Is 2024 the end of air freight’s rollercoaster ride?

February 6, 2024

The air freight market has been on a rollercoaster ride of late – but 2024 could see a return of “classic seasonality”, writes Niall van de Wouw, chief airfreight officer at Oslo-based market analytics platform, Xeneta.

As the leading ocean and air freight rate benchmarking and market analytics platform for the shipping and logistics industry, Xeneta’s powerful reporting and analytics platform provides liner-shipping stakeholders the data they need to understand current and historical market behaviour. Our data comprises over 400 million contracted container and air freight rates, covering over 160,000 global ocean trade routes and over 58,000 airport-to-airport connections.

When Xeneta released its 2024 Outlook at the end of November last year, we noted that this year could provide some welcome respite, allowing shippers to catch their breath after the volatility of the past few years. The rapid rate decline which started earlier in 2023 calmed down later in the year; it seems the market has a new baseline, from which I expect classic seasonality patterns to emerge.

Xeneta chief airfreight officer Niall van de Wouw expects classic air freight seasonality patterns to start to return in 2024.

The industry saw the cost of transporting goods by air skyrocket during the Covid-19 pandemic, before plummeting back down again during 2023, albeit remaining 32% up on pre-pandemic levels. As with all rollercoasters, a wobbly sensation remains even after the ride has stopped. Air freight continues to be a hugely challenging market, and it remains as important as ever to understand supply chain data at both a global and regional level.

The Xeneta Air Freight Outlook 2024 report highlights muted consumer spending as a key factor for the year ahead. Demand for air freight in 2023 remained 8% down compared to pre-pandemic levels, and this demand is only predicted to grow by between 1 and 2% this year, while supply is expected to grow by 2 to 4%.

The key indicators are not great from a demand point of view; it’s muted and there’s a lot of uncertainty in the world. People and companies are a bit more conscious of how they are spending their money and we will likely not see demand pick up in any meaningful way in 2024. Yes, we will see a return of classic seasonality, but it will be muted seasonality.

Xeneta data reveals an increasing trend for longer term contracts, but this presents a potentially perilous situation for freight forwarders in 2024. There is fierce competition and I understand why freight forwarders want 12-month contracts to secure volumes and shippers want to lock in for a longer period to reduce their workload.

The problem is that freight forwarders are selling long-term contracts but buying the majority of volume from carriers on the short-term spot market. If the rates go up, there is a serious issue. We saw this recently out of Vietnam, where 70% of volume is bought on the spot market. Rates suddenly went crazy prior to Golden Week (a week-long national holiday in China that affects many Asian markets) and freight forwarders told shippers they could not honour the contracted service. This could happen on any market and is a real risk for 2024, unless freight forwarders and airlines can find common ground on long-term rates.

The continued recovery of capacity putting downward pressure on rates is another key theme for this year, as highlighted in the Outlook 2024 report, along with environmental sustainability and improving schedule reliability in ocean freight shipping. So, has the rollercoaster really come to a halt, or are there more twists and turns yet to come?

At Xeneta, I have learnt how incredibly important it is for the air freight industry to look towards the ocean: 97% of global containerised goods is transported by the ocean. Given the volumes involved, if the ocean industry messes things up – even to a small degree – then there is always money to be made in the air.

Reliability in ocean freight is improving, but it only takes one black swan event for the situation to change and for rates to increase rapidly. No-one has a crystal ball, but you only have to look at the drought in the Panama Canal, threats of volcanic eruptions in Iceland, and conflict in the Middle East to understand how delicate and sensitive to world events the air freight industry is. If we do get a black swan event in 2024, then strap yourselves in for another ride on the rollercoaster…