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Air cargo rates down 25% on the headhaul and 12.6% on the backhaul from year-ago levels, as sanctions-related impacts of the Ukraine war weaken demand
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Transport Intelligence’s new report says there are signs demand will grow in the second-half peak season, likely lifting freight rates if a capacity crunch occurs
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Ti expects a return to pre-pandemic rates in the long term
Air cargo rates fell 25% year-on-year on headhaul routes and 12.6% y-o-y on the backhaul in the second quarter of 2022 amid weak demand due to high interest rates and growing uncertainty over European gas supplies arising from Russia’s war on Ukraine, but there are signs demand will rise in the second half, says a new report.
Transport Intelligence expects demand to grow in the August-December peak season, possibly helping rates rise if a capacity crunch occurs, the global logistics industry research and analysis provider says in “Air Freight Rate Tracker – Q3 2022.”
The report said global aviation’s post-pandemic recovery has been dealt a major setback by the Russian invasion, as Western sanctions against Moscow have driven fuel prices sharply higher, leading to high inflation of 8.5% in the United States and 8.9% in Europe and reducing demand for goods from consumers and industry.
Rates appeared to be cooling recently, having fallen on both lanes after May’s peak, bringing downward momentum into the third quarter. In June, headhaul rates had dived 50.3%, the report said.
Global air freight rates fell back to their H1 2021 levels in Q2 with July headhaul rates averaging US$5.69 /kg, down 31% from April, and backhaul rates falling to US$3.21, down 29.8% from April.
On the transpacific lane, headhaul spot rates fell 14.9% quarter on quarter in Q2, with the average price per kilogram of cargo weighing 100-300kg sinking to US$11.90. Rates, however, were still higher in Q2 2022 than they last year, said the report.
Rates expanded 11.2% y-o-y in Q2. Backhaul rates rose 5.2% y-o-y with the average price per kg of cargo weighing 100-300kg at US$4.58. Compared with Q2 2021, rates were still up 21.4% y-o-y.
Production challenges, COVID disruption and spending cuts due to high inflation softened demand for air freight services on the transpacific lane, pushing rates down. Capacity responded by cutting flights. This, combined with the jet fuel spike and increased operational costs, have so far kept rates from returning to “normal” pre-pandemic levels.
Transpacific volume remained largely stable throughout the second quarter. Air cargo volume at Los Angeles in Q2 rose just 0.5% q-o-q to 237,675 tons. But this represents a 5.9% y-o-y decline from the 252,642 tons in Q1 2021.
Production capacity was slow to recover in Q2 after lockdowns in China. Demand stayed strong in a few vertical sectors, specifically cars, fashion and healthcare. E-commerce demand weakened, and a general shift away from goods and towards services further hampered demand.
As Asia Pacific production capacity returns, demand for air freight services is likely to increase in the next quarter, adding upward pressure to rates out of the region.
Despite recession fears, US inventories remain low. Stock levels rose in Q2 with the average inventory-to-sales ratio up 2.6% q-o-q to 1.19. But that’s still down 5.1% y-o-y, much below the pre-pandemic norm of about 1.40. This could invoke considerable headhaul demand as restocking may take place in the August-December peak season.
Travel restrictions continue to ease, resulting in increasing belly cargo capacity. Freighter capacity has fallen on the lane, as providers cut services due to softening demand. These changes have resulted in a moderate drop in overall capacity on the lane.
Data from IATA show the Asia Pacific still with the highest cargo load factor among all regions, averaging a weight utilization rate of 67.8% in Q2 2022, up 4.4% q-o-q, a hint demand may not have softened as much as capacity. The increase could be explained by a shift away from lower weight and bulky goods towards heavier and smaller items.
The report said transpacific demand for air freight services is likely to rise as the market enters the peak season in Q3 and Q4 2022. Despite significant economic headwinds, low inventories during this time may create the conditions for a surge in demand.
This will combine with further increasing production capacity in Asia after the lockdowns end, Transport Intelligence said. Capacity is likely to increase as providers respond, but there is a chance of a capacity crunch pushing rates upwards in the second half, it added.
Signs of relief in fuel prices in the opening months of Q3 may help to balance costs, but costs remain highly uncertain, especially in the short term, the report said. In the long term, a return to pre-pandemic rates is expected, with COVID’s impact lasting well into 2023 and the Ukraine war extending uncertainty in rates longer still.
