At the onset of the COVID pandemic, air passenger activity declined drastically, which reduced overall international cargo capacity. Many dedicated freighters increased operations to offset the capacity shortage, and some passenger aircraft were being repurposed for cargo-only operations. Now that passenger flights to international markets have returned to almost pre-pandemic levels, we expect passenger cargo hold capacity to recover fully and open up more freight options.
Market rates have been trending downward since the fall of 2022, but still remain above 2019 levels. The air cargo industry is subject to many influences, such as the current downturn in consumer demand due to high inflation, high interest rates and energy costs. Capacity is currently sufficient to support demand, which is leading to a slower decline in air rates. If there is no considerable surge in volumes, the trend will be towards fluctuating, yet competitive, rates that will be lower than 2022 levels.
The Asia – North America market is in a state of flux, with volumes severely depressed due to a number of influences. During the COVID pandemic, China adopted a “Zero COVID” policy, which hampered exports and also had importers worldwide looking towards India and other emerging markets as potential manufacturing hubs outside of China. Many importers are sitting on stockpiled inventory, which was meant to combat strong consumer demand last year, and are not importing new products. In some cases, this has caused freight rates on the Asia – North America trade lane to drop below pre-pandemic levels.
Carriers are still reluctant to restructure networks and remove sufficient capacity to match the decline in demand, preferring a weekly blanking strategy and hoping for a rebound in bookings, with capacity recovery aspirations focused on the second half of the year. Blank sailings will be a key factor into Q2 2023, as it pertains to space and availability. One carrier has announced that they will implement a “floor rate” for ocean freight to maintain and protect profitability, ensuring that rates cannot drop below their “floor rate”. Typically, once one carrier implements something new, others will likely follow suit.
The good news, however, is that, lately, securing space and bookings has been much easier than it was this time last year. As well, global liner service schedule reliability has improved to over 50%, from an all-time low last year, when just one-third of vessels arrived at destination ports on time. Many industry forecasters are stating that 2023 should see a more robust volume from the transpacific trade lanes towards the latter half of the year, which is in contrast to 2022, which saw a strong first half of the year.
The Europe – North America market, which is normally very stable, saw ocean rates decrease last year, however not to the extent of rates from Asia. This market is more mature and healthy, and fluctuation and uncertainty are not as impactful as with the Asian market. We expect to see rates gradually decline on the Europe – North American trade lane for Q2 2023, and it is speculated that rates will eventually return to their pre-pandemic level.
For more information, contact Debbie McGuire, Director – Freight Solutions.