Despite depressed demand, down 5% YoY, and capacity still 12% lower than 2019, even with the reintroduction of PAX belly capacity, air freight rates are higher than last year and up over 130% compared to pre-pandemic levels.
As we move into Q3, we expect air freight market dynamics to be driven mainly by the state of the global economy, ocean freight market conditions, the war in Ukraine, and future COVID-19 lockdowns.
Even with YoY demand falling, we expect the market will remain strong through 2022, because the gap between supply and demand is narrow, as increases in the number of passenger flights, are offset by the end of “preighter” flights, and disruptions in the ocean transport market lead time-sensitive cargo to divert.
There has been concern in the aviation sector that resurgent transatlantic and Asian passenger demand, which has seen capacity return to near 2019, may already be waning, though some carriers are adding capacity in spite of economic headwinds, suggesting a degree of optimism.
Transatlantic capacity returned to near 2019 levels after being down by as much as 50% last year, with a lot of wide-body passenger aircraft now deployed and hopes that numbers will increase further as carriers prepare for the summer holiday season.
Pure-freighter operators continue to fly as much as they can, because demand is still still quite strong, with fashion and automotive two particularly well- performing verticals.
Cathay Pacific Cargo has for example resumed its full freighter schedule, operating 90-100 services every week, including 35 on the transpacific and a daily service to Europe.
The airline is confidently rebuilding its network, but admitted there is pressure from more cargo belly capacity returning, and potential economic headwinds that may impact consumer confidence.
Air freight rates could be expected to remain at their current elevated levels, and while inflation, further interest rate rises, and falling consumer confidence will impact demand, the over-arching question is what will that demand look like as factories in China return to full operational output, in a less favourable global economic outlook.
And while attention remains on when rates may return to pre-pandemic levels, it does not appear that this will be any time soon, with head haul and back haul rates trending upwards since the start of 2021.
Head haul rates in the 2nd quarter are over 30% higher than a year earlier and increases on back haul rates have been rising through the 1st and 2nd quarters.
Air freight rates can be expected to remain at elevated levels, unless macroeconomic developments, such as inflation and interest rate hikes, accelerate a drop in consumer confidence.
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We work closely with our Asia offices and global network to continuously monitor market capacity and opportunities. Evaluating and blocking space early, so that our customers can achieve the most demanding deadlines.
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