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Consumer demand likely less vigorous ahead of upcoming peak season

Caution should still be exercised in light of ongoing events that could jolt the supply chain once more.
31 August 2022 •

Softening exports out of Asia, more passenger aircraft bellyhold capacity entering the market, and strong economic headwinds are expected to produce a Q4 air cargo peak season which is significantly less vigorous than in 2021 and 2020.

Inflation is weighing heavily on advanced economies and consumer demand, with the International Monetary Fund, World Bank and most analysts heavily downgraded 2022 and 2023 GDP growth forecasts.

“We are seeing this playing out in demand from Europe, and to a lesser extent the U.S., for exports out of Asia as well as in less aggressive new orders,” said Kelvin Leung, CEO DHL Global Forwarding Asia Pacific.

Leung noted that there has been a significant air-to-ocean conversion this year, signalling a slightly more subdued peak season compared to the extremes from the last two pandemic-driven peaks.

“However, there are still so many bottlenecks at ports and elsewhere in supply chains that it would not take much of a jolt to global logistics flows for demand for air freight to get more forceful as we get closer to the holiday season,” he added.

Capacity additions

Global freight capacity has been gradually increasing through the year and has been buoyed this summer by additional bellyhold options on key routes out of the Middle East and on trans-Atlantic and intra-Asia lanes.

DHL’s July Airfreight State of the Industry report recorded that overall capacity in July was up 18 percent year-on-year.  The August report notes that global capacity in August this year was just 11 percent lower than in August 2019, despite airspace closures and ongoing Covid-19 disruption.

Demand reduction amidst capacity growth

On the flipside, there is a noticeable dip in demand, in part due to lowered consumer requirements with inflation in play.

The latest after-the-fact data for June from the International Air Transport Association (IATA), which was released at the start of August, revealed that global demand, measured in cargo tonne-kilometres, was 6.4 percent below June 2021 levels. Global demand for the first half-year was 4.3 percent below 2021 levels, while capacity was up 4.5 percent.

The Association of Asia Pacific Airlines (AAPA) reported in late August that air cargo markets had “weakened further” due to falling export orders alongside worsening business and consumer confidence levels. The AAPA noted that in July international air cargo demand, as measured in freight-tonne kilometres, dropped by 11.6 percent year-on-year.

Financial and analyst firm Nomura’s export leading indicator (NELI), a composite index made up of forward-looking indicators of Asian exports covering 10 economies - China, Hong Kong, India, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Taiwan and Thailand - is now predicting a “deeper slump in Asian exports” than previous readings.

Nomura believes evidence of weakening export demand has “gathered momentum”, with Asia excluding-Japan export volume growth of 1.5 percent year-on-year in Q2 already much weaker than value growth of 13.8 percent.

NELI is now “pointing south until September”, noted a Nomura report, with Asia’s export growth “likely to slump from the mid-teens currently to low single-digits by year-end, and into negative territory early next year”.

Nomura expects the in the export growth downcycle to occur only around mid-2023. “This is consistent with our view that the initial slowdown phase reflects an inventory destocking cycle, and weak demand in China,” said the report. “But going forward, the weakness is likely to spread as final demand slows across the advanced economies. The downcycle is just starting.”

Cause for optimism for air import

Heading into the second half of 2022, there were also some positive signs. The Q3 report on the DHL Hong Kong Air Trade Leading Index (DTI), which measures the forward-looking business outlook of Hong Kong air traders, reported a recovery in the Overall Air Trade Index. It was a rise from 35.8 in Q2 to This was “mainly driven by a significant rebound in the Air Imports Index from 36 to 43.1 points, similar to the level prior to the fifth wave of the pandemic”.

An index value above 50 indicates an overall positive outlook while a reading below 50 represents an overall negative outlook for the surveyed quarter.

On the flip side, the Air (Re-)Exports Index recovered at a slower pace from 35.5 to 37.0 points with non-U.S. currency markets showing “an obvious improvement in imports, while Americas was the only market with a dip”.

A balancing act for the future

Bruce Chan, Director & Senior Analyst, Global Logistics & Future Mobility Equity Research at Stifel, noted in a report for the Baltic Exchange that the demand levels and freight rates witnessed during the pandemic had now most likely passed.

However, he argued that demand was moderating slowly, not collapsing, while supply was only gradually loosening. “Our view is that we have seen peak freight volumes, both broadly and on a global basis,” he explained.

“Absolute rates can still move higher. However, the gulf between current rates and those seen a year or two ago should continue to moderate. The process likely happens gradually given the amount of dislocation still present in global supply chains, which means that full normalisation of rates to historical levels probably will not happen until well into 2023,” added Chan.

Still, there is cause for optimism, despite the air of caution conveyed in recent economic forecasts. Leung adde: “Shippers are being more cautious about committing to air freight options which is entirely understandable given downbeat economic forecasts. But the market is still vibrant. Many key lanes have room for growth, especially as peak season looms.”

