, according to Niall van de Wouw, Chief Airfreight Officer, Xeneta. "Market fundamentals are holding up but the drop in rates is likely a reflection of declining sentiment and concerns, particularly among airlines, over what will happen once more stability returns to international trade and there is less of a push for the security of airfreight. Whatever worse trade conditions take away from overall trade, this uncertainty gives a bit back to airfreight.

"It’s difficult to relate the six percent growth in demand in May to increased e-commerce or increasing trade at a time when companies overall are becoming more conservative. The slower growth in airfreight volumes and rates over the last 5-6 months reflects the growing sentiment that it doesn’t look good for trade.

"At the moment, the climate might be positive on certain lanes to airfreight demand, but there will be a time when there’s an agreement on tariffs – and I don’t expect the end result to promote trade and will, therefore, hamper airfreight."

Global air cargo capacity rose a modest two percent year-on-year in May as airlines increased passenger belly capacity for the North hemisphere’s summer season. "Global air cargo dynamic load factor remained subdued, remaining flat at 57 percent for the fifth straight month in May. Dynamic load factor is Xeneta’s measurement of capacity utilisation based on volume and weight of cargo flown alongside available capacity."

Rates on a downward trajectory
More visibility and more clarity in the market will not benefit airfreight, adds Van de Wouw. "We’ve seen very short upticks in rates, but the overall trend in recent months shows rates on a downward trajectory, and I think there is room for more decline for a longer period of time. The sentiment over what’s coming is reflected in falling rates."

Airlines, he feels, will be trying to hold onto their volumes in this very uncertain environment and willing to "pay a little bit for that security."

Global demand just one percentage point higher month-on-month in May will also have been impacted by the shockwave of April’s de minimis announcement, the update added. This saw the sudden removal of the de minimis threshold for shipments from China and Hong Kong into the U.S.

"Just a few weeks on, some calm has returned to the market. The U.S. has lowered tariffs on Chinese and Hong Kong low-value e-commerce shipments to 54 percent or a flat fee of $ 100 for parcel shipments. Cross-border e-commerce giants, like Temu and Shein, however, are expected to face the general 30 percent tariffs as they traditionally use commercial airlines for international air freight before using local postal networks for last mile deliveries. This indicates that they may still retain a competitive advantage if the incremental taxes are +40-50 percent as per Xeneta’s prior analysis."

For the air cargo industry, a lot is riding on the outcome. In 2024, e-commerce volumes accounted for about 50 percent of China to U.S. airfreight volume, the update added.

China to US spot rates bounce back
By the week ending June 1, China to U.S. spot rates rose +14 percent to $4.31 per kg, up from their low point in the week ending May 11 prior to the reduction in tariffs. Spot rates on this lane have now recovered above those from China to Europe, which stood at $4.11 per kg.

"Despite the recent uptick, however, China to U.S. seasonal rates continue to trend downwards from their early April peak (prior to Liberation Day in the U.S.), signaling ongoing caution in the mid-term market outlook."

More uncertainty ahead
The US Court of International Trade ruled that the tariffs imposed by U.S. President Trump were unlawful, which has been challenged by the Trump administration. While the tariffs remain in place during the ensuing legal battle, this casts further concern over what’s to come for global trade, the update added.

"Additionally, the EU plans a €2 fee on small parcels entering the bloc. The fee will apply to parcels valued under €150 sent directly to consumers from outside the EU. Parcels routed through EU-based warehouses will incur a reduced fee of €0.50, which could favour global companies with large logistics operations."

van de Wouw says: "The sentiment we saw in May may be preluding market fundamentals, leading to less demand, falling rates and lower load factors. But one thing is clear: the airfreight market will get through this. We just don’t know how long it will take. Industry professionals are going to need a lot of energy to work in this environment, but it’s also a time to be respectful of all stakeholders.

"At the end of the pandemic, what I call the emotional bank account between shippers and freight forwarders had a zero balance, because there was so much frustration left and right. In the current climate, it’s important to think longer-term and to protect relationships because the challenges being faced today will pass."