Air cargo operators are shifting freighter aircraft from South America, India and Africa to the more lucrative Asian export trades where sustained demand from the US and Europe for both e-commerce and traditional cargo is keeping planes full and rates elevated.

With an anticipated fourth-quarter peak season bonanza around the corner and a worsening supply-demand imbalance pushing up the spot market, airlines want as much capacity as possible to be deployed on the trans-Pacific and Asia-Europe trades. But the removal of air freight capacity is leaving exporters on the South America and Indian trade lanes scrambling for capacity, forwarders say.

"We see it on the South American and India trades," Angel Rodriguez, president of Charleston-based ASF Air, told the Journal of Commerce. "Unfortunately, China-US and China-Europe outweigh any trade with South America regardless of route, so it's somewhat of a no-brainer."

Air freight rates from Shanghai to North America in the traditionally slow month of August were almost 30% higher compared with the same month last year, according to the Baltic Air Index (BAI).

Holding the rates at elevated levels are load factors that rate benchmarking platform Xeneta estimated were at 87% on Asia-North America flights in early September and at 86% on both Asia-Europe and Asia-Middle East flights, which is effectively full for head-haul routes.

Demand is expected to strengthen even further during November's e-commerce shopping promotions such as Black Friday and Cyber Monday, which will follow the highly anticipated iPhone 16 launch later this month, with capacity already tightly constrained, said Rob Veltman, vice president of cargo in Europe for Qatar Airways.

"With the seasonal patterns and the way the market is being treated, conventional shippers like Apple or HP will struggle to find capacity because e-commerce is so demanding," Veltman said at the EU Cross Border E-Commerce Forum in Liege, Belgium, last week. "The top four e-commerce players in China need around 150 freighters per day to move the cargo out."

Tom Owen, director of cargo at Cathay Pacific, said the Hong Kong-based carrier was adding five freighters per week to its Asia-North America network in the fourth quarter to try to cover the demand.

"We are a scheduled carrier so 40% of our freight goes on our widebodies [passenger planes] and that capacity doesn't change, but for our freighters we move capacity around where it is needed," Owen told the Journal of Commerce.

Jeffrey Van Haeften, senior vice president for Emirates SkyCargo, warned at the Liege forum that capacity was already in short supply and would tighten further through the rest of the year, even with the widespread repositioning of capacity.

"We are already full," he said. "All the second legs into Europe [from Asia] serving 40 cities, some of them up to eight flights a day, are all full."

'Ongoing volatility'

DHL Express has announced plans to deploy eight new Boeing 777 freighters on the trans-Pacific and routes between Asia and Europe as it moves to capture soaring demand for e-commerce and business to business (B2B) cargo. The express operator is expecting global e-commerce to increase 8.8% in 2024, with a strong peak season through the fourth quarter.

"With ongoing volatility in global freight markets and a continued strong flow of e-commerce volumes, we are expecting a healthy surge in demand for express services in the fourth quarter," DHL Express CEO John Pearson said in a statement.

British cargo airline One Air this week added a third Boeing 747 freighter to its fleet to meet strong demand for traditional cargo from forwarders on Asia-Europe. It operates ad hoc charter flights on several routes across Europe, the Middle East and Asia, as well as seven flights a week from Hong Kong to Europe.

The injection of capacity into Asia, mostly China, is making a long-standing problem even worse. While aircraft are full flying out of China to the US and Europe, the return flights are virtually empty, which places significant pricing pressure on the carriers.

Air cargo consultancy Rotate estimated the contribution of Boeing 777 freighter flights on several trade lanes and found the growing imbalance increased the profitability gap between the head-haul and back-haul flights.

On the trans-Pacific, based on unit costs and revenue through the four weeks of August, cargo on China to US flights was carried at a profit of $3.07 per kilogram, while the return flight operated at a loss of $1.48 per kilogram.

The route from Asia to Europe showed a profitability of $2.10 per kilogram and a return loss of $1.12 per kilogram, while the trans-Atlantic trade lane was unprofitable in both directions, Rotate found.

"The freighters are all flying full out of Asia and the rest of the world is not performing as well," Owen said. "It is not something new, but because of the e-commerce growth over the last couple of years there is a lot more capacity flying out than before and the return flights have gotten more challenging."

Rodriguez said the trade imbalance was something forwarders have become accustomed to over the years but it did impact pricing negotiations with carriers as charter agreements were mostly settled on a round-trip basis.

"This is why pricing on freight on the trans-Pacific westbound US to China route amounts to only a fraction - approximately one quarter - of the cost for freight on the eastbound China to US route," he told the Journal of Commerce. "Essentially, those (forwarders with) charter agreements are simply looking for any possible contribution to help offset the overall cost."

*This article was previously published by The Journal Of Commerce (JOC) in September 16, 2024

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.