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Softening exports out of Asia, more passenger aircraft bellyhold capacity entering the market, and strong economic headwinds are expected to produce a Q4 air cargo peak season which is significantly less vigorous than in 2021 and 2020.

Inflation is weighing heavily on advanced economies and consumer demand, with the International Monetary Fund, World Bank and most analysts heavily downgraded 2022 and 2023 GDP growth forecasts.

“We are seeing this playing out in demand from Europe, and to a lesser extent the U.S., for exports out of Asia as well as in less aggressive new orders,” said Kelvin Leung, CEO DHL Global Forwarding Asia Pacific.

Leung noted that there has been a significant air-to-ocean conversion this year, signalling a slightly more subdued peak season compared to the extremes from the last two pandemic-driven peaks.

“However, there are still so many bottlenecks at ports and elsewhere in supply chains that it would not take much of a jolt to global logistics flows for demand for air freight to get more forceful as we get closer to the holiday season,” he added.

Capacity additions

Global freight capacity has been gradually increasing through the year and has been buoyed this summer by additional bellyhold options on key routes out of the Middle East and on trans-Atlantic and intra-Asia lanes.

DHL’s July Airfreight State of the Industry report recorded that overall capacity in July was up 18 percent year-on-year.  The August report notes that global capacity in August this year was just 11 percent lower than in August 2019, despite airspace closures and ongoing Covid-19 disruption.

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While air capacity saw some return with reduced demand from lockdowns, the approaching peak season and economic outlook spell further uncertainty.

The air cargo market continues to soften on higher capacity and sluggish demand, but the overall picture is very nuanced even as bellyhold capacity is returning to the market.

Thomas Mack, Global Head of Air Freight, DHL Global Forwarding expects air freight markets to tighten later this year, and urges a sense of caution as the peak season approaches.

“The world enjoyed some breathing room during the months of June and July and we do not expect a sudden surge in demand during this year’s peak season too,” he said, noting that DHL’s July Airfreight State of the Industry is forecasting that the softened demand across trade lanes in the coming months, especially out of Asia towards the U.S. and Europe will continue.

There is ample scope for a market upturn later in the year if – and it’s a big if – economic headwinds ease.

General air cargo market volumes fell eight percent year-over-year in May as war in Ukraine, soaring inflation, stock market declines and Covid-related restrictions in China battered business confidence and shipment levels, according to CLIVE Data Services. June followed a similar trajectory with volumes down eight percent year-on-year and down by seven percent compared to June 2019.

Mr. Subhas Menon, Director General of the Association of Asia Pacific Airlines, said that after a buoyant 2021, air cargo demand was now encountering more challenges, with “export orders facing downward pressures driven by waning business confidence levels amid an increasingly cloudy global economic outlook”.

Kelvin Leung, CEO, DHL Global Forwarding Asia Pacific, noted that the looming presence of inflation, on top of the ongoing Covid-19 restrictions in China, are creating a sense of caution towards the market outlook for the second half of 2022. “Ongoing issues such as the energy crisis in Europe and labor shortages continue to affect the supply chain, bringing much uncertainty for the months ahead,” he added.

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Capacity up

More positively, freight options are increasing as bellyhold space returns to the market, albeit capacity remains lower now than pre-Covid. Available cargo capacity in June 2022 rose six percent compared to June 2021. This is the result of additional summer passenger flights entering the market as travel restrictions are removed around the world. However, total capacity remained 11 percent lower than in June 2019.

According to the July DHL Air Freight Market Update, while overall capacity in July was up 18 percent year-on-year, passenger capacity was almost 19 percent lower than in pre-Covid July 2019.

Delicate balance

Capacity additions and the deteriorating economic picture combined to push rates downwards in June, especially on the North Atlantic where rates have dropped 30 percent over the last three months, according to CLIVE. DHL’s July Airfreight Market Update also notes that general airfreight rates in June this year were still 120 percent higher than in June 2019 and 23 percent higher than in June 2021.

Niall van de Wouw, founder of CLIVE and Chief Airfreight Officer at Xeneta, said the softening Atlantic market, where more capacity has been added this summer, could have wider repercussions even on ex Asia lanes to the US and Europe where flights are currently “relatively full” if carriers transfer capacity away from the Atlantic lanes.

“Will carriers deploy their freighters to other markets in Asia Pacific, Africa, or South America? We are already seeing some freighter redeployment in the market,” said van de Wouw.

“But even on the trans-Atlantic trade land, there are still shortages of space. And globally demand for main deck capacity remains high,” added Mack.

