Freight volumes and rates are starting to decline, prompting inquiries about demand trends. Logistics experts and analysts are optimistic that the air cargo market, which had a notably robust first half of the year, will maintain its momentum as the year concludes. This period typically sees a surge in international shipping to accommodate holiday shopping demands, which often results in increased pressure on capacity and rising rates.
E-commerce growth from Asia remains a key driver, complemented by other positive factors influencing air shipping. While many U.S. and European companies preemptively ordered inventory to mitigate the impact of supply chain disruptions—such as rerouted vessels due to the Red Sea conflict—the consensus in the industry suggests that underlying demand will lead to heightened transport activity. However, there’s a possibility that the orders placed for fall might have been advanced, potentially front-loading volumes at the expense of future demand. Economists are also monitoring mixed macroeconomic indicators that cast uncertainty on sustained consumer spending.
“I believe the trend will continue. We can expect an increase in volumes, especially as widebody freighter capacity remains constrained, leading to corresponding rate changes,” said Atlas Air CEO Michael Steen in a video interview. He anticipates that the current high demand, coupled with limited supply, will persist into 2025 and beyond.
The peak-season surcharges imposed by FedEx and UPS are higher than in previous years, signaling that these parcel carriers expect significant domestic and international volumes during the holiday season. According to UPS management’s recent earnings call, record-high parcel volumes are expected in December. Cathay Pacific, a Hong Kong-based airline, has also projected strong demand throughout the peak season.
According to freight market analytics firm Xeneta, airfreight demand surged by 13% year over year in July, fueled by continuous e-commerce growth from China and a shift from ocean shipping. This uptick occurred during a traditionally slow period for air cargo, and volumes have risen by double digits for eight months straight. Meanwhile, cargo space increased at a more moderate rate of 2%, causing tight capacity on certain trade routes. The load factor—a metric for capacity utilization—rose by five percentage points to 59%, as demand growth outpaced supply growth.
Data from the International Air Transport Association revealed a 14% increase in air cargo traffic in June compared to 2023, reinforcing Xeneta’s findings. The airline group, which measures demand differently, indicated that demand in the first half of the year increased by 13.4% year over year, outpacing the same period in 2022, and matching shipment levels from the pandemic surge of 2021. June also marked the continuation of over three years of double-digit annual capacity growth, which has primarily stemmed from passenger airlines adding flights that also carry cargo. Belly cargo space increased by 16.8% compared to a modest 4.1% growth in freighter capacity.
Dedicated freighter flight hours rose by 3% year over year in July, aligning with earlier months’ improvements and rebounding from negative readings observed from February to April, as reported by BMO Capital Markets.
Persistent e-commerce demand has resulted in a shortage of widebody freighters, which are reportedly fully booked until the end of the year, according to Taiwan-based logistics provider Dimerco Express. To adapt, airlines are breaking block space agreements with forwarders into smaller segments, particularly on the China to U.S. route.
Earlier this month, global average spot rates reached $2.64 per kilogram, nearly hitting the year’s peak and comparable to the same time last year. Although there has been a slight decline since then, rates remain about 11% higher than last year and significantly above pre-pandemic levels. Shipping rates from Shanghai to North America rose over 25% year on year, while rates to Europe saw a 44% increase, as per the TAC Index.
Airfreight rates from China and Hong Kong were significantly above normal summer levels, measuring about $5.72 from Hong Kong to North America and $4.50 to Europe at the end of July. These prices are expected to exceed peak-season norms in the fourth quarter, according to Judah Levine, head of research at Freightos.
Cargo revenue for several passenger and combination carriers experienced year-over-year growth in the second quarter for the first time in a year. Airlines including Asiana, All Nippon Airways, Lufthansa, Delta Air Lines, Korean Air, and United Airlines reported revenue increases between 12% to 16%, while other carriers faced smaller declines than in prior quarters.
Shippers and freight forwarders in the Northeast Asia to Europe market are encountering price pressures as aircraft reach nearly 90% capacity per flight, according to Xeneta. Conversely, load factors on the backhaul are only at 43%, an 18-point drop from 2019 figures, which explains why fronthaul rates are three times higher than those on the return leg. Forwarders are passing on increased rates to customers signing long-term contracts, with base rates up 30% year on year to $4.42/kg. However, those committing to space for less than a month face a 40% increase compared to the previous year.
Despite market imbalances in fronthaul and backhaul rates, airlines operating out of Asia are still seeing higher profits per flight, as noted by Xeneta.
Expeditors, a Seattle-based forwarder, highlighted in their second-quarter report that air tonnage managed for customers rose by 15% year on year, noting that “buy rates outpaced increased sell rates due to stronger international direct e-commerce demand from North Asia than the available carrier capacity.”
International e-commerce from Asia is experiencing rapid growth, heavily reliant on airfreight for delivery to consumers. E-commerce now constitutes one-fifth of air freight volume, and this share grows annually.
