News

Aug 06, 2023

Longer term air cargo contracts signal stabilizing market

Retailers have been voicing concerns over the anticipated rise in consumer

Retailers have been voicing concerns over the anticipated rise in consumer spending during Q3 and the corresponding need to replenish inventory levels, according to Clive Data Services. However, with some companies facing a slower and more subdued market, "restocking and the peak season airfreight windfall this usually creates may not materialise."

"I think we’re seeing signs that some forwarders are willing to take a little more risk on what airfreight rates might do because they don't expect the market to drop much further," said van de Wouw.

The global air freight market, which has been on the decline for 13 consecutive months, stabilized in March with volumes down 3% YoY, which has been the lowest monthly decline in more than a year, according to Clive Data Services.

Meanwhile, air freight spot rates averaged at $2.62 per kilogram in March, down 38% year-over-year, and is attributed to both declining cargo volumes and recovering capacity, Clive Data Services reported. On the China to U.S. trade lane, spot rates stood at $5.07 per kilogram in March, down 7% from the previous month and down 43% from last year. However, the downward pressure on rates somewhat eased from the second week of March and stabilized towards the end of the month.

"The fact that we see longer term contracts between shippers and freight forwarders is a signal that the market is stabilising," van de Wouw said. "Shippers have regained some ground because of the lower rate conditions, which have affected the airlines and forwarders, but it's not like the bloodbath we see in the ocean market."

Longer term contracts will be beneficial for shippers’ logistics purchasing departments which have been forced away from traditional annual deals throughout the past few years, according to van de Wouw.

As available capacity continues to recover and spot rates normalize, the air freight market is finding a new baseline as it looks to move away from pre-COVID-19 comparisons.

"We see a calming down and a greater appetite for shippers and forwarders to come together on a longer term. There's more common ground for longer-term deals in a positive way," van de Wouw said. "The next interesting market development is what airlines do with their summer schedules and the further capacity boost this traditionally brings?"