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AIR FREIGHT MARKET UPDATE - JUNE 2021

An Overview of the Year So Far and What’s to Come

The Air Freight market has been more dynamic than it has ever been in recent years. Let’s take a look into the first half of this year, which absorbed some trends from 2020 – a truly exceptional year for the air freight market in so many ways. Let’s also deep-dive in the current market situation and what to expect in coming months.  

Understanding the Trends of the First Half of 2021

Amid travel restrictions and continued lockdowns due to the pandemic, the gradual improvement in demand volumes that the industry saw towards end of 2020 evolved into a much stronger recovery as we progressed into this year.

  • Global volumes in January 2021 were the same as in January last year, when International Monetary Fund (IMF) forecasted world GDP growth at 5.5%. Historically we have seen volume slowdown during the Lunar New Year because of factory closures, but this year’s Lunar New Year did not see the traditional volume slowdown as factories remained mostly open and travel restrictions were put in place by the Chinese government.

    In a YoY comparison CN outbound capacity was down -39% but despite that, we witnessed a growth in volumes for January and February combined in 2021. Even though the rates showed a slight sign of softening towards the end of January 2021, resurgent volumes and stringent capacity again pushed the rates high and much above the pre-pandemic levels.

    Initial doses of vaccines were moving primarily within domestic markets but February saw a major increase in international Covid vaccine flows as distribution took off.

    The US incentive kicked into March boosting the already strong e-commerce market. With relaxation of lockdowns manufacturing facilities were returning to full swing. Asia Pacific to AMNO and EURO trade lanes led the volume recovery most notably out of China, Japan and Vietnam. What was a +9% YoY growth in February went up to nearly +22% YoY growth in March. In cue with improved economic activities, IMF increased their GDP forecast to 6% in April 2021. A stronger economy and rising volumes had similar effect on jet fuel prices which increased from $60/b January to nearly $71/b in April. 

  • One of the factors for such robust air freight volumes is also due to ocean port or traffic congestions e.g. the Suez Canal incident leading to conversion of volumes into airfreight.

    Most of the airports experienced backlogs due to the increasing demand and slack capacity.

    The I/S ratio it is at its historic low which indicates depleting stocks resulting in increased shipments from manufacturers to replenish them. For instance the US overall imported ~40% more volumes against pre-pandemic levels. This had continued to create backlogs at major US airports. 

While capacity still remains down leading indicator such as Purchasing Managers Index (PMI) still points towards a very strong and sustainable airfreight demand. 

The Market Situation: Demand, Capacity, and Rates

Among commodities automotive parts, high tech instruments like laptops, home office components led the demand recovery. As demand continues to grow it is not just a few sectors or commodities which are leading this recovery anymore but the breadth of this rise in demand is much broader. Just to give you the essence, worldwide PC shipments grew 32% in Q1 this year which is the fastest YoY growth in two decades. On the other hand Mothers’ Day flower imports were quite strong in May with most of these imports into US, Europe and Middle East primarily from Africa and Latin Americas. 

  • Asia Pacific emphasized the increasing importance of the region in world trade. The entire region’s air cargo output grew more than 20% YoY in Feb. With the exception of Middle East, other regions have shown improvement in demand growth. Imports in general to the Gulf countries have decreased affecting the recovery. Demand figures in March increased dramatically on a YoY comparison. Volumes dropped last year in March when the pandemic was declared but this is still remarkable when taking into account the current enormous reduction in cargo capacity.

  • Air capacity remains severely restricted and was down -30% in April 2021 vs pre-pandemic April 2019. Mutated COVID strains and renewed quarantine measures in many countries have forced cancellation of many long haul flights further delaying the return of international passenger travel. Situations like the sudden quarantine of over 300 pilots and flight cancellations as declared by China Airlines remain unforeseen. Belly capacity remains badly affected and down by nearly -60% vs pre-pandemic levels. Out of all trade lanes, Trans-Atlantic capacity remained most constrained mainly due to varied lockdown rules in many EU countries.

Since the start of the pandemic, the most drastically changed figures are those on rate developments. The higher rates highlight the capacity shortage. They remain high and much above pre-COVID levels nearly +68% higher than 2019 and +50% higher than 2020 baseline. 

Underlying Trends for the Second Half of 2021

Already growing more than the pre-pandemic levels and likely to remain high as now most sectors show recovery and resilience despite the pandemic situation. Manufacturing continues to pick up pace across the globe as countries e.g. CN and IN despite current Covid situation already show improved economic activity.  World GDP is currently forecasted at 6% in 2021 and at an even higher level in 2022. 

  • The demand is growing dynamically, already exceeding the pre-pandemic levels. It is likely to remain high as most sectors show recovery and resilience despite the pandemic situation. Manufacturing continues to pick up pace across the globe, with world GDP forecasted to grow by 6% in 2021 and even more in 2022.

  • International air travel plunged -86% in January 2021 against pre-crisis levels. Capacity will remain restricted as passenger return is further delayed due to new COVID strains and lockdowns. More situations like Cathay Pacific’s long haul flight cancellations or the Union strikes at the Heathrow airport can happen. And even though vaccine roll-out pace has increased, we still estimate passenger traffic return to pre-COVID level not before 2025-27. 

  • As overall capacity growth is expected to lag demand, rates are estimated to remain at an elevated level compared to 2019. Airlines continue to manage yields aggressively and extra capacity is available only at a premium. Freight Load Factor, which is an indicator of how tight the demand-supply balance is, is at record high level globally and may continue to remain high. 

  • Distribution of the COVID vaccines remain the top priority this year. February saw an increase in vaccine movements as we expect the peak flows around Q2 and Q3 of this year. Demand for vaccine is expected to be largest to Africa, Latin America and SE Asia.

    We need to keep in mind though that vaccine distribution will take time as apart from the doses, ancillaries will also be a major part of the distribution process. Planned vaccine movements are unlikely to adversely affect the already strained capacity. Few airlines already have special COVID vaccine specific services offering more temp controlled services. Right now the urgency of the situation has prompted mostly airfreight movements but eventually some vaccines are likely to also move by ocean freight.   

  • We already have seen enough disruptions this year and the last. COVID strain mutations, renewed quarantine measures impacting airlines and services. Major cargo airports such as JFK, ORD, SHA among others have experienced backlogs and congestions for some periods due to understaffing. Current international flight cancellations may not be the last that we have seen so far. And these are piling on top of the more commonly occurring issues like general weather disruptions leading to flight schedule changes or cancellations, labor strikes, etc.  

Severely impacted capacity and high demand will keep the market very dynamic. You need strong partners who can provide you with the right solutions. We at DGF have a variety of products and such solutions so please get in touch so that we can extend our services to you.  

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