Sky High: Air Cargo Demand Sees 18% Spike
The ongoing skirmish in the Red Sea appears to have made at least some impact on global air cargo demand to open 2024, with total cargo tonne-kilometers (CTKs) shooting up 18.4 percent compared to January 2023 levels.
Data from the International Air Transport Association (IATA) shows this is the second month in a row air cargo demand has seen double-digit annual growth, with January delivering the highest annual growth in CTKs since the summer of 2021. In total, the air cargo industry recorded 20.8 billion CTKs in January. CTKs for the month were also 2.8 percent up on pre-Covid 2019 levels.
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International air cargo jumped 19.8 percent in the month, the IATA said.
The jump in demand matches up with the pivoting of freight from ocean to air as container ships spurn the Red Sea, instead diverting their trajectory around Africa’s Cape of Good Hope. Additionally, January saw another likely boost from a shift in the date of Lunar New Year, which started Jan. 22 in 2023. This year, Lunar New Year started Feb. 10, resulting in more shipments exiting China during January 2024.
“Because of the increase in transit time, companies in the U.S. East Coast and European importers had to switch to other alternatives to get their shipments,” said Gautam Jain, CEO of freight management and logistics software provider GoComet. “The biggest alternative is by air.”
Capacity, measured in available cargo tonne-kilometers (ACTKs), was up 14.6 percent compared to January 2023 (18.2 percent for international operations), which was largely related to the growth in belly capacity. International belly capacity rose 25.8 percent year over year on the strength of passenger markets.
From November to January, air freight rates increased on both the Asia-to-Europe and Asia-to-North America routes, according to GoComet data. The routes saw rates jump 125 percent to $12.30 per kg to Europe, and a whopping 554 percent to $32.77 per kg into North America.
Air freight rates into Europe peaked in December at $12.95 per kg, GoComet says, while costs for freight entering North America peaked in January at $32.77 per kg.
February rates for both trade lanes dipped from January numbers, declining 33 percent to $8.20 per kg for Europe-bound goods and 40 percent to $19.72 per kg for those headed for North America.
But the rates are still well up from their November numbers, when the Houthi attacks in the Red Sea began. Asia-to-Europe rates are up 50 percent since the month, while Asia-to-North America rates are still up 294 percent.
“[Air freight rates] have not come down to their initial levels,” said Jain. “It is visible from the market trend that it is not coming down to that level because the attacks are still happening. The companies have to find ways to send the cargo to new facilities.”
Jain believes these rates should stabilize within the next three-to-four months.
“The reason for that is because there are a lot of new ocean vessels which were ordered during the Covid times and now are coming into play,” Jain told Sourcing Journal. “Due to that, there will be higher capacity available. When the higher capacity is available, then even if you have to take a longer route, the companies have more predictable demand and predictable supply because the disruption is not there.”
The IATA said that all major air trade lanes have maintained their momentum from the past year, exhibiting positive growth across the board.
Europe to Asia saw an annual increase in CTK of 27.5 percent, with the organization indicating that it is possible that air freight volumes were assisted by demand diverted from maritime shipping constraints in the Red Sea. However, IATA was quick to point out that the data showed no clear-cut impact on month-over-month outcomes compared to traffic on other routes.
The association pointed to another one of its metrics as a barometer for the increasing demand. Cargo load factors (CLF), the percentage of actual available freight tonne-kilometers, have seen their first positive annual percentage point change in two and a half years.
Rising load factors are beneficial for airlines because they drive both revenue and profitability at a given capacity. In January, the airline industry recorded a CLF of 45.7 percent. While this ratio is 0.4 percentage points lower than in the previous month, it represents a 1.4-percentage-point increase compared to January 2023.
