‘Jumpy’ market forces airlines, forwarders to deal with ‘FOMO’

The decline in global air cargo volumes softened again in June but the ‘fearof-missing-out’ or FOMO has formed an ‘irrational’ market for airlines and freight forwarders with general spot rates down 41 percent from last year to US$2.31 per kilo, according to CLIVE Data Services, part of freight market intelligence Xeneta.

Whilst this may be good news for shippers, this leaves a jumpy mess with market sentiment at a somewhat gloomy state for transport and logistics providers. “Airlines and forwarders are getting jumpy because of falling rates, not so much the volumes. It’s the fear-of-missing-out that is driving the aggressive drop in cargo rates because no one wants to lose volumes, and they also want to get more of the cargo that’s in the market. We can see forwarders taking big risks,” said Niall van de Wouw, chief airfreight Officer at Xeneta.

Air cargo capacity across the globe was up 8 percent year-over-year in June but despite this availability, the chargeable weight was down 1 percent, repeating the previous month’s performance. In its ninth month of continuous decline which started in September last year, spot rates were down 41 percent yearon-year to US$2.31 per kilo.

Sentiment on the seller side of the market appears to remain pessimistic with some operators of all-cargo aircraft undertaking major reviews of their route and capacity strategies, given the pre-pandemic return of demand due to the recovery and availability of belly capacity.

Meanwhile, freight forwarders still ‘handcuffed’ by high rates under blocked space agreements with airlines, are also facing growing pressure from shippers pushing to negotiate freight rates down to the new level, no thanks to aggressive pricing policies from other forwarders trying to gain their volumes.

“The air cargo market is a toxic mix at the moment. We see some forwarders agreeing to 12-month fixed rates with shippers, including fuel, that are lower than the rates we see in the market overall. That is nearly ‘going to Vegas’ in terms of risk, but forwarders are anxiously looking to secure volumes in the face of fierce competition. Shippers we are talking to are, in general, not looking for a massive overhaul of their supplier base, but they do want to see a benefit because rates and market conditions are so much lower than they were 6-9 months ago,” explained Niall.

Looking ahead, Xeneta predicts the summer months will likely remain muted for air freight in terms of growth, given the prevalent market uncertainties. If no peak season happens for ocean freight, it believes this would provide a boost to air cargo’s recovery later in the year should shippers need urgent transport or consumer spending suddenly pick up. But any airfreight peak will be short-lived.

“The big question now for carriers is do they go for margin or volume? No one wants to be flying empty, and even the most respected airlines seem to be recognizing they have to join the game because if they keep their rates at a high level, they just won’t get the volume. Two years ago, airlines were asking ‘what am I going to do with my belly aircraft’ and now it’s a case of ‘what am I going to do with my freighters?’ It’s going to be a long summer for airline cargo departments, and it looks as though it will take a few quarters for the market to move away from the current irrational pricing environment,” van de Wouw added.