Air cargo vulnerable to geopolitical shell shocks

by ASSOCIATE EDITOR AND CHIEF CORRESPONDENT, TOM BALLANTYNE  

December 1st 2024

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While 2024 is shaping up as a banner year for air cargo after several years of pandemic generated uncertainty geo-politics threaten to unsettle the sector that is to the total revenue of many airlines. Read More » “We must look to 2025 with some caution,” warned International Air Transport Association (IATA) Director General, Willie Walsh, in November.

The incoming administration of U.S. President-elect, Donald Trump, has announced its intention to impose significant tariffs on its top trading partners of Canada, China and Mexico a decision that potentially could up end global supply chains and undermine consumer confidence.

‘The air cargo industry’s proven adaptability to rapidly evolving geo-political and economic situations is likely to be tested as the Trump agenda unfolds,” Walsh said.

The warning coincided with IATA’s release of date for data for October which showed global air cargo demand was up 9.8% for the month delivering the 15th Month of Consecutive Growth. Total demand, measured in cargo tonne-kilometers (CTKs), rose by 9.8% compared to October 2023 levels (10.3% for international operations). Asia-Pacific airlines saw 13.4% year-on-year demand growth for air cargo in October, with capacity increasing by 9.3% year-on-year.

Performance on individual trade lanes also showed significant improvement. Cargo movements between Asia and North America were higher by 8.6%, recording 12 consecutive months of growth, between Asia and Europe up 14.3% (20 consecutive months of growth), between the Middle East and Europe up 9.0% (17 consecutive months of growth) and within Asia, up 15%, or 12 consecutive months of growth.

Asia-Pacific origin markets have driven a significant portion of global air cargo growth in 2024, accounting for 56% of the worldwide business, a 12% year-on-year increase in tonnage during the first 10 months of the year, according to analysis by WorldACD Market Data.

The region’s robust performance has elevated its share of global outbound air cargo to 41%, up from 39% in 2023, dominance well ahead of other regions:

Within Asia Pacific’s contribution, general cargo played a pivotal role, making up 64% of the region’s growth. This category was largely boosted by consolidated e-commerce traffic. Special cargo, which accounted for 36%, was primarily driven by the vulnerables/high-tech segment, contributing 80% of special cargo growth.

Hong Kong remained the top global growth market, generating a 15% YoY tonnage increase in October, twice that of second-place Miami, which saw a 31% year-on-year rise. Dubai (+45%), Shanghai, and Tokyo also featured prominently among outbound growth markets.

“Asia Pacific’s dominance underscores its role as the engine of global air cargo growth, with e-commerce and high-tech products continuing to lead demand. However, challenges remain in regions like the Middle East, where geopolitical issues disrupt traditional trade lanes.

This dynamic highlights the shifting patterns in air cargo logistics and the growing importance of specialised cargo in driving future growth,” according to IATA.

Airfreight rates on trans-Pacific routes have flattened as an overshot of capacity eclipses demand, but predicted supply chain turbulence could see prices take off again soon. The global average rate growth of 2% is the highest level recorded this year and was driven by increasing spot rates “mainly from North America and Europe origins”, according to World ACD’s week 47 data.

While this may seem surprising, the data company explained it was due to a capacity shift from the transatlantic to the Asia Pacific region, with airlines “anticipating a surge of shipments from mainly China and Hong Kong to Europe and North America”.

Instead, global tonnage this week remained flat from the week before.

But while average rates from Asia Pacific to North America flattened week on week, World ACD data showed rates from Europe to North America “increasing significantly”, up 8% week on week. Year on year, however, ex-Asia Pacific to North America is still up 10%.

According to market intelligence company Rotate’s database, capacity from Asia Pacific to Europe was up 7% month on month, and up 4% Asia to North America. Europe to North America capacity was down 4% across the same period.

Year on year, World ACD noted, capacity on the trans-Atlantic in recent weeks was down 3%, “fully driven by 10% less freighter capacity and belly capacity remained stable”, but year on year capacity from the Asia-Pacific to North America has grown 7%.

World ACD added: “More forwarders than last year secured their capacity before the peak season, which has a dampening effect on the rate development pattern we saw last year, and which was more typical for the tradelanes ex-Asia Pacific this season.”

Dimerco Express Group vice president, global sales and marketing, Kathy Liu, said: “Ecommerce platforms had already secured capacity earlier in Q4 with direct support from airlines, leading to lower shipment volumes compared with the same period last year.”

But she added that the air freight market had “again started gaining momentum from 18 November”.

“December is expected to be busy during the first two weeks, driven by Black Friday sales, but starting in week 51, the market will likely slow as the traditional holiday season begins,” said Ms Liu.

However, Dimerco also warned that potential cost increases due to threatened tariffs in the US could prompt companies to ramp up inventory, likely to “drive a significant increase in air freight activity… potentially leading to tighter space and higher shipping rates”.

Indeed, head of airfreight at DSV Stefan Krikken said at TIACAs Air Cargo Forum in Miami this month: “These tariffs will happen… You will see supply chains changing. It means supply chain disruption, which means more conversions from ocean to air freight.

“We’re seeing more and more demand being pushed into South-east Asia and, with these tariffs, that’s only going to be more… I think people will continue to consume, and whatever disruption you have in supply chains will be good for our business.”

But Dimerco noted that, despite the production shift to South-east Asia likely increasing raw material imports from China and finished goods exports to the US, “South-east Asian countries will still rely on major transit hubs like Taiwan, Hong Kong, South Korea and Japan, particularly for airfreight to the US”.

“To adapt to these changes, carriers may adjust their pricing strategies next year,” it concluded.

Preliminary October 2024 traffic figures from the Association of Asia Pacific Airlines show international air cargo markets saw potent growth, supported by businesses restocking inventories in preparation for the year-end holiday season and major online sales events.

It says the region’s airlines continued to benefit from growing demand for timely air shipments.

According to AAPA, in October, international air cargo demand in freight tonne kilometres (FTK) rose by 10.9% compared to the same month last year. Offered freight capacity increased by 10.6%, led by continued growth in international belly-hold capacity. As a result, the average international freight load factor saw a marginal increase of 0.2 percentage points to 61.6%.

Commenting on the results, AAPA director general, Subhas Menon, said, “Cargo demand rose sharply on major trade lanes, driving a 14% increase in international air freight volumes during the first ten months of this year. This was on the back of robust consumer demand and disruptions to maritime shipping due to security risks in the Red Sea.”

He added that on the cargo side, markets are expected to remain vibrant through the remainder of the year, despite some economic uncertainties in the advanced economies.