March airfreight yield development has been fairly consistent with year-to-date data: a slightly perceptible uptick from February levels, which is directionally in keeping with seasonality.  And therein seems to be the takeaway—that freight patterns continue to look more like pre-pandemic norms. The process isn’t smooth, in our view, but clearly, the frenzied “no other alternative” pace of air freight demand was unsustainable, and one of the most important questions right now is, have we reached a new normal yet, or is there more downside from here? 

But consensus continues to build around the likelihood of a 2023 inventory restocking, which, even if mild, may see the re-emergence of a peak season.  All the while, logistics networks are realigning as shippers seek to diversify production sources across suppliers and geographies after three years of hard-learned lessons on supply chain resiliency.

As we look out over the next year, there are several countervailing factors to consider, in terms of likely magnitude and even timing. On the demand side, supply chain congestion has abated, which means less need for expedited freight. But consensus continues to build around the likelihood of a 2023 inventory restocking, which, even if mild, may see the re-emergence of a peak season.  All the while, logistics networks are realigning as shippers seek to diversify production sources across suppliers and geographies after three years of hard-learned lessons on supply chain resiliency. We do not expect this theme to offset service trade-down in the post-pandemic period, but it may have some degree of mitigating effect. And finally, looming in the background of all of these demand discussions is what we see as significant, residual tail risk—factors that may not be extremely likely, especially (hopefully) from a geopolitical, multi-national conflict, or global financial institutional stability angle, but could produce significant disruption to the macro picture. 

Softer near term demand and gradual capacity growth is, in our view, putting pressure on airfreight spot price indices.  But again, that pressure is being offset by fuel, which remains at elevated levels and is supporting air freight pricing above pre-pandemic levels.

Another factor important in the yield calculus: capacity. Capacity continues to flow into logistics networks, in our view, especially with the steady return of international passenger belly capacity. Softer near term demand and gradual capacity growth is, in our view, putting pressure on airfreight spot price indices.  But again, that pressure is being offset by fuel, which remains at elevated levels and is supporting air freight pricing above pre-pandemic levels. In some cases, it is keeping prices above 2021 levels, though rates are universally below 2022, of course.  

Relative to last year, March 2023 airfreight on North America-destined lanes fetched 34% lower rates out of Hong Kong (BAI 32) and 36% less out of Shanghai (BAI 82)—rates that were unsustainable, in our view, given the significant system-wide supply chain disruption that forced critical and high value freight into airfreight networks with significantly throttled supply. Those rates are flattish vs. 2021, before the significant spike in pricing as supply chains ground to a halt in that same year, so we believe the symmetry between 2023 and 2021 will end as we move into the second quarter. On Europe-destined lanes, results were comparable, falling 18% y/y out of Hong Kong (BAI 31) and 39% y/y out of Shanghai (BAI 81). Even Westbound Trans-Atlantic and Intra-Asia rates from Frankfurt to North America (BAI 22) and Singapore to SE Asia (BA63) posted similar trends, down 33% y/y and 15% y/y in March, respectively.

As rates continue to normalize to pre-pandemic levels, the shape of seasonality should start to become more apparent. And while it appears so far that the market has stabilized, there are several factors pertaining to near-term supply and demand, fuel, and longer-term structural developments that could shift pricing either positive or negative, although we believe the latter is far more likely.

About Bruce Chan, Director and Senior Research Analyst covering Global Logistics and Future Mobility, Stifel

Bruce Chan joined Stifel in 2010. Based out of the Miami office, Mr. Chan is a Director and Senior Research Analyst covering Global Logistics and Future Mobility.

Bruce Chan can be reached at [email protected]. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation or needs of individual investors. For more information and current disclosures for the companies discussed herein, please go to the research page at www.stifel.com.

©2023 by J. Bruce Chan.