EXTRANS GLOBAL - Air Freight News - Week 01 2024

General Air Cargo

Airlines Introduce New Aircraft One After Another

· Airlines are increasing their fleet size by introducing new aircraft one after another. The travel and aviation industry, which regained vitality from mid-last year after being stagnant for several years due to the COVID-19 pandemic, is expected to return to normal in the new year, leading to increased activities among airlines.

· Korean Air plans to gradually introduce 20 units of Airbus A321neo aircraft from this year until 2030, with an investment amounting to around 4 trillion won. With this addition, Korean Air's fleet of this aircraft type will increase to 50 units. The A321neo is known for its approximately 15% higher fuel efficiency and around 25% lower carbon emissions compared to similar-class aircraft.

· Korean Air is also in the process of introducing 30 units of Boeing's B787-8, 10 units of B787-9, and 20 units of B787-10, retiring older aircraft gradually. This strategy aims to enhance customer service quality through advanced fleet management, maximizing operational efficiency for cost-saving effects.

· Jeju Air plans to bring in five units of the B737-8, highly regarded as the next-generation aircraft, with a purchase contract for a total of 50 units.

· Jin Air and Eastar Jet also plan to introduce four and five aircraft, respectively. T'way Air plans to bring in two units of Airbus A330-300, a medium-sized aircraft, by the end of this year.

· The accelerated introduction of new aircraft by airlines is a response to the explosive growth in aviation demand since the mid-last year, following more than three years of stagnation due to the COVID-19 pandemic. The International Air Transport Association (IATA) predicts that around 4.7 billion people will use airplanes this year, surpassing the previous record of 4.5 billion passengers in 2019, thanks to the recovery in travel demand.

Air Cargo Market Resembling a Spreading Phoenix's Wings

· The air cargo market, despite facing significant challenges during the unprecedented COVID-19 pandemic, is gradually recovering from the economic downturn. Companies are working towards diversifying market supply and making changes, even in the midst of a challenging 2024.

· In 2024, key trends in the air cargo market include the expectation of improved performance, acceleration of inevitable digital transformation, and efforts to diversify through Low-Cost Carriers (LCC).

· The industry anticipates a rebound in airfreight rates and an increase in demand, given the continuous growth in the air logistics sector amid global economic uncertainties. According to IATA data, the global air cargo performance (CTK) increased by approximately 2.5% in August 2023 compared to the same month in 2022, indicating a performance improvement.

· The acceleration of digital transformation in the air cargo market is becoming inevitable due to global issues such as the COVID-19 pandemic, politics, and wars. While airlines have been undergoing digitalization since before 2000, the digital transformation of players in the actual market, such as forwarders, shippers, and console companies, remains at a relatively low level. However, companies are now actively embracing digital logistics platforms, freight quotes, transport contracts, and digital forwarder services to enhance visibility and accuracy in the supply chain.

· Low-Cost Carriers (LCCs) are expanding their air cargo operations, positioning it as an essential business for survival. Unlike Low-Cost Carriers (LCCs) that focused solely on passenger flights, major airlines are increasing their cargo transportation share, transforming the crisis into an opportunity.

· Despite recent challenges and a decrease in airfreight rates, Low-Cost Carriers (LCCs) are actively entering or expanding their presence in the air cargo transportation market to ensure robust profitability through business diversification.

· A representative from the air cargo market mentioned, "The air cargo market has always been an industry that created new opportunities in difficult economic times and turned opportunities into crises. While the air cargo market has shown a somewhat weak performance after COVID-19, I hope that 2024 will be an opportunity to turn things around."

Reversal of Airfreight Rates Plunge Since the End of Last Year: Sharp Decline in Chinese E-commerce Shipments

· Towards the end of last year, the demand for air cargo sharply decreased, resulting in a pause in the surge of airfreight rates.

· The Baltic Airfreight Index (BAI) reported that the average airfreight rates in December for the Hong Kong to North America route increased to $7.10/kg, compared to $615/kg in November, marking a rise of 9.2% YoY. However, it fell again to $6.00/kg in the last week of December.

· The Hong Kong to Europe route also maintained its strength in December, with an average rate of $536/kg, higher than the $4.64/kg in November. However, it experienced a 2.9% decrease YoY. In the last week, rates dropped to $4.50/kg.

· The sharp decline in airfreight rates in the last week was attributed to a significant drop in demand for Chinese e-commerce shipments.

· The BAI freight index serves as a benchmark for all-in prices paid by forwarders to airlines. It is also considered a midpoint between contract rates and spot rates.

Increase in Shippers Choosing Air Cargo Transport Due to Supply Chain Uncertainties: Rise in Fixed Freight Contract Conversions

· Xeneta, a global air cargo market analysis firm, forecasts that major shippers may turn to air cargo demand for service stability due to geopolitical uncertainties and supply chain congestion.

· According to Xeneta's analysis of Q4 2023 performance, global air cargo demand increased by 9% YoY in December, reaching $2.60/kg despite a mitigated growth trend. Despite reaching the highest level in the past nine months, December freight rates remained high.

· As a result, in 2024, concerns about prolonged geopolitical crises in the air cargo market are expected to lead to a preference for longer-term fixed freight contracts by many global shippers, particularly with the additional disruption in the sea freight market due to the Hong Kong situation.

· An industry insider noted, "There are still many friction factors in the supply chain market. Especially, the ripple effect of the interruption of shipping through the Hong Kong issue will cause delays in millions of TEUs of containers. The problem is that shippers are concerned about how long this situation will last and whether it will last longer, which makes air cargo more predictable, allowing them to tolerate higher costs."

· Xeneta's research revealed that shippers who signed contracts for more than six months in Q4 2023 accounted for 45% of the total, a 5% point increase from the previous quarter.

· Additionally, an analysis of airfreight rate trends in December showed an increase in airfreight rates for cargo departing from China and Southeast Asia to Europe, rising by 9% to $4.49/kg and 14% to $2.91/kg, respectively.

Airline/GSA Event Update

· Korean Air (KE) plans to increase its Dallas route to daily flights from March 31. The route, previously operated five times a week, will now be available daily. Reservations for the new schedule started on January 4. The aircraft type for this route is B787-9.

· Emirates Airlines (EK) will expand its cargo supply on the Incheon-Dubai route from February 19. The route, currently operated seven times a week, will be increased to ten times a week, providing an expanded cargo capacity of 45 tons. The new flights will operate on Mondays, Wednesdays, and Fridays, using the B777-300ER aircraft, in addition to the existing A380 flights.

· China Southern Airlines (CZ) will resume operations on the Wuhan-Ho Chi Minh City route from January 30. The daily flights will be operated using the B737-800 aircraft.

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