Cargojet, a Canadian freighter airline, noted a correlation between “cooling inflation and ongoing interest rate reductions” leading to increased discretionary consumer spending, particularly in e-commerce. Signals indicate a strong year-end finish. Cargojet has also launched three weekly flights from Hangzhou, China, to Vancouver for Great Vision HK Express, serving e-commerce retailers in China.
High rates in the Asia Pacific region are prompting some freighter operators to reallocate aircraft away from transatlantic services, where passenger carriers have increased capacity. Air France-KLM Group plans to suspend several Latin America routes next month to allocate Boeing 747 cargo jets for service to Hong Kong, citing e-commerce demand. Similarly, Lufthansa Cargo and Cargolux have informed customers of their plans to shift some freighter capacity to Asia starting in November in response to the e-commerce boom and more lucrative rates. Latam Cargo is also adding two weekly freighter flights between Europe and Latin America, effective October 1.
Atlas Air recently announced the leasing of three Boeing 747-8 freighters from BOC Aviation to cater to strong e-commerce demand, expecting to deploy them by late third quarter. The New York-based cargo airline anticipates benefitting from cross-border online sales, particularly as it serves major e-commerce players like Shein and Temu, and logistics providers like Cainiao, YunExpress, and SF Group.
The airfreight market is further buoyed by global manufacturing expansion, with robust factory output reported in the U.S. and Asia, alongside increasing export orders.
Some airlines and logistics companies are noticing stable air volumes across various products beyond e-commerce. DSV, a global logistics leader, recently reported solid demand from traditional air transport users such as the automotive and technology sectors.
“We are seeing very strong demand from the fashion industry and have been alerted that this will be one of the busiest fashion peak seasons in years. This is partly due to the prolonged situation in the Red Sea, impacting shipping routes significantly,” stated Jans Kleine-Lasthues, the COO of airfreight at Hellman Worldwide Logistics, in Cathay Cargo’s quarterly magazine.
Delays at the Port of Chittagong and the gradual restart of garment factories in Bangladesh—following recent protests that affected the government—have redirected some exports to air cargo as retailers strive to recover from shipment delays. Airfreight costs to Europe have tripled, and with Dhaka airport still overcrowded, many exporters are looking to ship through Indian airports or using sea-air routes through Sri Lanka and Dubai to meet deadlines, as noted in a UPS Supply Chain Solutions customer update.
While there are signs of caution for the upcoming peak season, evidenced by a sequential slowdown in global air cargo demand from June as ocean container capacity becomes more accessible and spot rates decline on major Asian trade lanes, data indicates that air volumes in August registered only a 10% increase compared to the same time last year. This change could be attributed to standard seasonal variations, as manufacturing typically tapers off during summer months due to vacation schedules. A recent typhoon disrupted shipments from Japan, contributing to decreased activity, while national holidays in several European countries also hindered shipping.
Various uncertainties loom regarding the sustainability of the air cargo boom. The July Purchasing Managers’ Index indicated a contraction in U.S. manufacturing across all key industries, stemming from cautious business investment due to an unpredictable economic and political environment, especially in an election year.
This year, many shippers preemptively adjusted ordering schedules to ensure timely delivery of holiday inventory, as a response to Red Sea-related delays. Others acted to mitigate potential disruption from anticipated dockworker strikes along the U.S. East and Gulf coasts and in Hamburg, Germany, or to avoid new tariffs from the U.S. government. It remains to be seen whether this early peak season will impact overall demand during the true peak season. Concerns linger that prolonged port strikes could strain the busy U.S. airfreight network if shippers decouple from traditional transport.
Additionally, prices for airfreight from South Asia and the Middle East to North America and Europe have started to decrease in recent weeks, following a period of elevated costs since April. This may reflect dwindling demand as ocean shipping congestion decreases and cargo volumes transition back from air to sea routes. Rates on the Shanghai to Europe route fell 10% month-over-month in July, yet still showcased a 34% increase year-on-year, according to the Baltic Air Index.
Rates from China to the United States have also lessened but remain at levels akin to those typically experienced during the fourth quarter peak season due to robust e-commerce volumes.
Indications from forwarders suggest that spot market buy rates may have peaked after cargo volumes on the Northeast Asia to Europe corridor reached their zenith in mid-June, as detailed in a recent Xeneta blog post. This cooling trend aligns with a decline in container shipping, where spot rates decreased by 2% in August after peaking in late July.
The U.S. economy appears to be cooling, whereas European consumer spending continues to falter despite lower inflation. The growth in export orders has also slowed. If demand is not as solid as previously expected, this could lead to slower growth in air cargo. However, continued geopolitical unrest, persistent high-value e-commerce demand, and an early Chinese New Year in 2025 might help sustain elevated air cargo rates, according to Xeneta.
While e-commerce continues to serve as a positive force for airfreight, BMO Capital Markets analyst Fadi Chamoun notes that “a broader recovery in industrial air freight demand is essential for a sustained inflection point in the market cycle” given the prevailing oversupply in the industry.
