DEMAND
Quarterly overview of the majordevelopments in air freight demand
In contrast to the pandemic era, demand-pull is behind the surprisingly strong growth in air cargo rates.
In March, the global air cargo market saw demand rise by 11% year-on-year for the third consecutive month.
While e-commerce volumes and Red Sea disruptions have contributed to this double-digit demand growth, the year-on-year increase must be viewed in the context of weak demand at the start of 2023.
As one of the top three global air cargo corridors, air cargo demand from Asia to Europe saw a remarkable increase of 43% year-on-year in the first three months of 2024.
Despite a slight dip during the Lunar New Year holidays in some Asian countries, demand on this trade in each of the first three months of 2024 was notably higher than the same period in 2023, even surpassing the peak season level observed in November 2023.
Again, this demand growth can be attributed to cross-border e-commerce volumes and a shift from ocean freight due to the situation in the Red Sea.
Schedule reliability in ocean freight container shipping on this corridor fell to just 34% in February, which is the lowest level since September 2022. (source: Sea-Intelligence)
In response, Dubai airport – a key hub for sea-air services – saw demand more than double for outbound cargo to Europe in February and March compared to the same months in 2023.
Though to a lesser extent, dramatic demand growth was also seen from India to Europe and, once again, the Red Sea conflict is a key factor.
Garment industry exporters are turning to air freight to meet strict delivery schedules due to ocean freight services now taking an additional two weeks to sail around the Cape of Good Hope rather than transit the Suez Canal.
At its peak in late February, air cargo demand from India to Europe increased by nearly 60% year-on-year.
In early April the growth of demand started to slow down, up by around 25% year-on-year and far less than the 150% growth in air cargo spot rates in the same period.
However, this still represents significant demand growth compared to 2023.
Demand increases can also be found in the Transpacific market, which accounts for another 20% of total global air cargo.
Similarly to the Asia to Europe market, the year-on-year growth has been boosted by e-commerce volumes but must be viewed in the context of weak consumer demand in the early months of 2023.
US non-store retail sales – a key indicator of US e-commerce demand – showed steady growth of 11% year-on-year in February, outpacing total retail sales which stood at 5%. (source: US Census Bureau).
E-commerce accounts for 70% of US non-store retail sales, which is about 60% of total US e-commerce retail sales.
In addition to the resilient consumer demand, the US de minimis procedures have facilitated this growth in e-commerce with articles valued at USD 800 or less allowed to enter the US tax and duty free. (source: US CBP)
The US threshold of USD 800 was increased from USD 200 in 2016 and is one of the highest globally.
In contrast, the EU and UK thresholds are EUR 150 (USD 163) and GBP 135 (USD 171) respectively.
The US International Trade Commission reported in November 2023 that mainland China and Hong Kong accounted for two-thirds of the total de minimis imports to the US between 2018 and 2021, followed by Canada and the UK.
The high de minimis procedure value threshold may explain the rapid growth of Chinese online retailers Shein and Temu in the US, which stirred the peak air cargo season last year.
Cathay Pacific, Hong Kong's flagship carrier, estimates that e-commerce now represents 50% of its volumes (source: Loadstar).
Looking forward, shippers should probably draw up a plan B with their logistics service providers to divert some of their shipments away from South China and Hong Kong during this year's peak season.
This is particularly relevant for shipments originating from Southeast Asia. For example, Vietnam outbound cargo is often transshipped via China before heading to the North American market.
Europe to North America records demand decline
The Transatlantic market is largely immune from the affects of low-value e-commerce demand from Asia and the Red Sea disruptions.
It is therefore not surprising the westbound market from Europe to North America is the only major air corridor to record a decline in demand in the first quarter of 2024, down by 1%.
This suggests weak fundamentals in the general air cargo market.
But overall, it is positive to see the global air cargo market demand return to pre-pandemic levels in the first quarter of 2024.