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Explaining rate declines

Bruce Chan, Director & Senior Analyst, Global Logistics & Future Mobility Equity Research at Stifel, admitted in a report for the Baltic Exchange that Stifel had expected rates to rise in June. Explaining the downturn, he noted four factors.

First, fuel prices tapered steadily during the month, tempering increases in base rates.

Secondly, the third quarter is typically the second-slowest air freight shipping season and “we are currently entering the normal late-summer lull before the onset of the holiday peak” so the rates drop could also be partly seasonal.

“The third possible explanation is that the post-shutdown manufacturing ramp-up in China has been, and will be, more gradual than we expected,” said Chan.

Finally, Chan said there was also the possibility that demand was starting to moderate on a long-term basis. “Are we seeing signs that the recessionary bogeyman has arrived?” he added. “Airfreight volumes and airfreight rates are likely a leading indicator, in our view, but we don’t have clear evidence to support that thesis,” noted Chan.

Annualized U.S. GDP contracted 1.6 percent in 1Q22, for example, but unemployment and absolute consumer spending figures have been more resilient, and U.S. inventory-to-sales ratios remain near all-time lows.

“We don’t, and cannot, discount the possibility of the last scenario. And, while we do expect a broader slowdown at some point in 2023, we believe that what is currently impacting rates is shorter-term in nature,” added Chan.

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DHL Air Freight State of the Industry – July 2022
Find out the latest developments of the global air freight market in this monthly analysis by DHL Global Forwarding.

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Demand reduction amidst capacity growth

On the flipside, there is a noticeable dip in demand, in part due to lowered consumer requirements with inflation in play.

The latest after-the-fact data for June from the International Air Transport Association (IATA), which was released at the start of August, revealed that global demand, measured in cargo tonne-kilometres, was 6.4 percent below June 2021 levels. Global demand for the first half-year was 4.3 percent below 2021 levels, while capacity was up 4.5 percent.

The Association of Asia Pacific Airlines (AAPA) reported in late August that air cargo markets had “weakened further” due to falling export orders alongside worsening business and consumer confidence levels. The AAPA noted that in July international air cargo demand, as measured in freight-tonne kilometres, dropped by 11.6 percent year-on-year.

Financial and analyst firm Nomura’s export leading indicator (NELI), a composite index made up of forward-looking indicators of Asian exports covering 10 economies – China, Hong Kong, India, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Taiwan and Thailand – is now predicting a “deeper slump in Asian exports” than previous readings.

Nomura believes evidence of weakening export demand has “gathered momentum”, with Asia excluding-Japan export volume growth of 1.5 percent year-on-year in Q2 already much weaker than value growth of 13.8 percent.

NELI is now “pointing south until September”, noted a Nomura report, with Asia’s export growth “likely to slump from the mid-teens currently to low single-digits by year-end, and into negative territory early next year”.

Nomura expects the in the export growth downcycle to occur only around mid-2023. “This is consistent with our view that the initial slowdown phase reflects an inventory destocking cycle, and weak demand in China,” said the report. “But going forward, the weakness is likely to spread as final demand slows across the advanced economies. The downcycle is just starting.”

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Trade is still growing, albeit at a more sluggish pace, as those in the business of moving cargo across international borders continue to fight fires old and new.

Economists and analysts have now largely converged on the fact that the global economy is slowing down. Equally, most agree that some countries will almost certainly turn recessionary in the coming quarters.

Ocean container markets are not quite as taut as they have been for the last two years under Covid-19. But the northern hemisphere summer is still proving challenging for ocean shipping stakeholders as a slew of new and re-occurring supply chain disruptions blight the best laid plans.

“Forwarders are used to managing crises and finding solutions to ensure customers’ businesses run smoothly,” said Kelvin Leung, CEO, DHL Global Forwarding Asia Pacific. “Covid-19 has seen those challenges increase and this summer has seen no let-up.”

“There are concerning economic signs, but we are still seeing green shoots that the freight pipeline remains healthy, even though volumes might be levelling off from Covid-19 peaks and returning to more historically normal levels,” added Leung.

Summer sun turning up the heat in Europe supply chain

Across Europe, sizzling temperatures throughout summer have left the continent’s rivers dangerously low. The Danube River, Europe’s longest, was barely navigable for barge traffic by mid-August. At the same juncture, the Rhine, a key industrial artery, was all but closed to freight at some sections as water levels fell to historic lows.

European ports have also been hit by strike action. Negotiations between unions and ports operators in Germany are ongoing while in the UK workers at the ports of Liverpool and Felixstowe have announced strikes in August.

The lack of barge shipping options is piling more pressure on already stretched European rail and road networks.

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China exports slowed by ongoing pandemic restrictions

In China, factory activity unexpectedly shrank in July as ongoing Covid-19 outbreaks impacted operations. The official manufacturing purchasing managers’ index (PMI) fell to 49.0 in July, from 50.2 in June, with new orders and output both registering declines, according to China’s National Bureau of Statistics. In part, this is because fresh Covid-19 lockdowns in key production regions around Shenzhen in the south and Tianjin in the north have disrupted manufacturing.

