Air freight rates slip in December

Air freight rates on key east-west trade lanes slipped in December following the volume boost ofnew-technology product launches that had buoyed the previous few months, as the sector returned to

Drewry, which had previously concentrated on the sea freight market, launched its East-West AirFreight Price Index last year, a weighted average of air freight rates across 21 east-west trades,and which fell by 1.4 points from November to reach 110.8 in December. This brought to an end fourconsecutive months of gains in the index, in which its value had risen by over 20 points since thelow of July.

Simon Heaney, research manager at Drewry, commented: “The waning effect of new hi-tech productlaunches on traffic demand was the primary contributor to declining rates from Asia into NorthAmerica and Europe. Drewry expects pricing on routes out of Asia to decline further in January,though the impact will be softened by an uptick in demand levels in advance of Chinese NewYear.”

December’s price decrease comes despite evidence of a tentative recovery in air freight demand,in the form of a 2% year-on-year rise – the first such increase in 16 months – in November ofworldwide semiconductor sales, a traditional bellwether for air cargo due to their correlation withhi-tech product volumes.

The most-recent monthly figures available indicate that global air freight capacity for the 12months to November 2012, measured in available freight tonne kilometres (AFTKs), remains at abroadly similar level as the corresponding period the previous year, at least among IATA airlinemembers. International AFTKs were up by 1%, year on year, while domestic AFTKs were down 1.3%,leading to an overall 0.5% increase globally.

However, there were major differences between regions. According to IATA’s figures, AsiaPacific-based and US-based carriers reduced their cargo capacity by 2.9% and 0.7%, respectively,while there were increases in available capacity among European (+0.7%), Middle Eastern (+11.7%),Latin American (+6.4%) and African (+9.5%) carriers.

Over the same period, cargo carried by IATA member airlines was down, year on year, by 1.6%.Asian and European airlines showed the greatest disparity between demand reductions and capacitychanges, with demand decreasing for Asian and European carriers by 6.4% and 3.2%, respectively.

Drewry said air cargo demand could see a temporary boost at the expense of the ocean market overthe coming months. “With ocean currently facing capacity issues such as the looming threat ofstrike action at US ports, and carriers cancelling voyages, some shippers, particularly thosewanting to move higher-value goods, might well be tempted to shift some cargo to the air,” theorganisation said.

Demand growth for air cargo has lagged behind ocean freight, which has continued to showmoderate growth over the last 12 months.

Drewry believes air freight’s failure to match sea freight growth is due to a combination ofshippers having access to better IT systems, leaner inventory strategies and greater faith in linerservice reliability. Schedule reliability, as measured by Drewry’s Carrier Performance Insightreport, has been improving steadily in the last year, with the industry average moving up from50-60% on-time performance to mid-70% presently.

Drewry said recent issues in the ocean sector, such as threatened port strikes, “are testingthat faith, although of course those shippers that do switch to air freight will have to pay aconsiderable premium for the expedited transportation of their goods”.

“Air cargo is not a viable ‘Plan B’ for all shippers, but for those moving expensive goods itremains a justifiable alternative, particularly at a time when the reliability of the ocean supplychain is threatened,” said Heaney.

Drewry recently began publishing its ‘East-West Airfreight Price Multiplier’, which measures therelationship between the cost of shipping by air relative to sea on East-West trades. The fall inair freight pricing and a corresponding rise in container shipping rates in December sent this ‘multiplier’ down 1.3 points to 11.8.

Drewry figures also indicate that east-west air freight rates and comparable ocean rates havecharted an almost exactly opposite course – a mirror image of each other – since May 2012.