Air freight still showed good growth in July 2024, admittedly against a fairly low baseline. Freight rates remain high.
1/ The evolution of supply and demand
- Traffic July 2024
Global air cargo traffic grew 13.6% year-on-year in July, and 1.0% month-on-month on a seasonally adjusted basis, according to figures from the International Air Transport Association (IATA). In recent months, IATA has stopped publishing traffic figures in tonne-kilometres, revealing only a percentage change. According to our estimates, traffic for the month of July amounts to about 23 billion tkm. This corresponds to the 8th consecutive double-digit year-on-year growth, but from a rather weak baseline in 2023. As in the previous three months, Asia-Pacific and European airlines contributed the most to this increase in July, with a respective contribution of 44% and 22%, compared to 17% for North American airlines, details IATA.
* CTK: cargo tonne-kilometres - Data source: IATA.
- Year to date figures at the end of July 2024
Year-to-date figures at the end of July show air cargo demand growth stood at 13.4% compared to the first seven months of 2023 (14.3% on international routes). A good result that must however be put into perspective by the weakness of the market during the reference period. At the time, due to high inventories, wholesalers and retailers had reduced new orders, which weighed on volumes.
* CTK: cargo tonne-kilometres - Data source: IATA.
- Capacity
In July, supply increased by 4.2% compared to June (+0.7% seasonally adjusted) and by 8.3% compared to the previous year, reaching approximately 53.2 billion tonne-kilometres. “This produced a record month in global air cargo capacity,” says IATA. Cumulative annual growth at the end of July stands at 9.2%, with the growth rate having been slowly but steadily decreasing since the start of the year. On international routes, the increase in capacity in July amounts to 10.1%. As in previous months, it was fuelled by the increase in available capacity in the belly hold of passenger aircraft (12.8%). According to IATA, we may be reaching the end of the cycle of strong growth in the capacity offered in the belly hold of passenger aircraft. Indeed, airlines have now returned to the level that existed before the Covid-19 pandemic. "The question emerges as to whether this impressive growth in the international passenger market will normalize and how this will impact the use of dedicated freighters," IATA says. In July, cargo aircraft capacity increased by 6.9% year-on-year.
During the same period, the load factor increased by 2.1 percentage points year-on-year and remained relatively stable month-on-month in seasonally adjusted data. Over the first seven months of the year, it increased by 1.7% overall and remained stable at 0.1 on international lines.
2/ Price trends
According to IATA, average unit revenue, all routes combined and including surcharges, increased by 1.2% month-on-month in July, and by 7.4% year-on-year. Prices were thus "still 41% above 2019 levels," IATA said.
However, observation of Upply data shows the persistence of strong disparities. On a year-on-year basis, the Asia-Europe route is characterised by a spectacular increase, which is mainly explained by the disruptions to maritime transport in the Red Sea. Attacks by Houthi rebels continue, which is forcing most ships to pass via the Cape of Good Hope for what seems to be the foreseeable future, with additional costs and longer transit times. Because they can afford it given the nature and value of the goods or because they have no choice, some shippers are therefore turning to air freight. The strong growth of cross-border e-commerce, which is also stimulating demand on this corridor, adds additional pressure which is reflected in the evolution of prices.
Source: Upply Freight Index
The traditional high season running up to December could further increase pressure on prices on certain routes in the coming weeks. This is the case in Asia-Europe, where the disruptions are not fading away.
Furthermore, although demand is fairly calm on the transatlantic route, the threat of a strike looming in the United States at ports on the East Coast and the Gulf of Mexico could encourage the use of air freight. As the previous six-year agreement expires, the International Longshoremen's Association, which represents port workers at more than 30 U.S. ports, announced that its members were prepared to down tools as of October1 if a deal is not reached by then. But negotiations, which concern wages but also the thorny issue of port automation, have been at a standstill for several weeks, and President Joe Biden has said he has no intention of invoking federal law to prevent the strike.
