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Air cargo’s Lunar New Year blues

Global airfreight weakness has worsened to start 2023 in the face of a global economic slowdown and the lack of a typical bounce around the Chinese New Year holiday. But there is cautious optimism that cross-border trade and demand for freight transportation could pick up in the second half of the year.

The International Air Transport Association (IATA) said last week that air shipment traffic slid 8% last year from record highs in 2021 and was 1.6% less than in 2019, a relatively weak year for the cargo sector. It predicted air cargo volumes will fall further this year to 5.6% below 2019 levels.

Although the global economy is expected to be weaker this year, economists are increasingly confident that many countries can narrowly miss a recession or that any contraction will be short and mild.

Logistics companies say demand from China and other parts of Asia is particularly low, which is influencing the overall figures for global volumes and rates. Trans-atlantic demand, by contrast, is surprisingly robust compared to other trade lanes.

Since late January, global tonnage has declined nearly 10% on a sequential basis and is down 26% compared to the equivalent period a year ago, led by a 47% drop in volume out of Asia, according to WorldACD. Dampened consumer spending due to high inflation and interest rates, along with excess retail inventories, have resulted in export manufacturing contraction in many industrialized countries and slowed trade growth. Also reducing interest in airfreight is the fact that pandemic-induced supply chain disruptions and ocean freight congestion have receded, with ocean rates plunging to below 2019 levels on the trans-pacific westbound trade.

There is “less need for emergency ‘band-aid’ airfreight to make up for stock outs, supply critical process goods and generally compensate for misaligned or deficient inventories,” wrote Bruce Chan, senior logistics analyst at Stifel, in the monthly Baltic Air Freight Index newsletter. Ocean rates are now 10 to 13 times more expensive than air — back to the gap that existed prior to the pandemic — “which means that air cargo is also relatively less attractive,” he added.

Slack demand combined with increased capacity from restored passenger networks, particularly as Asian countries remove COVID travel restrictions, has pushed airfreight rates down by 9%, leaving them 30% lower than a year ago at about $2.90 per kilogram, the TAC Index said in its latest report.

Freight professionals say an earlier Lunar New Year and COVID outbreaks in China, along with consumer belt-tightening in North America and Europe, helped derail the typical rush in airfreight bookings to get goods moved before factories close for the holiday. The official holiday period is now over, but many factories are expected to be closed for weeks because sluggish orders and the infection wave make it unnecessary to reopen quickly.

Comparisons aren’t ideal because China’s Lunar New Year celebration started 10 days later a year ago.

Xeneta, an ocean and air market intelligence firm that crowdsources data on freight transactions, reported that global volumes for the month of January declined 8% from 2022 and were down 10% from the 2019 pre-pandemic benchmark. The airfreight market went into decline following Russia’s invasion of Ukraine last year and hit a trough in the fall, with year-over-year demand contracting 8% for four consecutive months since October.

Global cargo capacity increased 11% last month from a year ago and is now only 2% below 2019 levels.

According to IATA, which has a slower data collection methodology that tends to buttress previous work by market research firms, December air cargo volume fell 15.3% year over year and 7.4% from 2019.

Credit: Freightwaves By: Eric Kulisch

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