The global supply chain sector has been shocked into uncertainty, because of the ongoing Red Sea diversion. All the major shipping lines continue to avoid the area off the coast of Yemen due to missile attacks from Houthi-rebels.
Consequently, sea freight rates and transit times have increased dramatically in 2024, with carriers diverting ships around the Cape of Good Hope in South Africa. A move which adds about 10-15 days onto a transit from China to North Europe.
Not just on the trade lanes directly impacted by the diversion either. As shipping lines move more vessels onto Asia-Europe trade lanes, others are left short on capacity.
We have analysed what this diversion means for the sea freight sector in great detail, including a look at the long-term implications and lessons that business leaders can take away. We have also analysed the reasons behind the freight rate surge seen in May 2024.
However, in this article we’re going to focus on the air freight industry. Specifically, how the Red Sea disruption has impacted the sector and what air freight shippers can do to minimise impacts.
Overall increases in demand
As you would expect, we’ve seen an uptick in demand for the air freight sector in the wake of the Red Sea disruption. To avoid the extra 20-25% transit time, some sea freight shippers have opted to move a percentage of their logistics in the skies.
Obviously, this is limited to shippers who either have the required margins to move goods via air freight, or where the operational consequences of having no stock are greater than the costs that come with the most expensive transport option. Vauxhall owner Stellantis are just one of many companies who have made this transition.
Global air freight demand in tonnes year-on-year (% change)
Credit: DHL
Industry data illustrates tonnage carried by the aviation sector was already showing year-on-year increases prior to the diversion, but a spike in January, when diversions began, has driven it to new highs. Highs which have continued through to April, where tonnage grew 6%. Substantial, but modest by Q1 2024’s standards. However, industry analysts have been keen to point out the sizable gains can in-part be attributed to such lowly levels of air freight transportation in 2023.
Where the largest gains in air freight tonnage are being experienced, is sea-air routes on trade lanes impacted by the Red Sea diversion. Congestion at Sri Lanka’s Colombo port and a 190% year-on-year increase in cargo movements through Dubai airport in March, highlight the scale of the surge.
Sea-air remains an effective option for avoiding the disruption, whilst minimising cost implications, therefore its popularity should come as no surprise. Expectations are that whilst the diversion remains, demand for sea-air on these trade lanes will too.
Consequently, the typical summer air freight slack season is not likely to felt as keenly for shippers in 2024, if we see one at all.
Air freight rates show modest increases
As would be expected, increases in demand for air freight have driven rates up on certain trade lanes. But not to the same extent they have climbed on sea freight. In December 2023, air freight rates on transpacific trade lanes sat 22 times higher than their sea freight equivalent, now they’re just 9 times higher.
Increases in capacity as a consequence of the incoming summer flying schedules continue to provide downward pressure on rates. Global air cargo capacity rising by 10% in April year-on-year has contributed subdued the rate gains.
However, again rate increases have been felt more pertinently on lanes impacted by the Red Sea diversion. Cost per kilo of freight from the Middle East to Europe, typically a backhaul route, has ticked above cargo prices moving in the other direction, showing a 39% increase since the start of 2024.
“The typical summer slack season for air freight doesn’t look as though it will be enjoyed by shippers as much this year. The Red Sea diversion continues to drive up demand, meaning although there’s more planes in the sky for summer, more businesses are fighting over cargo space on them.”
Liam Launders, Head of Sales WTA Group
How air freight shippers can minimise Red Sea diversion impacts
When disruption is on this scale, it’s impossible to entirely mitigate against. However, there are steps you can take to minimise its impact on your air freight transportation.
Shipment consolidation
Where possible you should look to consolidate shipments. This can be through combining loads from your suppliers, or clubbing together with other businesses if you don’t have sufficient quantity yourself.
Consolidation can reduce the cost per unit of cargo, but crucially in the Red Sea impacted market, it also reduces your exposure to the disruption.
Priority structure for your freight
Create a clear hierarchy of importance for your freight. Understand what you’re willing to pay a premium on and what can be compromised or delayed in the wake of higher costs.
Then you’re in a position to make critical decisions on shipments with confidence.
Enhanced supply chain visibility
With a supply chain visibility tool, such as the WTA Platform, you have access to the right data, meaning you can make route optimisations and cost-cutting decisions more easily. Real-time information and improved communication with stakeholders leave you better placed to mitigate against disruption of any kind.
With visibility, inefficiencies are shown in plain sight. If there is a particular route or carrier costing too much or taking too long, make the required changes. CO2 emission trackers mean you can see the exact CSR consequences of any disruption too.
Our WTA Platform means you have all the real-time data and communication enhancements to minimise the disruption caused by the Red Sea diversion. It leaves you in the best position.
“Visibility is rapidly becoming an operational necessity for a well-functioning supply chain. It’s about much more than seeing where shipments are on a map, which is even less important in air freight. The data you get access to means you can make the right optimisations over time.”
Anthony Bour, IT Director, WTA Group
While the immediate response to the Red Sea crisis has been a shift towards air freight, the long-term implications could see more structural changes to business supply chains. Companies may continue to diversify their transport modes, incorporating more air freight solutions even beyond the current crisis to enhance resilience against similar disruptions in the future.
As the logistics industry continues to navigate these challenges, the lessons learned will likely lead to more robust and flexible supply chain practices going forward. As the world grows increasingly volatile, you need a logistics strategy fit for the modern age. Speak to us about building resilience into your supply chain and protect against future disruption.
