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April is quiet – but e-commerce players Shein and Temu drive growth towards next peak season

After a series of six successive weekly gains starting in February and running through March, it was a quieter spell for global air freight markets during April.

The overall Baltic Air Freight Index (BAI00) calculated by TAC Data was exactly flat at +0.0% over the four weeks to 29 April, leaving it modestly lower by -7.7% over 12 months.

After a further rise in the first week of May, however, the YoY comparison was getting close to flat overall at only -2.2%. There were also as usual some significant regional variations.

Rates out of China continued to edge up, driven by the e-commerce sector. The index of outbound routes from Hong Kong (BAI30) – still by some distance the biggest airport in the world for cargo according to the latest Airports Council International (ACI) report – gained a further +2.0% in April to put it ahead by +10.7% YoY, and a little more again in the first week of May.

Outbound Shanghai index (BAI80) gained a further +5.3% in April to leave it up by some +15.9% YoY, and even stronger a week later at nearly +30% YoY as in this latest index chart:

After the further gains in the week to 7 May, the YoY figures overall for China to Europe and the US were looking considerably higher than last year – as in this latest TAC Freight chart:

Sources say it is unusual for prices to remain so strong during what is normally the low season – which may indicate a stronger than usual peak season later in the year.

Elsewhere out of Asia, there were also further gains on rates from both India and Vietnam to Europe and to the US. After sharp rises in recent months, they are now both a long way up YoY.

Out of Europe, however, the market remained weaker. The index of outbound routes from Frankfurt (BAI20) shed a further -7.2% in April to leave it lower by some -37.8% YoY, and rebounded only a little in early May.

Outbound London Heathrow (BAI40) was off a similar looking -6.5% in April to leave it languishing at -43.4% YoY, though did have a modest rebound in the week to May 7.

Rates out of the US were softer too, with outbound Chicago (BAI50) dropping a lot in the final week of April to leave it lower by some -43.8% YoY – though it did also bounce back quite strongly in the first week of May.

Overall rates out of North America ended April on a weaker note – though between North and South America were rising again, led by routes from Miami.

Despite the conflicts in Ukraine and Gaza, the global macro picture did not change a great deal – and turbulence in the Middle East did not seem to unduly affect a cautiously positive outlook.

Oil prices were up a little, but not much – with crude oil falling back under $90 per barrel. Although the crude price was up +3.8% in the year to 3 May, according to Platt’s data the crack spread continued to tighten – leaving jet fuel prices still below where they were a year before by some -8.9%.

Having previously anticipated interest rates to fall quite a lot this year, markets have now gone back to expecting rates to fall more slowly – or stay ‘higher for longer’ – but do not appear too perturbed.

Part of the reason is that China is caught in what some see as a ‘balance sheet recession’ – with domestic consumers saving more and paying down debt. Which means China going back again to its previous role as an exporter of deflation.

According to some measures, Japan’s rate of GDP growth in 2023 even exceeded that of China – for the first time in many years.

In air freight markets, e-commerce continues to be the biggest driver – with sources suggesting e-commerce players already locking in capacity for peak season, and a lot of block space agreement (BSA) capacity already sold.

According to a Cargo Facts Consulting presentation to its Asia conference in Singapore last month, e-commerce currently represents about 20% of air cargo traffic – though some others estimate a lot higher at 40% or more on certain lanes.

CFC estimated e-commerce as a $5.8 trillion market in 2023, with that rising towards $6.3 trillion this year – and to over $8 trillion by 2027, which would represent an increase of over 38% in five years.

The market is currently being driven by the dramatic growth of two players in particular – Shein, an online retailer known for affordable fashion; and Temu, not a retailer but an online marketplace offering a wide range of products.

According to another presentation in Singapore by Tom Hoang, regional director for market analysis at Boeing, by December 2023 the four biggest e-commerce players were accounting for somewhere around 10,800 tonnes of air cargo – equivalent to an astonishing 108 widebody 777Fs –every single day.

Currently, Temu and Shein take advantage of a US tax exemption for imported goods of under $800 to minimise logistics costs. Apparently, about 85% of all shipments currently entering the US fall in that category.

Some argue, however, that their business model is threatened by a proposed US bill to eliminate the import tariff exemption.

In response, Temu has already established warehouses in Mexico – so already seems to be planning ahead of any potential restrictions.

China’s overall exports to the US fell about 14% in 2023 – to below those from Mexico for the first time in more than 20 years. So perhaps a chunk of trade is going via Mexico already.

Looking ahead, CFC forecasts the air cargo market to grow at an average of 3.4% a year over the next two decades – and that this will result in significant new demand for air cargo freighters.

According to Hoang at Boeing, the market remains very reliant on freighters – especially on TransPacific routes, where passenger traffic volumes have still not fully recovered back to pre-pandemic levels – though less so on TransAtlantic routes, where the market is more ‘back to normal’.

According to Hoang, a massive 77% of TransPac air cargo is currently being moved by dedicated freighters – as opposed to only 62% before Covid – with much less than before going via passenger bellyhold. Meanwhile, some 58% of Europe-East Asia air cargo is also going by freighter – up from 43% pre-Covid.

If these lower levels of passenger traffic continue, it seems likely to drive demand for more freighter conversions – particularly of larger widebody planes that carry more than 80 tonnes of payload.

As both the Boeing and Cargo Facts presentations pointed out, air cargo yields remain well above pre-pandemic levels – as indeed the TAC data confirms.

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