The air freight market has been red hot all of 2024. Now, as we approach Christmas, capacity is only getting tighter. We’re seeing freight rate increases across most of the biggest trade lanes. That’s despite spot rates already sitting 22% higher than a year earlier at the start of November.
Whilst the level of increases is not as sharp as expected back in the summer, the current cost of air freight is much higher than pre-Covid. Which is understandably creating a lot of frustration for shippers.
So why is it different in 2024? What are the key market drivers for these rate increases? This article will explore why air freight rates are surging towards the end of 2024.
Christmas
It’s typical at this time of year for air freight rates to increase. The seasonal pattern for the industry is that after the summer slack season (although not particularly felt in 2024), there is peak before Christmas.
This is due to increased consumer demand at this time of year, as you would expect. Additionally, it’s too close to Christmas for shippers to use sea freight and have the goods delivered on time. That's why we saw a huge surge on sea freight rates over summer, as businesses looked to get items in time for December. But now, any late or unscheduled orders must use the air freight market.
Ecommerce
The very recent surge in certain ecommerce platforms is continuing to have a profound impact on the air freight market. The likes of Temu and Alibaba have transformed the air freight sector over the last couple of years, with their low cost items.
It’s estimated the shipment of low value, high volume ecommerce goods is taking up nearly 50% of the market. Now compare that to 2017 when ecommerce reportedly accounted for just 10% of global capacity utilisation.
This burgeoning demand for space on the air freight market is driving up demand and rates. Contributing significantly to the current space shortages.
The bad news is it's not expected to subside in the foreseeable future. However, some regulators, such as the US Customs Border Protection (CBP), are reportedly looking clamp down on the traffic. It's reported they're planning on massively reducing their 'de-minimis' threshold. The level at which customs duties are required to be paid. It's expected this would reduce the volumes of low value, high quantity items in air freight.
We’ve written a full article about how ecommerce continues to impact the air freight market, including guidance on how you can mitigate these challenges here.
Winter schedules
An additional seasonal challenge with this time of year for the air freight market, is the winter schedules. As the volume of passenger traffic drops, so does the number of planes between key hubs. Consequently, available capacity shrinks and rates are pushed upwards.
This dynamic has never suited the air freight sector, as capacity has always decreased just as the freight market enters its busy time of the year. However, unfortunately the freight sector is at the mercy of market dynamics for passengers.
The fourth quarter is quieter for the movement of people. Meaning the airlines respond by reducing flight volumes. Total weekly international seats available peaked at 50.7 million in 2024, the week of 29th July. By the start of November, it had dropped down to 42.3 million. Demand for cargo is not sufficient for airlines to run an excessive number of flights, consequently space available is reduced.
Red Sea Diversion
A further complication in 2024 which is driving air freight rate increases, is the Red Sea diversion. The effective blockade in the Red Sea, created by Houthi-rebel attacks on merchant ships, is forcing sea freight services around the Cape of Good Hope.
This is adding costs and between 10 to 15 days onto transit times between Asia and European destinations, placing a lot of pressure on the market. Consequently, some shippers have moved more of their volumes onto the air freight market.
Dubai has become an even more vital sea-air hub, as shippers look to bypass the diversion. Air cargo demand through the Middle East's biggest airport was reportedly 190% higher in March 2024 than the year earlier.
"There are so many factors influencing the air freight market at present. We can assume the Red Sea diversion will remain in place for much of 2025 and will continue to provide upward pressure, but some of the other seasonal patterns influencing the market will drop away.
Something I'm watching with interest currently is the negotiations between the trade union representing dockworkers at US East coast ports. Their agreement is due to expire on January 15th and we could see further strike action at that point, which would see even more shippers moving to the air freight market."
Saif Hussain, Air Freight Business Development Manager, WTA
In times of uncertainty and high rate volatility, you need an air freight provider who can deliver stability. With so many factors influencing the market, expertise and technology are vital for success and at WTA, we provide both.
Our air freight team is backed-up by industry-leading visibility technology, which gives complete transparency on all data related to your air freight transportation.
Get in touch today to discover how WTA’s expertise in air freight can transform your shipments.
