Air freight rates on the trans-Pacific continue to climb, as the US economic recovery bolsters robust demand on the capacity-constrained trade lane. Despite the first quarter of the year traditionally being the “slow season”, air shipping rates continue to rise. Below, we will investigate the reasons behind capacity challenges and when we might see some relief.
Capacity Challenges: What’s Going On?
The first and most reasonable explanation for the capacity issue is that much of the passenger aircrafts remain grounded by air travel restrictions. While vaccination programs have been rolled out in phases, air travel has just started picking back up. This leaves shippers with mostly cargo freighters and few passenger flights to transport their cargo.
In addition, the on-going seaport and rail congestion issues have pushed shippers to seek out air freight solutions, exacerbating the already constrained capacity. As ocean freight services experience near-record high delays and near-record low schedule reliability, air cargo demand continues to increase. Airfreight rates from China and Hong Kong to the U.S. have risen nearly 75% since March this year, according to figures from the TAC Index.
Another factor adding to the mix is the travel restrictions put in place by various governments. For example, following a recent COVID-19 outbreak, Taiwan’s China Airlines implemented a two week quarantine for all its pilots. This severely limited the goods coming out of Asia as China Airlines is one of the world’s largest air cargo carriers with 21 freighters in its fleet.
However, the impact of China Airlines quarantine may be offset by the easing of Hong Kong rules for Cathay Pacific’s aircrew. Prior to the easing of the rules, all Cathay Pacific aircrews had to participate in a mandatory two week quarantine every time they returned to Hong Kong. With the easing of the rule, fully vaccinated aircrew members will no longer have to quarantine, removing a major obstacle to their freight operations.
How Does the US Economy Factor In?
Much of the demand for airfreight is from US companies looking to restock their depleted inventories in time for summer and back-to-school seasons. This is due to a rapid expansion in the US economy with a 6.4% growth in just the first quarter of this year. As of April, business confidence is at one of the highest levels seen in several years. Chris Williamson, chief business economist at HIS Markit said, “US manufacturers reported the biggest boom in at least 14 years during April, demand surged at a pace not seen for 11 years amid growing recovery hopes and fresh stimulus measures.”.
When Can We Expect Relief?
While it’s hard to predict when airfreight capacity and prices will go back to “normal levels”, experts say to expect current trend to continue for some time. Bruce Chan, vice president of global logistics at investment bank Stifel, said, “Long-haul travel, which is a much bigger part of global air cargo capacity, should be slower to resume. Our baseline assumption is that the market will not be back to normal until 2023.” While aircraft manufactures are in the process of making new cargo aircrafts, the production lead times are long.
With various capacity challenges and soaring airfreight rates, there’s no better time than now to partner with a reliable logistics company to help you explore all your shipping options. ClearFreight has a team dedicated specifically to airfreight shipping that can help you choose the best available options for each of your shipments, ensuring your valuable cargo gets to its destination in a timely manner. Contact our team today to hear how we can add wings to your logistics and elevate your supply chain.