Once favored during maritime congestion, air freight now faces declining demand. This analysis examines the challenges facing the air cargo market and how businesses can optimize shipping methods to balance cost control with efficiency.
Dark Clouds Over the Air Cargo Market?
Global economic uncertainty combined with improved maritime reliability is delivering a double blow to the air freight sector. Latest data from Clive Data Services shows July air cargo volumes fell 9% year-over-year, continuing a downward trend since March. Air freight rates have followed suit, remaining elevated despite benefits from increased transatlantic capacity - still 121% above pre-pandemic levels in July, down from 156% in January.
Niall van de Wouw, Chief Airfreight Officer at Xeneta, identifies multiple industry challenges including the Ukraine conflict, inflationary pressures on consumer spending, and staffing shortages at airlines and airports. Crucially, as maritime bottlenecks ease on certain routes, more shippers are shifting cargo from fast-but-expensive air transport to ocean shipping.
Maritime Recovery on the Horizon?
Sea-Intelligence data reveals global shipping schedule reliability improved year-over-year in June - the first such increase since the pandemic began. Chinese port operations appear normalized while U.S. West Coast congestion eased in Q2. C.H. Robinson President and CEO Bob Biesterfeld noted during a July 27 earnings call that the company's Q2 air volumes dropped 6% annually as more clients chose ocean transport.
Biesterfeld emphasized most of C.H. Robinson's air freight came from maritime conversions. With improving schedule reliability, air demand is expected to further soften through year-end. DHL Global Forwarding similarly reported Q2 air cargo declines as clients recognized maritime improvements.
Strategic Balancing: Cost Versus Efficiency
Companies are actively adjusting strategies to mitigate transport costs' profit impact. Electric truck maker Nikola exemplifies this shift. After spending approximately $8.3 million on air freight in Q2, CFO Kim Brady stated the company now primarily ships components via ocean transport. While air expedited deliveries, it couldn't resolve other supply chain issues - battery supplier delays idled Nikola's Arizona plant for two weeks and left the company with excess inventory.
Brady stressed the company is transitioning most components to ocean shipping while accelerating localization of certain EU-to-NA parts production to reduce future freight expenses.
Root Causes of Air Freight's Decline
The air cargo downturn stems from multiple interrelated factors across three dimensions:
Macroeconomic Pressures: Global inflation erodes consumer purchasing power, forcing cost reevaluations. Geopolitical risks like the Ukraine war amplify uncertainty, while rising energy prices disproportionately impact air transport costs.
Supply Chain Normalization: Pandemic-related port congestion eases globally, reducing backlogs. Shipping lines improve schedule reliability through operational optimizations while adding capacity alleviates supply-demand imbalances.
Corporate Strategy Shifts: Economic headwinds prioritize cost containment, making ocean shipping preferable. Companies diversify transport modes for resilience while nearshoring production to shorten supply chains.
Optimizing Shipping Strategies
Businesses can implement several approaches to achieve leaner, more efficient logistics:
Transport Mode Optimization: Categorize shipments by urgency requirements, dynamically adjust air/ocean ratios based on market conditions, and explore intermodal solutions combining different transport methods.
Enhanced Supply Chain Management: Refine inventory controls to minimize excess stock, strengthen supplier relationships to ensure component availability, and increase supply chain visibility through tracking technologies.
Digital Transformation: Implement IoT, big data and AI solutions to improve logistics efficiency - from real-time cargo monitoring to predictive analytics for inventory optimization. Develop integrated digital platforms for supply chain coordination.
Risk Mitigation: Establish early warning systems for potential disruptions while maintaining appropriate cargo insurance coverage from reputable providers.
Industry Adaptation in Action
Two examples demonstrate successful corporate transitions:
Consumer Electronics Manufacturer: After pandemic-era air freight dependence, this company now reserves air transport only for time-sensitive products like new smartphones while shipping accessories via ocean. Long-term maritime contracts lock in favorable rates alongside inventory optimizations, achieving 20% freight cost reductions while improving supply stability and customer satisfaction.
Apparel Brand: Facing seasonal stockouts, this fashion company diversified production across multiple countries while expanding its supplier network. Digital tracking tools enhanced supply chain transparency, resolving inventory shortages and increasing market share.
As supply chains evolve toward greater flexibility and intelligence, companies must continuously adapt their logistics approaches to maintain competitiveness in dynamic market conditions.