Air freight rates continued to improve in March for most trade lanes, especially for cargo exports out of China due to what we believe is continuous strength in e-commerce exports. Hong Kong to Europe (BAI 31) tipped into positive territory at the end of March (+1.6% year on year (YoY)) while Shanghai to Europe (BAI 81) just missed breaking even at -3.0% YoY. Freight rates for both trade lanes rose every single week in March. Compared to pre-pandemic levels, the trade lanes mentioned above are up 53% and 39%, respectively, in March. The story for air cargo rates from Hong Kong (BAI 32) and Shanghai (BAI 82) into North America is quite similar as both trade lanes advanced almost every week in March. Again, we find that the rate of change for goods out of Hong Kong was somewhat closer to flat (-0.2% YoY) than for freight rates out of Shanghai (-7.1% YoY) but for both trade lanes, this is a clear improvement from levels seen at the end of February. Compared to pre-pandemic levels, both US-bound trade lanes printed freight rates that were on average more than 40% higher.

Volume-wise, air cargo continued its recovery from last year’s slump, according to data provided by IATA for February. When compared to last year, volumes in February rose by 12% YoY when adjusted for the timing of the Chinese New Year which is the third consecutive month of double-digit growth on an annual basis. 

Volume-wise, air cargo continued its recovery from last year’s slump, according to data provided by IATA for February. When compared to last year, volumes in February rose by 12% YoY when adjusted for the timing of the Chinese New Year which is the third consecutive month of double-digit growth on an annual basis. According to IATA, a significant part of the increase in freight volume is driven by e-commerce volumes, while a smaller portion might have been caused by the Red Sea crisis and subsequent sea-air conversions. 

Reportedly, e-commerce volume now commands a significant market share of China export volumes so that it can easily bypass freight forwarders and access airline capacity directly or via dedicated charter capacity. Regardless, this tightens available capacity for all players, which is why freight rates continue to improve out of China. 

This chimes well with what we hear from freight forwarding and express companies. For these companies, we observe an annual increase in air freight volumes that lacks IATA market volume growth as the “excess” volume is said to originate from large Chinese e-commerce players. Reportedly, e-commerce volume now commands a significant market share of China export volumes so that it can easily bypass freight forwarders and access airline capacity directly or via dedicated charter capacity. Regardless, this tightens available capacity for all players, which is why freight rates continue to improve out of China. At the same time, commentary from express companies suggests that traffic elsewhere is still weak, especially out of Europe, a pattern that we also observe in sea freight. Thus, we are not yet in a full recovery mode for air freight as the strengths in rates and volumes are mostly driven by specific regions (Asia-outbound) and products (e-commerce).

Lastly, it is worth mentioning that the situation in the Red Sea has not improved meaningfully. To the contrary, we witnessed the first casualties at the beginning of March when a Houthi missile attack killed three people aboard a bulk carrier. Speaking to ocean carriers, it remains our impression that a short-term solution to the Red Sea crisis is very unlikely. Subsequently, we expect the rerouting of sea freight across the Cape of Good Hope to continue for the time being, which should slightly support air freight traffic going forward.

About Marc Zeck, Senior Research Analyst, Stifel

Marc Zeck is a Senior Research Analyst covering Global Logistics and Aerospace & Defence at Stifel. Mr. Zeck is based in Frankfurt, Germany and joined Stifel in 2020. He previously worked in Equity Sales at Lehman Brothers, Nomura and UBS.

Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation or needs of individual investors. For more information and current disclosures for the companies discussed herein, please go to the research page at www.stifel.com.

©2024 by Marc Zeck.