July saw volumes come down and capacity go up. This means that air freight rates continue to be on a downward trajectory. This could well signal a tough winter ahead for the air freight sector.
While it’s true that July doesn’t tend to throw up any surprises or curveballs in terms of the performance levels across the global air freight market, as Niall van de Wouw – Chief Airfreight Officer at Xeneta (who conducted the analysis) – says, “What will be concerning airlines and forwarders is the constant month-on-month decline in average rates, and the quickening pace of this fall since the turn of the year.”
Global air freight volumes shrank by 2% in July. Meanwhile, the airfreight spot rate across the general global freight markets also fell for the fourth consecutive month.
The average air freight spot rate for the month of July only dropped marginally from the previous month. However, it’s worth noting that the rate is 41% down on July 2022 rates.
A rise in jet fuel prices may have been a contributory factor behind the spot rate picking up in the final week of July. This rise in the spot rate could also be a reflection of the easing decline in freight volumes and slower growth in capacity than in previous months.
Across the globe, the Northeast Asia trade routes have seen the biggest decline. For example, compared to July 2022, the China-US and US-China rates dropped by more than 60%. In contrast, the smallest rate declines were seen in the Europe-Middle East & Central Asia routes (27%) and South America-US (19%).
It looks likely that shippers will be holding all the cards when it comes to the critical negotiations of winter rates. Already more shippers have been renegotiating with their logistics providers to push down air freight rates. Shippers are also prepared to accept longer, year-long contracts to keep their costs down.
Fierce competition exists in the general freight market. Forwarders have been targeting higher yielding business and this has kept spot rates below seasonal rates each month since May 2022. The risk is that businesses that focus on grabbing volumes to increase their market share are sacrificing their margins in doing so. This will only fuel an already erratic air freight market and push low spot freight rates down further still.
The analysis conducted by Xeneta concludes that it expects air freight volumes to remain muted throughout the rest of the summer – especially given the current state of Chinese manufacturing, which continues to decline, and the fall in new orders for Chinese exports.
All in all, a tough and unpredictable period is predicted for the coming winter months. Many air freight companies opted for multi-year contracts at the peak of the Covid pandemic as a way of securing airline capacity.
However, many of these forwarders are really feeling the pinch. As a result, they are now under considerable pressure to renegotiate their rates to reflect the current freight market.
At Hawley Logistics, we have 35 years of experience specialising in road freight, air freight, and sea freight transit. Due to our comprehensive UK distribution and global networks, Hawley Logistics can offer next-day express delivery in the UK and across mainland Europe. Feel free to get in touch via 01706 826322 or email info@hawleylogistics.co.uk. Alternatively, you can arrange a callback service where we can get in touch at a later time.
