Not all air freight routes have returned to pre-Covid normalcy

The air cargo market entered its traditional Lunar New Year lull in February after the excitement of the lead-in period to the holidays, which officially commenced on Saturday, February 10.

As a result, global air freight prices on most routes stagnated or trended downwards in the latter part of February, led by softer rates on routes out of the big hubs in China.

TAC Index reported that outbound routes from Hong Kong dropped 5.8 percent week-on-week in the week of 26 February due to thin volumes, leaving prices from the key hub some 15.8 percent lower than a year earlier. Outbound rates in Shanghai plummeted 10.7 percent week-on-week in the same time frame, leaving rates 6.6 percent lower than a year earlier.

However, there were signs that markets were rebounding as February turned to March. WorldACD said volumes in the final full week of February rebounded, with volumes up 9 percent after dropping 10 percent in the two previous weeks.

A relatively soft market in February followed a robust start to the year for many carriers. The Association of Asia Pacific Airlines (AAPA) said January saw the continuation of growth in air cargo markets, propelled by demand related to the festive Lunar New Year season.

“While it is not the traditional peak season we were used to seeing pre-pandemic, the Lunar New Year season allowed shippers to clear some of their backlog shipments,” said Niki Frank, CEO, DHL Global Forwarding Asia Pacific. “We are seeing positive signs that demand for air freight will continue to grow in the coming months.”

January, the giving month 

The AAPA’s member airlines reported a 22.5 percent year-on-year increase in international air cargo demand during the month, extending the rebound seen in the last quarter of 2023.

Looking ahead, Subhas Menon, AAPA Director General, said 2024 was now looking broadly positive for Asian carriers, due to renewed optimism about the global economic outlook. “However, as capacity restoration progresses, airlines face intensifying competition,” he added. “In addition, the cost environment remains challenging, as inflationary pressures continue to be felt amid ongoing supply chain issues.”

The ‘supply chain issues’ highlighted by Menon were also highlighted in The Loadstar by Tom Crabtree, Managing Director of the Trade and Transport Group, an aviation advisory. He noted that while recent cargo statistics had been largely positive, indicating a return to relative normalcy, some markets had failed to fully bounce back.

“For passenger transport, most national domestic markets have recovered beyond pre-Covid levels,” he noted. “Of the six major domestic markets tracked by International Air Transport Association (IATA), only Australia and Japan have yet to fully recover, and that should fully happen over the course of 2024.”

Geopolitical shadow 

However, Crabtree also explained that international markets are altogether different, primarily to due to a rise in “nationalist brinksmanship” on the part of the Russian Federation, China (PRC) and the United States (U.S.).

Using passenger seat-km capacity as a proxy for passenger belly capacity, he pointed out that while Europe-North America capacity is now more than fully restored, Europe-Far East capacity is 31 percent smaller than 2019 levels, while Far East-North America capacity is 37 percent less than the pre-Covid norm.

This, he explained, was largely because Russia’s invasion of Ukraine in early 2022 polarized the global landscape unlike any event since the Cold War of 1945-1991. The knock-on impact of the invasion led to both Russian and Ukrainian air space continuing to be closed to most countries not aligned with either Russia or the People’s Republic of China (PRC), severely impeding air transport capacity between East Asia and Western Europe.

Similarly, the U.S. and China have restricted the resumption of air passenger services between their countries to less than one-third of 2019 levels due to U.S. opposition to China’s alignment with Russia during Russia’s ongoing invasion of Ukraine, curbing transpacific air cargo capacity. Crabtree cited United Airlines, a U.S.-based legacy passenger airline with no freighter capacity, which as of February 2024 was only operating 24 percent of its allotted U.S.-PRC route authority.

“In a nutshell, these factors have severely curtailed passenger airplane belly capacity available to the world’s two biggest international region-to-region air cargo markets: East Asia to and from North America (transpacific); and East Asia-to and from Europe,” said Crabtree.

As such, the upshot of this has been that these trade lanes have become dependent on freighter capacity well beyond pre-Covid norms.

Leading global capacity to the skies 

The February edition of DHL’s Air Freight State Of The Industry notes that air freight capacity is on the rise. Indeed, it was up 11 percent in February compared to a year earlier due to a recovery in air cargo belly capacity.

It reports that global air cargo volume surged by a 10 percent increase year-on-year in February, “mainly linked to strong e-commerce traffic, pre–Lunar New Year combined with Middle East disputes”.

Indeed, WorldACD reported that one of the bright spots for air cargo was the uptake in sea-air options on Asia-Europe routes. The Dubai-Europe air cargo traffic in Week 8 of 2024 was double its level (a 146 percent increase) this time last year, while Colombo-Europe tonnages were up by more than 80 percent year-on-year in Weeks 7 and 8.

“Asia-Europe sea-air hubs such as Dubai, Colombo and Bangkok have in recent weeks experienced exceptionally high air cargo demand, as cargo owners whose supply chains have been disrupted by the attacks on container shipping in the Red Sea seek fast but affordable alternatives to deliver goods to Europe from the Asia Pacific,” reported WorldACD.

“The situation in the Red Sea is seeing some ocean freight to air freight conversion, so we are helping customers with a range of hybrid sea-air solutions,” said Frank. “Looking further ahead, we see a positive outlook for airfreight services inbound and outbound Europe, and we expect uplift from Middle East hubs such as Dubai into Europe and the U.S. to continue to grow,” he added.