SUPPLY
Quarterly overview of the majordevelopments in air freight supply
In the first quarter of 2024, global air cargo supply increased at a slower, single-digit pace compared to demand growth.
This follows global air cargo supply returning to pre-pandemic levels in the final quarter of 2023.
As a result, the global dynamic load factor in the first three months of 2024 rose by 2 percentage points year-on-year to 59%.
March saw a similar increase, with dynamic load factor rising to 61%, the highest level since the peak season of 2022.
Global dynamic load factor is Xeneta’s measurement of cargo capacity utilization based on volume and weight of cargo flown.
With disruptions in the Red Sea and e-commerce demand, the dynamic load factor increased across the world’s major front haul corridors.
Routes from Asia Pacific to Europe and the Middle East, as well as from the Middle East and Central Asia to North America, all recorded either high single-digit or double-digit dynamic load factor growth in March compared to 12 months ago.
A dynamic load factor of more than 80% usually signifies a freight seller’s market with increasing freight rates.
With markets from Asia Pacific and the Middle East into Europe and North America most affected by e-commerce demand and the Red Sea conflict, it is not surprising to see the 80% threshold breached in dynamic load factor.
The Europe to North America market is particularly sensitive to seasonality in supply and is set to see an influx of passenger belly capacity after airlines began their summer schedules on 31 March.
Last year, the increasing demand for passenger travel during the summer months resulted in a 33% increase in air cargo capacity on this corridor from March to its peak in June.
In the first week of April this year, the total cargo capacity from Europe to North America has already surged by 11% from the previous week prior to the change in schedule.
This caused the dynamic load factor to decrease from 73% to 62% in the same timeframe.
The uplift of 11% also represents a 3.5% increase compared to the same week in 2023.
Such capacity growth usually coincides with flat demand during the summer months, which leads to an imbalance between supply and demand.
This could be the reason why freight forwarders continue to allocate a significant proportion of cargo volumes on the spot market.
The influx of capacity on the Transatlantic market may also put downward pressure on rates from Central Asia and Southeast Asia to North America.
This is because Middle East and European airlines often transit via their home countries before heading to airports in North America.
Trade imbalances across fronthauls and backhauls have resulted in many aircraft flying with half-empty cargo holds on return flights.
This explains why air cargo rates and revenues on backhaul trades, for instance, the Europe to Asia market, have returned to, or fallen below, their pre-pandemic levels of 2019.
Carriers will therefore target the fronthaul market to drive revenue to offset the weaker backhaul, but the market signals for the remainder of 2024 look promising from their perspective.
While the air cargo market will likely slow down after a strong start to 2024, it is set to remain above 2019 levels ahead of peak season later this year.
Lack of capacity on China-US market
China’s domestic passenger flight capacity will exceed 2019 levels by summer this year, however the same cannot be said for international air freight supply.
This is particularly the case on China to US routes which have so far only recovered to 20% of pre-pandemic levels.
Even though passenger belly capacity accounts for no more than 20% of the total cargo capacity on the Transpacific market, any additional capacity would bring rates closer to pre-pandemic levels.
The US Department of Transportation announced that Chinese passenger airlines can increase weekly flights to and from the US from 35 to 50, starting from 31 March.
US carriers will be allowed the same increase, which equates to nearly one-third of pre-pandemic passenger flight capacity.
However, despite this positive development, a full recovery of China-US passenger belly capacity will take time.
For example, Reuters reported that US airlines have not been able to introduce all of their previous 35 flights due to restrictions in Russian airspace for flights from the US east coast and have expressed concerns about being at a disadvantage compared to their Chinese counterparts.
