2023 airfreight rates continue to grind lower, and the month of May was no different, enduring a double whammy of soft demand and the continued resurgence of capacity—particularly from passenger flights as both trans-Atlantic and trans-Pacific traffic returns for the summer season.  The net result is that West-bound trans-Atlantic cargo spot rates (as represented by BAI22, Frankfurt to US) are up only 10% vs. pre-Pandemic levels, while Asia to Europe (BAI81 and BAI31 indices, representing Shanghai and Hong Kong to Europe, respectively) are only 30% higher on average than pre-pandemic levels, and Eastbound trans-Pacific Asia to US rates (BAI82 and BAI32 Shanghai to US and Hong Kong to US, respectively) are up only 35% on average.  

Adjusting for fuel, which is over 40% higher year to date vs. 2018 and 2019, core freight pricing is below the pre-Pandemic period, and likely to move lower this year, in our view.  

Demand is trickier to forecast than supply, we think, but the general trend so far this year has been one of weakness—perhaps more weakness than anticipated as inventory restocking gets pushed out, especially on the consumer side, and discretionary spending is weighed down by inflation and elevated energy and staples costs.

While carriers and freight services providers remain optimistic about late 2023 restocking, current import trends tell a dour story. Year-to-date inbound loaded TEU volumes at the US West Coast Ports are down nearly 30% vs. 2022, and even US East Coast volumes, which have seen relative share shift from the West, are down over 20% for the same period.

Global container activity (import and export, system wide) is down 6% YTD vs. the same period in 2022.  Airfreight is faring even worse, with IATA reporting a 7.7% decline in FTKs in March, y/y and an 8.1% decline vs. March 2019. We believe most of the trade-down, or “trade-back” from air to ocean after year-ago supply chain bottlenecks has largely happened, but core airfreight demand remains muted.

As for supply, the influx of passenger belly capacity continues to be an issue for freight rates, absorbing elastic demand in a soft freight market. Summer travel season and generally robust passenger activity, especially on trans-Atlantic lanes, has led to healthy supply of lower deck space. Airlines may have even over-built for demand, in our view, and it will take time for capacity to moderate after the summer surge wanes. 

And while the return of capacity has not been as seasonally-influenced on Asia-based lanes, the continued COVID reopening of air travel and lifting of restrictions will likewise drive more belly availability, we think.

IATA’s latest data release reveals that ACTKs are up 10% worldwide vs. last year, and are only 1% lower than March of 2019, before the pandemic. ACTKs in Asia Pacific were up a staggering 24% y/y—again largely due to the comp effect from COVID reopening. North America was up a modest 0.4%, but Europe was up nearly 9% y/y.  The market is likely to be most over-supplied with belly space this summer, so cargo rates will likely trough in the next few months, but we think slack capacity will stick around into 2024.

In May, Shanghai to North America (BAI82) declined 13% sequentially from April and Hong Kong to North America (BAI32) declined 2%. For Europe bound lanes, Shanghai origin (BAI81) fell 18% from April, while Hong Kong origin (BAI31) declined a little over 3% y/y. On Frankfurt to US (BAI22), rates were down 13% sequentially. We expect demand softness to persist for most of the year and belly capacity to continue to come into the market, so continued rate pressure should be the theme of 2023. But as mentioned above, supply-demand dynamics should be most protracted this summer, with seasonal passenger travel demand driving excess supply, while freight networks reach a bottom on destocking.

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.