Airfreight market bottoming out, experts say

The airfreight market has reached its bottom and may stay there for the foreseeable future, according to industry leaders. After record years during the pandemic, the airfreight market began dropping considerably in the fourth quarter of 2022 . This regression is likely to continue through yearend, panelists agreed in a Tuesday webinar hosted by Flexport . “It’s been a wild few years in logistics,” Flexport Chief Economist Phil Levy said at the outset of the webinar. He noted that rates and demand, which peaked during the pandemic, have dropped off, and the air, sea and truck cargo sectors are all being negatively impacted by increased capacity and reduced demand. Import tonnages see deep dip Airfreight imports from Asia to the United States by tonnage were down 20.4% year over year in May, marking the weakest May in airfreight through 2017, Jason Miller , professor of supply chain management at Michigan State University, said in the webinar. Tonnage is down 12% from 2018. A driver of this downward trend is decreased congestion at U.S. ports , he said. “In terms of pricing, [based on] the [ Bureau of Labor Statistics ] import price index for inbound airfreight,” Miller said, “right now we’re actually 4% below February 2022, so airfreight prices on aggregate have completely reverted to pre-COVID levels, after having been double where they were about 18 months ago from today.” [caption id="attachment_57137243" align="alignnone" width="1024"] (Graphs/Flexport)[/caption] Airfreight imports from Europe to the U.S. by tonnage have also fallen considerably, Miller said. Tonnage was down 15% YoY in May, the most recent figures available. “East Coast ports were logjammed at that time [last year],” he said. “So again, you had this diversion of cargo to airfreight. But we’re essentially now back to where we were in 2021 and 2019, maybe a smidge above 2018 levels.” As for pricing, the BLS index for inbound airfreight from Europe is 20% to 25% above pre-pandemic levels. “We still have seen elevated pricing,” Miller said. “But, again, if you compare that to the peak period of 2022, and the first quarter, and especially the first half of the year, we’re down substantially from that point in time. So, pricing-wise, we’re looking better. We haven’t seen that demand fall nearly as much though, in comparison, as we have on the Asia-to-U.S. routes.” [caption id="attachment_57137244" align="alignnone" width="1024"] (Graphs/Flexport)[/caption] Market affected by decreased demand The supply-demand balance in airfreight is less favorable than it was in 2019, Flexport Ocean and Air President Sanne Manders said in the webinar. “Currently, that’s because demand is really down ,” he said. “That’s a little different story than in ocean, where demand is regressing to the mean; here, it’s actually below the mean.” Manders expects carriers to ground more freighters in response to the increase in capacity. He also cautioned that with increasing passenger travel , more belly capacity is coming back into the market. Airfreight costs are also affecting rates. “Looking at the margins now for the airfreight sector, the costs have also gone up significantly,” Manders said, discussing increases in fuel and pilot costs . “Inflation has had a real impact on the cost structure of the air carriers.” Staying at the bottom Panelists agreed that the airfreight market has bottomed out and, while they do not expect it to go lower, they also don’t expect it to rebound this year. “This is what I’m expecting for the next six months,” Manders said. “I don’t think rates will fall off the cliff versus where we are right now. The rates will probably be a little supported because there will be new product introductions from the large consumer electronics companies that always give a little bit of a lift in the fall; there will be some replenishments. “I don’t expect the rates to go back to the Q1 levels, where rates were dominated by dead freight,” he continued. Dead freight is the amount a shipper pays when it does not use all the space available to it on the plane. “That’s not that happening that much anymore at least. But I’m also not expecting a big lift from here.” The market is unlikely to fall further, barring some type of “shock” or incident, Michigan State’s Miller said. “It does seem like we’re at the bottom,” he said, explaining that the bigger challenge now is improving the market, as opposed to preventing it from falling further. “And that’s where I have a more difficult time seeing a rosy scenario.” “We’re at the bottom. but it may be a long, flat bottom,” Levy said. Join Air Cargo Next for the second Air Cargo Tech Summit on Monday, Sept. 18, and Tuesday, Sept. 19, at the Brussels Marriott Hotel Grand Place in Belgium. For more information on the summit and to register, click here .

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