Worry For Air Freight, Companies Return To Ocean
Issues like the Russia-Ukraine crisis, China’s zero COVID policy, high inflation, and the threat of recession have led to a significant drop in air freight demand reports Beroe Inc. in PRNewswire.
Which industries play the biggest role in air freight demand?
- North America & Europe: Automotive, industrial, and agricultural sectors
- Asia: Electronics, followed by consumer products
These global issues have air freight operators desperately trying to stay afloat by cutting rates, optimizing routes and flights, restructuring pricing models, and reducing load capacity. However, these measures are not enough to offset the decline in demand.
- Net supply expected to grow a negligible 0.04% by the end of the year.
- Demand is expected to grow a little more at 0.8%.
We see some bigger percentages, but they aren’t good news. Rising inflation led to a 40% increase in jet fuel prices. So, the trip is getting more expensive while simultaneously flying light due to a slowdown in global trade.
Another key impact is a labor shortage across W. Europe and America. The lack of workers impacts overall flights, leading to backlogs and cancellations.
Not by Air, By Sea.
An article from SupplyChainDive details the drop in air cargo rates as retailers return to sea shipments.
To summarize, air cargo rates and volumes continue to decline, leading to improved financial and operational results for some retailers in Q3. For example, Gap reported improved operating margins due to lower air freight rates, and Lululemon saw increased product margins driven by moderating air freight costs.
Some retailers have started moving shipments away from air freight and back to the ocean, despite longer transit times, due to the improved market landscape for ocean transport. Shippers are expected to continue benefiting from softening rates in both air and ocean, potentially lowering shipping costs in 2023.