Shippers pull out of airfreight as ocean reliability improves

This audio is generated automatically. Please let us know if you have any comments.

Diving Brief:

  • Air cargo volumes fell 9% year-on-year in July, continuing a downward trend as global uncertainties and the return to shipping weigh on demand, according to a press release from Clive Data Services on Wednesday.
  • Air freight rates have also fallen, helped by increased transatlantic capacity. But they remain high compared to pre-pandemic levels – January rates were up 156% from 2019, while July rates were 121% higher than 2019.
  • “There are many dark clouds hanging over the airfreight industry given the state of the world at the moment,” said Niall van de Wouw, director of airfreight at Clive, the company mother Xeneta, in a statement. “…From a rate perspective, indicators suggest the market hasn’t bottomed yet.”

Overview of the dive:

“Dark clouds” contributing to the fall in air cargo demand since March include the ongoing war in Ukraine, inflationary pressures limiting consumer spending and staffing shortages for airlines and airports, according to van de Wouw.

But shippers are also diverting more volume from the fast but expensive mode of transportation, as ocean freight congestion eases on some lanes. The reliability of global timetables improved year-on-year in June, the first time this has happened since the start of the pandemic, according to data from Sea-Intelligence.

Ports in China appear to have resumed normal operations while congestion on the U.S. West Coast eased in the second quarter, CH Robinson President and CEO Bob Biesterfeld said on a call to results on July 27. With more shippers sticking with ocean shipping, 3PL’s air freight business saw a 6% year-on-year decline in metric tons shipped in the second quarter.

“A lot of our air freight volume is driven by ocean conversions. We expect a slight slowdown there as well for the rest of the year,” Biesterfeld said. As more shippers stick to ocean shipping, CH Robinson’s international airfreight business saw a 6% year-over-year decline in metric tons shipped in the second quarter.

Airfreight volumes also fell in the second quarter for DHL Global Forwarding, “partly due to modal shifts to ocean freight products as customers recognized further improved schedule reliability in ocean freight,” according to a statement. Press.

Shippers have pledged to use less expensive transportation options, such as ocean shipping, to reduce the impact of freight costs on their bottom line, even with lower air freight rates. Electric vehicle maker Nikola has started using ocean freight to move most of its components after spending about $8.3 million on airlift in the second quarter, chief financial officer Kim Brady said on a call with results.

While airfreight has helped speed up deliveries, it hasn’t been enough to alleviate supply chain issues elsewhere. Supplier delays in delivering battery packs caused two weeks of lost production at its manufacturing facility in Coolidge, Arizona, and resulted in Nikola receiving more components than it used in production for the trimester.

“To reduce our freight costs going forward, we have started to shift the shipping of most of our components to ocean freight,” Brady said. “We are also accelerating our efforts to localize certain components from the EU to North America.”

Comments are closed.