Is the bottom out of the air freight market?

With only 96 days left until Christmas (sorry), the high season for e-commerce and merchandise has just begun. Although several major weather time the goods Operators are beginning to show signs that they expect a drop in demand, or at least a flattening of the accelerating capacity requirements that have characterized the pandemic.


When many of the world’s airlines grounded their fleets in 2020, belly-cargo capacity disappeared overnight. This demand pressure compounded an increase in people using e-commerce to shop, as retail stores remained closed, and people chose (or made to) stay at home.

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This led to an unprecedented rise in the cost of air freight, encouraging more carriers to enter the market, or to expand capacity often by converting redundant passenger aircraft into makeshift box trucks.

Seats have been removed from passenger planes to make room for cargo. Photo: Hi Fly

But times have changed again. With the return of passengers, came the return of some of the belly capacity that had disappeared in at least 2020. International Air Transport Association The latest industry update indicated that air cargo capacity was, in June and July, tracking near pre-pandemic levels – good news, but only if demand equals capacity.


Is demand starting to deteriorate?

According to Xeneta, the air freight market contracted 5% year over year in August, and 4% compared to pre-pandemic levels. The result of this was a bearish float for freight rates globally, which has been a trend since late March. Global rates peaked at 156% above 2019 levels in January, and are currently down to +113%. This is still high, but not high.

The good news is that the drop in shipping rates is starting to slow. As can be seen from the Xeneta graph below, August saw a plateau in rates between Europe and North America, stabilizing below those seen in 2020 and 2021, but still well above typical rates for 2019.

Data and graph: Xeneta

However, air freight companies are expecting a quiet fourth quarter of the year, due to many factors. In the mix are ongoing disruptions in supply chains, a global economic slowdown, a shortage of human resources, above-average fuel prices, and of course the ongoing war in Ukraine.

Air freight operators began to decline

Although the peak air freight season is still to come, some shipping companies have already started to slow down. As I mentioned charging wavesglobal retail giant Amazon It backed off its expansion somewhat, with its fleet growth slowing and fewer daily flights. As of March, its total flight activity was growing at a rate of 14.3% per month. From March to August, the average monthly growth was just 3.8%.

Amazon has fallen off its growth trajectory since March of this year. Photo: Amazon Air

Amazon, as a company, lost $3.8 billion in the first quarter of the year. That closed or halted construction of a record number of warehouses — 44 in total, 2.5 times more than previously earmarked for closures, according to American Shipper. It is said that it is now rationalizing its air network because there are fewer warehouses to supply.

FedEx Express, the world’s largest air freight carrier, is also feeling the pinch. The September trading update showed first-quarter earnings were well below expectations, with a revenue shortfall of nearly $500 million revealed. The shipper admitted to reducing flight frequencies and grounding some planes in order to save money, although he was reluctant to say exactly how many planes would be grounded.

FedEx will ground some planes, though it didn’t say how many or for how long. Photo: FedEx

DHL The mid-August report indicated declining demand, but said volumes remained stable after a significant drop in July. It further noted that improvements in ocean freight operations have contributed to lower demand for air freight, but remains positive about the long-term prospects for the industry.

As Loadstar reports, Kalitta Air has returned operations to a new base in Ecuador, a move considered to be driven by overcapacity in the Chilean market. It became the second airline to announce direct flights from Quito to Miami after Solent Freight Services earlier this year, both of which target the transportation of perishable items to the United States.

UPS is bucking the trend and continues to expand its fleet. Photo: Boeing

On the other hand, UPS shows no doubt in the air freight industry. She bought a Boeing plane to buy a plane Eight more Boeing 767 freighters in Augustto move its fleet to 108 aircraft in total.

There are still positive signs

Aside from the relative damping of air cargo, there are plenty of operators looking to get in on the action. global shipping giant Maersk launches its own air freight operationBoeing 767 is flown chartered as a supplement to the massive sea freight operation. Vietnam is looking forward to a start The first cargo airline IPP Air CargoAnd the India’s new shipping company Quikjet Expect the first flights before the end of the year. These are just some examples of where air freight is still on a growth path.

QuikJet Airlines can start shipping operations in just two months. Photo: KwikJet Airlines

While the long-term prospects remain to be seen, things must be set in place. Yes, rates are slowing, and demand is starting to decline, but compared to pre-pandemic times, air freight is still in a very healthy position.

However, the fourth quarter of 2022 comes with some strong headwinds and quite a bit of volatility that shipping companies will need to get through the weather. Issues such as declining purchasing power through inflation, not to mention rising jet fuel prices, will continue to dampen the air freight market and reduce opportunities for airlines’ profitability.

Hopefully, FedEx’s status is just a passing picture, not an indication that the market is experiencing some major issues.

Sources: ZenitaAnd the American chargerAnd the charging wavesAnd the CargonoAnd the loadstar

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