2018 air freight rates did not decline in typical fashion following the industry wide peak season last December. As a matter of fact, rates are still hearty in terms of rising trend lines according to data in Drewry’s East-West Airfreight Price Index.
Beginning of the year declines are normal, however, this year shows a 3% air freight rate increase that progressed well into March. Early February displayed the year-to-year rates up over 14%, seemingly derived from an increase in demand and a minimalistic change in capacity and freight accommodation. Although the robust 3% rolling month-to-month increase has not fully continued these last few months, the index still remains above typical yearly averages.
What are the key factors behind the rising air freight traffic?
Newly implemented tariffs
The eCommerce boom
Company wide shipments being expedited to meet consumer expectations for fast deliveries
Air freight’s key role in the re-stocking cycle
According to Alexandre de Juniac, IATA’s Director General and CEO, “The [overall] outlook for air freight [this year] is optimistic. Consumer confidence is buoyant. And we see growing strength in international e-commerce and the transport of time – and temperature-sensitive goods such as pharmaceuticals. Challenges remain, including the need for industry-wide evolution to more efficient processes. That will help improve customer satisfaction and capture market share as the expectations of shippers and consumers grow ever more demanding.”
Precedented data suggests that air freight underperforms when the economy is stable and a shift to ocean freight is observed. However, in an upward trend following an economic low, air freight soars. An air freight’s ability to move products faster and the key restocking roles it employs are worth prioritizing when mentioning industry wide expansion. What takes a day or two to be expedited via air freight can often take 4 weeks if shipped on an ocean freighter. This mere fact is partial cause for the cyclical increase in air freight industry growth, but not the sole reasoning behind the surge. The overall strength of the 2017 global trade increased air freight rate inquiries and air cargo shipments, namely pharmaceuticals and e-commerce loads. This is because pharmaceuticals primarily need expedited temperature-controlled environments and e-commerce orders need to be shipped in a timely manner.
We are starting to see a premature escalation in air freight shipments prior to peak season. This could in part be a hurried response to ship before the new tariff impositions take effect, presumably by September, 2018. The 10% duty rate increase sets shipment urgency into motion in an attempt for companies to beat the increased taxes. A risk to the inclusive global trade volume.
The e-Commerce boom and consumer expectations for fast deliveries are synonymous and key factors when accessing the increase in expedited air freight shipments. A cause and effect. Because online retailers are growing at an unparalleled rate, more goods are being shipped worldwide to consumers.
IATA economics specialist, David Oxley believes FTKs (Freight Tonne Kilometers) will average close to 5% growth year-over-year through 2022. While there is some unpredictability in the future of the air freight industry, many forecasts suggest continued growth and overall expansion following technical evolution.