The global air cargo market, which played a vital role during the pandemic, is now experiencing a significant downturn. At the height of supply chain disruptions, port congestion, and soaring shipping costs, air freight became a lifeline for many businesses, particularly retailers. Willing to pay premium rates, they relied on air transport to ensure timely delivery of goods to meet consumer demand. However, as the shipping market gradually recovers and retailers pivot to cost-saving strategies, the air cargo sector faces a dual challenge of weakening demand and plummeting prices.
This article delves into this trend, examining its implications for the industry and forecasting future market directions. We begin by analyzing the current state of the air cargo market, exploring the reasons behind softening demand and price collapses. Next, we assess how retailers are adapting their strategies and how the revival of ocean shipping is reshaping air freight dynamics. Finally, we look ahead to how the market may evolve and how industry players should respond.
Current State of the Air Cargo Market: Soft Demand, Plummeting Prices
In November 2022, global air cargo rates fell for the third consecutive month, sounding alarms across the industry. This decline signals persistent demand weakness, marking a stark reversal for a market that was once red-hot. Data from Xeneta’s Clive Data Services shows that freight rates on the China-to-North America route dropped by over 40% year-over-year—a staggering figure reflecting a dramatic shift in supply-demand dynamics.
Freightos data further reveals that ocean shipping rates from Asia to the U.S. West Coast have even dipped below 2019 levels. This resurgence in shipping’s cost advantage is drawing more shippers away from air freight. Despite this, overall spot rates on trans-Pacific routes remain above pre-pandemic levels, though they have fallen by 32% year-over-year. While air cargo prices have declined, they still exceed historical norms, making ocean shipping increasingly attractive.
Notably, hopes for a seasonal demand boost during the year-end peak period have been dashed. Air cargo demand fell by 2% month-over-month in November, with volumes shrinking for nine straight months. These figures underscore the severity of the challenges facing the air freight market, where traditional peak-season effects have faded.
Retailers’ Strategic Shift: Returning to Ocean Shipping to Cut Costs
Faced with high air freight costs and recovering ocean shipping capacity, retailers are increasingly shifting cargo from air to sea. This pragmatic move capitalizes on shipping’s significant cost savings. Although ocean transit times are longer, the financial benefits for profit-driven retailers are undeniable.
Gap Inc. noted in its Q3 earnings report that lower air freight expenses contributed to improved operating margins—a clear indicator of how air cargo costs directly impact retailers’ bottom lines. Similarly, Lululemon highlighted that reduced air shipping costs boosted product margins and projected further gross margin expansion in Q4. These examples demonstrate that falling air freight rates benefit retailers by enhancing profitability.
C.H. Robinson President and CEO Bob Biesterfeld observed during an earnings call that some retailers are transitioning from air to ocean freight due to improved shipping market conditions. The company’s Q3 air cargo business fell by 21% year-over-year, with tonnage down 17%, signaling active adjustments in retailers’ logistics strategies.
Victoria’s Secret also confirmed reducing its reliance on air freight in favor of ocean shipping to lower supply chain expenses. The retailer incurred roughly $300 million in added supply chain costs during the previous holiday season—a substantial figure highlighting air freight’s financial burden. By pivoting to ocean transport, the company stands to significantly cut costs and improve margins.
Route-Specific Rate Analysis: Sharp Declines on Asia-U.S. Lanes
Persistent declines in Asia-U.S. air freight rates further underscore the market’s slump. As of December 12, rates from China to the U.S. averaged $6.14 per kilogram, down 56% year-over-year—a striking drop reflecting intense competition.
TAC Index data shows that rates on this lane peaked at $12.18 per kilogram earlier in the year. In less than 12 months, prices have nearly halved. Rates from Vietnam to the U.S. fell even more sharply, plunging 79% year-over-year to $3.79 per kilogram—a dramatic shift for this trade corridor.
These figures reinforce the air cargo market’s struggles, illustrating profound changes in supply-demand equilibrium. With ocean capacity rebounding and retailers recalibrating strategies, air freight faces unprecedented headwinds.
