Air cargo ended 2022 on a low note that is expected to continue well into the first half of the year, with logistics companies banking on retail inventory clearance bottoming out by summer.
The year 2023 will be defined by uncertainty. Any progress in freight transportation could be undone by a recession, as most economists predict, or by more unexpected geopolitical events.
Overall shipment volumes fell 8% in December compared to the previous year’s period. More importantly, because 2021 was such a solid year for comparison purposes due to pandemic-related distortions, demand was 13% lower than in the pre-COVID period, according to the latest report from freight benchmarking firm Xeneta.
The number of goods moved by air fell for the tenth month in a row, as the Ukraine war, high inflation, COVID isolation mandates in China, excess inventory buildups, and improved ocean shipping reliability reduced consumer purchases and the need for companies to ship via air. According to the Purchasing Managers Index, global export orders — a leading indicator for air cargo procurement — continue to slow.
The negative trend line for air cargo is validated by lagging data from the International Air Transport Association, which uses a different distance-based methodology and only data from airline members. The airline group reported that cargo traffic fell 13.7% in November this week, nearly six percentage points higher than Xeneta previously stated.
The ongoing market normalization can benefit shippers and carriers: According to market reporting agencies, spot market shipping prices are down 30% to 35% from the pandemic peak but still 75% higher than pre-COVID levels.
The drop in consumer electronics shipments is a leading indicator of the global economic and trade slowdown, demonstrating why businesses have less need for the fastest, most expensive mode of transportation.
According to preliminary data from International Data Corp., which tracks the tech industry, global shipments of traditional PCs fell short of expectations in the fourth quarter, totaling 67.2 million units, a 28.1% decrease from the previous year. It also predicted that smartphone shipments would fall 11.5% in 2022, with demand for smart home devices and wearable technology falling by low single-digit percentages.
Sales of computers and other electronic devices, which are frequently shipped by air due to their high value and consumer expectations, skyrocketed during the pandemic as people engaged in social distancing. Because most users have relatively new PCs and there is the possibility of a global recession, the PC outlook for 2023 has turned negative. Analysts predict demand for new computers will increase next year and in 2024 as Microsoft prepares to end support for the Windows 10 operating system currently installed in existing machines.
Xeneta’s load factor, which measures how complete an aircraft is by volume and weight, dropped seven points from the previous year to 57%, five points lower than the figure for December 2019.
Despite a late December bump associated with reduced winter flying for passenger carriers, rate declines are noticeably negative on many major trade lanes, including those out of China, Hong Kong, and North America. Rates from China to North America and Europe remain stable compared to November but are about 40% lower than a year ago at $6.76 and $4.34 per kilogram, respectively, according to the Freightos Air Index.
Source: FreightWaves SONAR
According to Flexport, a freight forwarder based in San Francisco, demand out of northern China remains low, and the traditional increase in bookings before the Lunar New Year holiday, which begins on January 22, remains unlikely. Due to the low demand forecast, logistics companies are continuing to cancel some charter flights.
Under these conditions, shippers have opted for ex-quotes for immediate delivery rather than committing to contract rates.
2023 outlook
The massive deterioration in the ocean shipping business needs to bode better for air cargo growth in the near term.
Descartes Datamyne data show that ocean imports are approaching pre-COVID levels. The National Retail Federation (NRF) reported that US container imports fell below 2 million twenty-foot equivalent units in November for only the second time in nearly three years and are expected to remain there through the spring. It predicts steep volume declines through May in comparison to 2022 and 2021. According to the NRF, growth will resume in the year’s second half. Ocean freight rates have also fallen from record highs to 2019 levels, making the sea option more appealing for many businesses.
Flexport announced a 20% staff reduction on Wednesday due to slow international business.
Passenger airlines have restored many of their flights since the pandemic. Still, the remaining 7% cargo capacity shortage relative to 2019 explains why rates remain high, aviation staffing shortages, the need to reroute around Russia, and weather delays. According to consultancy Seabury Cargo, part of Accenture, cargo capacity on freighter aircraft is down roughly 8% yearly, and an additional 2% from November as more shippers shift to cheaper space on passenger aircraft re-entering service after COVID.
Airlines and logistics firms are cautiously optimistic about demand improving after June.
Several unknowns determine the speed with which air cargo volumes recover: the severity of any recession that occurs; whether there will be a post-spring inventory correction resulting in firm cross-border orders; and whether inflation is skewed toward the service sector rather than the goods sector.
Logistics professionals also monitor how China handles the latest COVID outbreaks. Authorities lifted lockdowns and strict international travel restrictions late last year, allowing full-scale manufacturing and other economic activity associated with export shipping to resume. However, the policy shift after nearly three years of zero COVID has resulted in a massive increase in infections, further disrupting factories and logistics operations.
The virus’s rapid spread has already resulted in labor shortages at key Chinese ports, causing slowdowns and backlogs. Another wave of COVID outbreaks is possible as people travel to visit relatives for the Chinese New Year holiday later this month, with more employees expected to call in sick, according to Everstream Analytics.
“For [ocean and air] volumes to remain unchanged from 2022, a fast normalization of energy prices, a swift decline in European inflation, and a China without a zero-Covid policy must occur. “At best, transported volumes will be on par with 2022 levels, with the majority being to the downside,” Xeneta CEO Patrik Berglund wrote in a recent blog post.