Global shipping has also suffered disruptions in recent weeks as China has conducted live-fire military exercises in the Taiwan Strait.

Improved U.S. port situations, but congestion remains

Congestion at U.S. West Coast ports, particularly the Los Angeles and Long Beach facilities which act as the main gateway to North America, has improved through 2022.

Even so, overall U.S. port congestion is not seeing much improvement from the start of the year as congestion has instead shifted to the Gulf and East coast ports. Over 150 ships were waiting off U.S. ports in late July with Savannah, Georgia, New York, New Jersey and Houston among the worst performers. The congestion is the result of record high imports to the U.S. East Coast this year as shippers have sought to avoid delays on the West Coast.

Carrier schedule reliability has plummeted as a result. In June schedule reliability on East Coast services was just 18.7 percent, while vessels arriving late suffered an average delay of nine days, according to Sea-Intelligence.

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Economic deterioration

Rising prices of many products alongside slowing economic growth are, of course, dampening economic forecasts. In July, the International Monetary Fund (IMF) downgraded its outlook, forecasting global GDP growth of 3.2 percent this year, a cut of 0.4 percentage points from its April forecast.

The forecast for annual global growth in 2023 was also revised, down 0.7 percentage points to just 2.9 percent.

In terms of freight demand, IMF forecasts for advanced countries – the biggest buyers of many containerised products – were cut even more aggressively. The U.S. economy is now forecast by the IMF to grow 2.3 percent this year (versus a forecast of 3.7 percent in April) and just one percent in 2023 (down from 2.3 percent).

Europe’s biggest economy, Germany, saw a huge 1.9 percentage point downgrade to its GDP growth forecast for 2023 when 0.8 percent growth is now expected. Overall, Europe saw 1.1 percentage point cut to its growth forecast for 2023 when GDP is expected to expand by 1.2 percent.

All of which translates into global trade in goods and services expanding 4.1 percent this year, down 0.9 percentage points from the IMF’s April trade forecast.

Box rates stumble

With macroeconomic headwinds strong and recessions now being forecast for many leading trading economies, it is perhaps unsurprising that container spot freight rates have been falling consistently in recent weeks on headhaul routes out of China. However, although freight rates have fallen a long way this year, this is no precipitous plunge. Freight rates on many lanes are still three to four times higher than pre-pandemic levels.

Even so, carriers have started blanking more sailings in a bid to stop further freight rate slides.

Dominique von Orelli, Global Head, Ocean Freight, DHL Global Forwarding, said much now depends on how quickly central banks can control inflation and limit any major economic contractions.

“It’s clear that carriers will continue to void sailings to maintain the container slot supply-demand balance on key lanes out of Asia to Europe and the US, and also on other trade lanes,” he added. “This means container markets will likely remain relatively tight even if the negative economic forecasts are proven correct. We’re planning for all eventualities and urging customers to do likewise.”

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Cause for optimism for air import

Heading into the second half of 2022, there were also some positive signs. The Q3 report on the DHL Hong Kong Air Trade Leading Index (DTI), which measures the forward-looking business outlook of Hong Kong air traders, reported a recovery in the Overall Air Trade Index. It was a rise from 35.8 in Q2 to This was “mainly driven by a significant rebound in the Air Imports Index from 36 to 43.1 points, similar to the level prior to the fifth wave of the pandemic”.

An index value above 50 indicates an overall positive outlook while a reading below 50 represents an overall negative outlook for the surveyed quarter.

On the flip side, the Air (Re-)Exports Index recovered at a slower pace from 35.5 to 37.0 points with non-U.S. currency markets showing “an obvious improvement in imports, while Americas was the only market with a dip”.

A balancing act for the future

Bruce Chan, Director & Senior Analyst, Global Logistics & Future Mobility Equity Research at Stifel, noted in a report for the Baltic Exchange that the demand levels and freight rates witnessed during the pandemic had now most likely passed.

However, he argued that demand was moderating slowly, not collapsing, while supply was only gradually loosening. “Our view is that we have seen peak freight volumes, both broadly and on a global basis,” he explained.

“Absolute rates can still move higher. However, the gulf between current rates and those seen a year or two ago should continue to moderate. The process likely happens gradually given the amount of dislocation still present in global supply chains, which means that full normalisation of rates to historical levels probably will not happen until well into 2023,” added Chan.

Still, there is cause for optimism, despite the air of caution conveyed in recent economic forecasts. Leung adde: “Shippers are being more cautious about committing to air freight options which is entirely understandable given downbeat economic forecasts. But the market is still vibrant. Many key lanes have room for growth, especially as peak season looms.”

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