Short-Term Market Trends: Adapting to Uncertainty
Xeneta Chief Airfreight Officer Niall van de Wouw predicts shippers will continue benefiting from declining air and ocean rates in 2023, reducing transport costs. While positive, this also implies fiercer competition. Amid high uncertainty, industry players are favoring short-term contracts to maintain flexibility.
Van de Wouw notes that with so much unpredictability, participants increasingly opt for short-term agreements while monitoring business trends. Data reveals that in Q4 2022, shippers effectively avoided contracts longer than three months—a clear shift toward short-term engagements as firms prioritize adaptability.
Root Causes of Air Cargo Price Declines
The air freight downturn stems from multiple intersecting factors:
- Ocean capacity recovery: As port congestion eases and vessel availability grows, shipping reliability and efficiency have rebounded, making it the preferred choice for many shippers and reducing air cargo demand.
- Weaker consumer demand: Global economic slowdowns and inflation have curtailed consumer spending, dampening goods demand and, consequently, air freight needs.
- Fuel price volatility: As a major cost component, fluctuating jet fuel prices directly affect air freight rates. Recent declines have partially alleviated cost pressures.
- Excess capacity: Airlines expanded cargo flights during the pandemic to offset reduced passenger operations. With passenger travel recovering, surplus air freight capacity now exacerbates market competition.
Industry Impact: Challenges and Opportunities
The air cargo slump has far-reaching consequences:
- Airlines under pressure: Falling rates squeeze revenues and profits, forcing carriers to cut costs, optimize networks, and improve efficiency.
- Freight forwarders adapt: Forwarders must adjust strategies, offer competitive pricing, and strengthen collaborations to navigate uncertainty.
- Shippers benefit: Lower transport costs improve competitiveness, enabling supply chain optimization and market expansion.
- Intensified competition: The market’s growing rivalry demands innovation and differentiated services to retain customers.
Despite challenges, opportunities emerge. E-commerce’s rapid growth fuels demand for high-speed logistics, creating avenues for air cargo providers to specialize in cross-border solutions.
Future Outlook: Stabilization Ahead, but Short-Term Pressures Remain
Looking ahead, the air cargo market will likely stabilize gradually, though near-term pressures persist. As global economies recover and consumer demand rebounds, air freight volumes may rise. However, recovering ocean capacity and stiff competition will continue weighing on rates.
Consequently, airlines and forwarders must monitor market shifts closely, adapt strategies, foster collaboration, and innovate to navigate the new landscape. Sustainability also grows increasingly critical as environmental regulations tighten, necessitating carbon-reduction initiatives.
Conclusion
The air cargo market is undergoing profound transformation. Ocean shipping’s revival and retailers’ strategic pivots have driven air freight rates sharply downward. Industry players must respond proactively—adjusting tactics, seizing emerging opportunities, and embracing flexibility to thrive amid short-term market volatility. In this era of challenge and change, only those who adapt, innovate, and collaborate will succeed.
Deeper Considerations:
- Technology: Investments in AI and machine learning could optimize operations, enhance efficiency, and reduce costs through demand forecasting, route optimization, and shipment tracking.
- Sustainability: With rising environmental awareness, carriers must adopt greener practices—utilizing fuel-efficient aircraft, optimizing flight paths, and exploring sustainable fuels.
- Customer relationships: Strengthening client engagement through CRM systems can enable tailored solutions and deeper understanding of shipper needs.
- Service diversification: Expanding into warehousing, distribution, and end-to-end supply chain management could create value-added offerings.
- Collaboration: Strategic alliances among airlines, forwarders, and logistics firms could unlock synergies, expand networks, and boost competitiveness.
In summary, while the air cargo market confronts historic challenges, it also harbors significant potential. Success will belong to those who embrace change, drive innovation, and forge partnerships. This analysis aims to provide clarity on market dynamics and inform strategic decision-making.
Key Questions Moving Forward:
- How will ocean capacity restoration timelines affect air cargo?
- How long will retailers’ strategy shifts last?
- How can airlines address profitability pressures?
- What role will technology play in air freight’s future?
- How will sustainability requirements reshape the market?
These questions demand ongoing exploration as industry stakeholders chart their course through turbulence toward opportunity.