It was up and down again for air cargo rates in February as the Red Sea crisis and the Chinese New Year overshadowed whatever improving but still fragile underlying demand trends might have been visible. Hong Kong to Europe (BAI 31) and Shanghai to Europe (BAI 81) were both down on average -5% year-on-year (YoY) in February (-16% YoY and -26% YoY, respectively in January) but reached positive territory mid-month. Compared to pre-pandemic levels, the trade lanes mentioned above are still up 60% and 29%, respectively. The trajectory of air cargo rates into North America was quite similar as air cargo rates from Hong Kong (BAI 32) and Shanghai (BAI 82) were, on average, -5% YoY and -8% YoY lower than in the preceding year (compared to -18% YoY and -26% YoY, respectively, in January). It is worth mentioning that the intra-month drop post-Chinese New Year was more pronounced for US-destined cargo than for EU-destined cargo, which might be an effect from the disruption in the Red Sea. Still, air cargo rates from Hong Kong (+32%) and Shanghai (+27%) were still materially above pre-pandemic levels.

 It is worth mentioning that the intra-month drop post-Chinese New Year was more pronounced for US-destined cargo than for EU-destined cargo, which might be an effect from the disruption in the Red Sea. Still, air cargo rates from Hong Kong (+32%) and Shanghai (+27%) were still materially above pre-pandemic levels.

Volume-wise, air cargo continued its slow recovery from last year’s slump according to data provided by IATA for January. Compared to last year, volumes in January jumped by 18% YoY (vs. 11% YoY in December 2023) but we believe this is mostly explained by the timing of the Chinese New Year, which occurred in January in 2023 but in February in 2024. Looking at volume trends compared to 2019 levels (when Chinese New Year occurred in February), January was up roughly 3%, while December 2023 was up only 2% (and November 2023 -3%). It is fair to say that the trend is up though the trajectory isn’t as steep as suggested by the yearly observations. 

 The major freight forwarders have apparently not witnessed a significant migration from ocean freight into air freight. While shippers inquired on this option in sizeable numbers after the start of the Red Sea crisis, few followed through, according to our discussions with freight forwarders. At the same time, European airlines did talk about a noticeable volume increase as a result of the Red Sea crisis.

It is more difficult to determine if the Houthi attacks on (mostly) container vessels that effectively sealed off the Red Sea (and consequently passage through the Suez Canal) had any discernible impact on air freight. During the pandemic, when ocean freight capacity was severely impaired, we observed mass migration of traditional ocean cargo into air freight. On a smaller scale, one would have expected to see the same in the Red Sea crisis. So far, we get conflicting accounts from market participants on that matter. The major freight forwarders have apparently not witnessed a significant migration from ocean freight into air freight. While shippers inquired on this option in sizeable numbers after the start of the Red Sea crisis, few followed through, according to our discussions with freight forwarders. At the same time, European airlines did talk about a noticeable volume increase as a result of the Red Sea crisis.

Here, the situation is very much unchanged. Container traffic through the Suez Canal is down  about 80% from usual levels as most container liners prefer to circumvent Africa via the Cape of Good Hope to avoid attacks from Houthi rebels. While the US/UK military started to (air) strike Houthi infrastructure and continental European frigates are now patrolling the area, the action hasn’t deterred Houthi rebels from continuing their attacks on cargo vessels. In fact, the Rubymar became the first vessel that was fully destroyed when it sunk late February after being hit by Houthi projectiles several weeks prior. For the time being, there is no immediate solution in sight and major container liners have already warned that the situation may drag on for the remainder of the year. 

About Marc Zeck, Senior Research Analyst, Stifel

Marc Zeck is a Senior Research Analyst covering Global Logistics and Aerospace & Defence at Stifel. Mr. Zeck is based in Frankfurt, Germany and joined Stifel in 2020. He previously worked in Equity Sales at Lehman Brothers, Nomura and UBS.

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.

©2024 by Marc Zeck.