Soaring air shipments spark capacity crunch and higher rates

Soaring air shipments spark capacity crunch and higher rates

Robust volumes in Asia-Europe and Asia-North America trades are driving up rates.
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Snowballing cross-border e-commerce and high levels of emergency shipments are driving up demand for air cargo, but some shippers’ intensifying need for speed to market is being threatened by limited capacity on planes in peak periods and at airport hubs. 

The industry’s busiest time of the year begins now, and shippers are scrambling for space on aircraft and paying more for their cargo as robust volume in Asia-Europe and Asia-North America trades quickly mop up available capacity.  

Data from e-booking and air freight automation platform Freightos WebCargo show a doubling of air freight prices from Shanghai to Frankfurt in the past two months. In September, the rate was $2.5 per kilogram, rising to $3.7 per kilogram in October and $5 per kilogram in November.

“Driven by strong e-commerce sales and the build up for holiday season, air capacity is stretched incredibly thin,” said Manel Galindo, CEO of Freightos WebCargo. “The spot market is being heavily impacted by early capacity reservations by forwarders, as well as product launches such as Apple’s iPhoneX release.”

Greg Guillaume, senior vice president strategic development at Atlas Air Worldwide Holdings, agreed that the underlying reason for rising demand was e-commerce, and he labeled it a mega-trend. “Over the longer term, e-commerce will account for an increasing share of retail sales — the mega-trend of our times,” he said. 

“Particularly in developed economies, we are seeing that e-commerce often uses express air freight as a mode of delivery to the customer. With the anticipated future expansion of e-commerce in emerging economies, its effect on air freight will drive growth for many years to come,” he said.

Worldwide retail e-commerce sales are expected to reach $2.29 trillion in 2017 and will increase to $4.48 trillion by the end of 2021, equating to 16.1 percent of total retail sales. Consumers in China will generate almost half, or 49.5 percent, of all worldwide e-commerce sales in 2017, according to research consultant eMarketer.

Atlas Air, along with the global carriers, is expecting a strong peak season and continued solid demand through 2018, but when airlines forecast a return to good times, shippers can expect rate increases. The strong demand is leading to packed freighters in the major trades out of Asia, and the high utilization and tight space will push up prices in the last two months of the year and into 2018.

“The divergence in growth rates recently has been extreme — not since 2010 have we seen similar dynamics in supply and demand,” Guillaume said. “Current conditions are leading to a stronger pricing environment, and better capacity utilization, which is cause for optimism in the near term.”

Bjorn Vang Jensen, vice president of global logistics for Electrolux, said his company was active in the air freight market this year, but he is not experiencing tight space constraints. “That may change now that the holiday season is upon us. Rates are definitely a little higher than last year,” he said.