EXTRANS GLOBAL - Air Freight News - Week 28 2024

Air Cargo General 

1)  The size of the e-commerce air cargo market is gradually expanding

• According to the survey, the size of the global e-commerce market last year reached 449.83 billion euros (approximately 655 trillion won), showing a growth of 7.5% compared to the previous year. The global e-commerce market size in 2022 was analyzed to be 418.31 billion euros. The market size declined due to consumer contraction and reduced consumer demand. However, it is evident that e-commerce has stabilized and achieved a more stable growth trajectory, recovering by 7.5% in 2023.

• The e-commerce market in North America was the largest in the world last year, with a total of 174.87 billion euros (255 trillion won). In contrast, Europe accounted for 85.21 billion euros (124 trillion won).

• In 2022, the revenue of the US e-commerce market increased by 8.5% compared to the previous year, reaching 10.4 billion dollars (approximately 1.4 trillion won). The share of e-commerce sales in total retail sales increased from 9.7% in 2018 to 14.8% in 2023 (as of the second quarter of 2023).

• The global e-commerce logistics market is expected to grow at an average annual rate of 22.6% until 2032, according to IATA. The size of the global e-commerce market is predicted to reach 2.41287 trillion dollars (approximately 3,197 trillion won) in 2032.

• As of 2022, the number of global e-commerce transactions has grown more than fourfold compared to 2014, reaching 170 billion transactions. It is projected to grow by over 50% to 256 billion transactions by 2027. Approximately 80% of the global e-commerce volume is transported via air cargo.

2)  Active preparation is needed to cope with the rise in air cargo rates in the 4th quarter - Airfreight rates in the APAC region expected to increase by more than 50% compared to June

• The biggest topic in the global air cargo market recently is undoubtedly how much freight rates will surge during the peak season.
• Global market experts say airlines and BSA contract companies are already preparing to introduce additional peak season surcharges from the end of August, as they are confident that air cargo rates will soar in the 4th quarter.
• The reason for the expected rate hike is the forecast that supply will be absolutely insufficient compared to demand. Niall van de Wouw, Senior Air Cargo Analyst at Xeneta, said "Some airlines and forwarders plan to introduce additional peak season surcharges by the end of August. There is a consensus among airlines that the 4th quarter will be a very hot peak season, especially in the Asia-origin market."
• Total air cargo demand increased by 13% year-on-year, but space capacity only increased by 3% in the same period. As a result, the load factor also increased by 4 percentage points compared to the previous year.
• An industry insider questioned, "It's not surprising that demand has increased this much by June. E-commerce demand is not new, and the increase in demand due to the situation in the Suez Canal was predictable to any market player. However, supply has not increased significantly despite this obvious demand increase. Of course, rates will go up."
• Some warnings have been issued that short-term spot market air freight rates could increase by more than 50% in the 4th quarter compared to now. Experts point out that airlines and companies that have secured space are already devising strategies to secure and operate capacity to charge premium prices during the high demand peak season.
• Of course, many origin and import retailers prefer long-term supply contracts. Globally, major shippers are already trying to pursue contracts of 6 months or more, rather than 3-month contracts, as they feel anxious about renegotiating rates towards the end of the year. But airline contract rates have already risen.
• Therefore, air cargo market players need to carefully plan for the upcoming 4th quarter, actively review long-term supply contracts, re-examine their transportation strategies, and seek efficient rate management measures, considering the possibility of a sharp increase in peak season rates.

3)  TAC Index: Global Air Cargo Rates Increased by +2.2% Week-over-Week in the 27th Week

• During the week leading up to July 8th, global air freight rates showed an upward trend, with a 2.2% increase compared to the previous week and a 13.4% increase compared to the same period last year.
• According to recent weekly data from the TAC Index, which aggregates global air freight rate indices, the Baltic Air Freight Index (BAI00), representing the global average rate, saw a 2.2% increase over the course of one week as of the 8th. This increase is attributed to continued demand influx due to e-commerce and delays in maritime transportation.
• However, the BAI30, which represents rates from Hong Kong, experienced a slight decrease of (-)0.6% compared to the previous week but showed a significant increase of 22.3% compared to the same period last year. Additionally, the BAI80, representing rates from Shanghai, recorded a 3.0% increase compared to the previous week and a 42.3% increase compared to the same period last year.
• As a result, air freight rates from China to the United States and Europe have all shown an upward trend, while rates for shipments from India and Vietnam to the United States and rates for shipments from Bangkok to Europe experienced a slight decline followed by a significant increase once again.

4)  Asian countries are also accepting a protectionist stance towards low-cost Chinese import goods

• Despite the increase in imports of Chinese goods, Asia has shown a relatively passive policy response, not erecting significant trade barriers. However, considering the problems caused by China's overcapacity across various product categories for Asian economies, this laissez-faire approach is no longer sustainable.

• Currently, low-cost Chinese consumer goods are flooding into Thailand, Indonesia, and South Korea primarily through e-commerce platforms. Meanwhile, the metal and chemical industries in India, Vietnam, Thailand, and South Korea are under pressure from China's overcapacity and surplus export offensive.

• Additionally, the ripple effects of tariffs imposed on China by the US, EU, and Latin America need to be considered, as some supply has shifted towards Asia.

• In the electric vehicle sector, while current adoption rates are low in most Asian economies, the continuously rising trend makes the Asian market an attractive target for China's EV manufacturers, who have recently been expanding into markets like Thailand.

• It is evident that Asian countries are facing challenges in addressing the influx of Chinese imports, regardless of whether they are low-tech or high-tech products, and the economic impact is likely to be substantial.

• On the other hand, some Asian countries like India, Vietnam, and Malaysia are benefiting from the so-called "China+1" strategy of Western nations, diversifying their investments beyond China while considering the risks. However, the continued reliance on Chinese intermediate inputs limits domestic value addition and hinders the development of domestic manufacturing and job creation.

• Due to the tariffs imposed by the US and EU on China, the surplus of Chinese overcapacity is redirecting towards new markets, presenting Asian countries that export to these markets with the challenge of competing with China.

• Some argue that the bargaining power of Asian countries, both economically and geopolitically, is weaker than that of the US, making it difficult for them to respond to Chinese imports with trade protectionist measures. This is particularly true for the ASEAN economies, which have close trade and investment ties with China.

• South Korea also depends on China for the supply of key raw materials for semiconductors and batteries, and despite recent signs of decoupling, China remains an important market for Korean companies in the consumer goods and semiconductor sectors.

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