The global air cargo market, after experiencing a short-lived rebound, is once again showing signs of weakness. Latest data reveals slowing demand growth in May, with freight rates under pressure and market sentiment remaining subdued. While U.S.-China trade relations have seen temporary easing, underlying risk factors persist. This article provides an in-depth analysis of the current state of the air cargo market and examines future trends.
The "False Boom" in Demand: A Fleeting Effect of Trade Easing
According to Xeneta's latest data, global air cargo demand grew by 6% year-over-year in May, while capacity fell by 2%, keeping the dynamic load factor steady at 57%. On the surface, demand appears to have recovered, but closer analysis reveals this growth was not driven by organic demand but rather by short-term stimulus from eased U.S.-China trade tensions.
On May 14, the U.S. and China called a 90-day truce in their tariff war, with Washington reducing tariffs from 145% to 30% and lowering duties on e-commerce goods. This move spurred some "urgent" shipping demand, leading to a temporary increase in air cargo volume. However, Niall van de Wouw, Xeneta's Chief Air Cargo Officer, noted that this growth was not based on strong underlying demand but rather a "false boom."
Declining Rates: Dual Impact of Market Sentiment and Fuel Prices
In contrast to demand growth, global average air freight rates fell by 4% year-over-year in May to $2.44 per kilogram—the first decline since April of last year. The drop reflects shifting market sentiment and lower fuel prices, which are currently about 20% below last year's levels. This has reduced airlines' operating costs to some extent, creating room for rate reductions.
More importantly, the rate decline signals market participants' concerns about future prospects. Airlines worry that demand for air cargo will diminish once international trade stabilizes. This apprehension has led carriers to negotiate rates more aggressively, making it difficult to sustain higher pricing levels.
Air Freight's "Speed Advantage": A Stopgap Amid Trade Policy Uncertainty
With trade policy uncertainty intensifying, air freight's speed advantage has become more pronounced. Shippers are rushing to move goods into warehouses before policies change again. Compared to ocean shipping, air freight offers shorter delivery times, better meeting shippers' needs. As a result, some cargo has shifted from sea to air, providing a modest boost to air freight volumes.
However, this "speed advantage" is not a long-term solution. Once trade policies stabilize, shippers may revert to more cost-effective ocean shipping. Thus, the air cargo sector must identify new growth drivers to remain competitive.
China-U.S. Spot Market Rates: Short-Term Gains Mask Long-Term Concerns
Xeneta's pricing data shows spot market rates for China-U.S. routes surged in May. As of the week ending June 1, spot rates from China to the U.S. rose 14% to $4.31 per kilogram, up from a low point in the week ending May 11—before the tariff reduction. This indicates the tariff cuts had a stimulative effect.
However, Xeneta also noted that despite recent increases, seasonal rates from China to the U.S. continue to decline from their early April peak (before U.S. Memorial Day), suggesting a cautious mid-term outlook. Short-term gains may not alter the broader downward trend.
Potential Demand Surge: A "Last-Minute Rush" Before Tariffs Return
Xeneta predicts another potential demand surge for air cargo when tariff reductions end on July 9 for most countries and August 13 for China. Shippers may rush to move goods before tariffs are reinstated to avoid additional costs.
Ocean freight prices are already rising, which could signal a similar trend for air cargo, given ocean shipping's longer lead times. This suggests shippers are already preparing for the return of tariffs by increasing shipments in advance.
Market Outlook: Long-Term Challenges and Strategic Responses
Overall, the air cargo market faces multiple challenges. Rising trade protectionism, global economic slowdowns, and volatile fuel prices could all negatively impact demand. In this environment, airlines must adopt proactive strategies to survive and thrive.
First, carriers must closely monitor market trends and adjust capacity accordingly—increasing flights on high-demand routes and reducing them where demand is weak to maximize revenue. Second, airlines must enhance cost control and operational efficiency by optimizing networks, reducing fuel consumption, and improving aircraft utilization. Additionally, exploring new business areas—such as cross-border e-commerce and cold-chain logistics—could support diversification.
As Niall van de Wouw summarized: "The sentiment we saw in May could influence market fundamentals, leading to reduced demand, lower rates, and declining load factors. But one thing is clear—the air cargo market will endure. We just don’t know how long it will take. In this climate, industry professionals will need significant energy to navigate challenges, but it’s also a time to respect all stakeholders. Current challenges will pass, so long-term thinking and relationship preservation are crucial."
Conclusion
The global air cargo market is navigating a challenging period. Short-term stimuli from trade easing cannot mask underlying risks. Airlines must stay vigilant, adapt to market shifts, and implement strategic responses to remain competitive. Only by prioritizing long-term planning and stakeholder relationships can the industry overcome current obstacles and seize future opportunities.