3/ Evolution by zone
The analysis by zone of the progression of international traffic reflects the impact of the situation in the Red Sea. The Middle East-Europe corridor recorded the strongest growth in July (32.2%), "maintaining a streak of double-digit annual growth that originated in September 2023", points out IATA. The Europe-Asia corridor is also showing great dynamism with an increase of 17.9%, as is the Middle East-Asia corridor (15.9%).
At the same time, Asia-North America, the largest route in terms of volume in the air cargo industry, recorded a 10.8% year-on-year increase in July, while the North America-Europe route brought up the rear with a 5.3% increase.
Given these developments, the Asia-Pacific, Middle Eastern and European companies were logically those which performed best in July, with respective volume growth of 17.7%, 14.7% and 13.9%.
4/ Highlights
- Unstable economic outlook
The economic outlook remains quite unstable. In July, the purchasing managers' index (PMI) for global manufacturing production remained in expansion territory at 50.2. But this corresponds to a decrease of 2.1 points compared to the previous month. At the same time, the PMI index of new export orders remained stuck below the 50 mark, at 49.4, which is synonymous with a contraction, roughly similar to that of June (49.3). Industrial production remained stable in July on a month-on-month basis. Good news for the air freight industry, however: global cross-border trade increased by 0.7%.
- A new number 1 in air freight forwarding
In the freight forwarding sector, September was marked by the announcement of the acquisition of DB Schenker by DSV. When completed, this transaction should create the number 1 international freight forwarding company, ahead of DHL Global Forwarding and Kuehne Nagel. The new entity will also become number one in air freight forwarding since the cumulative annual volume of the two operators reaches nearly 2.5 million tonnes in 2023, compared to 2 Mt for Kuehne Nagel and 1.7 Mt for DHL Global Forwarding.
- Cross-border e-commerce under scrutiny
E-commerce is now a major boon for the air freight industry. However, some voices are beginning to be heard in the face of the uncontrolled surge of goods through e-commerce. Patrick Zahn, director of the Dutch discount textile company "Kik", claims in the Belgian daily Le Soir that his company is subject to unfair competition from large Chinese groups such as Temu and Shein, believing that this competition is encouraged by the lack of customs controls at Liège airport, one of the main gateways for Chinese groups into Europe. The number of customs officers is insufficient to cope with the exponential growth in the number of parcels. The authorities themselves are concerned. According to Loadstar, at a recent e-commerce forum in Liège, Belgian Customs Administrator General Kristian Van der Waeren said he was starting to "lose patience" with non-compliant goods arriving at Liège airport via e-commerce.
In Europe, the threshold below which no import duty is required in B2C is €150. Today, it is mainly the lack of suitable resources for checks that is being singled out. On the US side, the minimum threshold is set at $800. Here too, shipments have increased sharply, from around 140 million per year 10 years ago to more than a billion.
The Biden-Harris administration announced new measures in early September to better control this trade. "Some companies exploit the de minimis to conceal shipments of illegal and dangerous products and avoid compliance with U.S. health and safety and consumer protection laws. Other foreign entities use it to circumvent U.S. trade enforcement actions intended to level the playing field for American workers, retailers, and manufacturers," a White House statement said, adding that "The majority of shipments entering the United States claiming the de minimis exemption originate from several China-founded e-commerce platforms."
One of the measures recommended by the Administration is to exclude certain products from the de minimis exemption, in particular those covered by Article 301 of the Commerce Act of 1974. Tariffs under this article currently cover about 40% of U.S. imports, including 70% of textile and apparel imports from China. The administration also wants to strengthen information collection requirements. It says it is ready to work with Congress to pass comprehensive legislation to reform the de minimis rule by the end of the year.
In the immediate future, airlines will still be able to count on this windfall during the next high season, which is expected to be prosperous. But it seems inevitable that new constraints will soon impose an adaptation of the logistics chains in this segment which is particularly promising today for the air freight industry.
In the meantime, given the results achieved since the beginning of 2024, both in passenger and freight transport, there is reason for optimism among airlines, which are having a very good year overall.
