Issue link: https://jocdigital.uberflip.com/i/1488405
120 Journal of Commerce | J anuar y 2, 2023 www.joc.com Air Cargo ANNUAL REVIEW & OUTLOOK 2023 according to data from the Baltic Air Freight Indices. A look ahead: Even as capacity returns to the air freight market in the form of expanding passenger flight frequen- cies, the long-haul import trade lanes out of Asia are unlikely to return to pre-pandemic norms in the coming year. A potential global recession, soaring energy prices, runaway infla- tion, and geopolitical issues like the Russia–Ukraine war and the ongoing US–China trade spat will continue to undermine consumer spending and freight demand. Another factor to keep an eye on is China's "zero- COVID" strategy. While Beijing is eas- ing some of the more drastic measures, such as lockdowns at short notice, any widespread outbreak could test this more "relaxed" approach. Labor short- ages among ground handlers and air crew pose another growing problem that will be felt well into 2023, with the potential to overwhelm airport operations at both origin and destina- tion hubs, again raising the specter of lengthy delays. Whereas a shortage of capacity in major trades was the chief issue for air cargo providers over the past two years, the greatest challenge in 2023 will be a lack of demand. A new normal: With little stability in demand from major markets and steadily weakening spot rates, the lon- ger fixed-rate agreements airlines offer forwarders are likely to remain shorter in duration or be withdrawn entirely on some trade lanes. This will be aided by the continued rollout of dynamic pricing tools, popular among small and medium-sized forwarders. Demand for chartered capacity will also weaken as belly cargo space floods back into the market, with only the larger global for- warders wanting to control their own volume via chartered freighters. JOC email: greg.knowler@spglobal.com twitter: @greg_knowler cargo market, with no sign of a tradi- tional fourth-quarter peak season. As demand dropped, airlines increased the amount of capacity available in the major east–west markets, bring- ing spot rates down almost 70 percent from their December 2021 high. Despite the slide, average pricing for China to North America spot rates in late November remained almost three times pre-pandemic levels, while China–North Europe rates were more than double those at the end of 2019, A look back: In late December 2021, severely restricted air cargo capacity on trade lanes out of Asia, combined with a peak season that exceeded all expectations, pushed average spot rates to record highs. With demand far outstripping supply, time- sensitive shippers turned to the air, adding to the competition for limited capacity. To meet customer demand for air freight, global forwarders pro - cured hundreds of chartered freight- ers on the major routes out of Asia at huge cost to importers. The spike in rates and demand began to wane through the first quarter as inventory levels began to build, and that slow- down continued through the sum- mer. A deepening global economic slowdown and Russia's invasion of Ukraine continued to depress the air The big picture: Shippers starved of air freight space on the major east–west trade routes since early 2020 are now facing a veritable glut of capacity, as a ramp-up in long-haul passenger connections brings below-deck cargo space flooding back into the market. Bottlenecks across ocean and inland supply chains are also easing, sending US and European importers who switched modes to avoid delays back to containerized transport. From famine to feast Global air freight capacity oversupplied entering 2023 By Greg Knowler Air cargo rates continue to slide amid weak peak season Average weekly air freight spot rate per kilogram (2.2 pounds) USD per kg $10 $0 $2 $4 $6 $8 $14 $12 $10 L LOct Jul Jan 2022 Apr Oct Shanghai to Europe Shanghai to North America Frankfurt to North America Shanghai to North America Nov 14, 2022: $5.68 Shanghai to Europe Shanghai to Europ Nov 14, 2022: $5.24 Nov 14, 2022: $5.2 022: $5.24 Frankfurt to North America Nov 14, 2022: $4.44 Nov 14, 2022: $4.44 Nov, 2022 ct $4 $4 Source: Baltic Air Freight Indices powered by TAC © 2022 S&P Global Matheus Obst / Shutterstock.com