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The price gap between sea and air freight in global trade has narrowed to its lowest level in nearly two years.
According to market intelligence firm Rotate data, globally, the current sea freight rate is only one-sixth of the air freight, which is the closest air freight price to the sea freight price since the global port congestion in the third quarter of 2022. Historically, the price of air freight is usually 12~15 times that of sea freight.
On the one hand, the rise in air freight prices comes from the "spillover effect" of sea freight pressure. As the Red Sea crisis evolved into an unseasonal capacity shortage, already stressed ocean freight rates soared. According to freight data company WorldACD, more and more shippers are turning to air cargo as ports are congested and vessel capacity is running out in certain key markets.
On the other hand, the high demand for cross-border e-commerce freight also supports the high air freight prices.
Liu Shuohu, vice president of logistics supply chain of cross-border e-commerce Dunhuang Group, said in an interview with the first financial reporter that the fluctuation of air freight prices is mainly affected by the changes in supply and demand brought about by the development of cross-border e-commerce itself.
"Taking the Sino-US route as an example, the average annual growth rate of general cargo is basically about 5%, but the overall export growth rate of cross-border e-commerce is more than 30%, especially at present, the full custody/semi-custody model is prevalent, and the number of packages on e-commerce platforms has soared, far exceeding the current increase in the supply of cargo aircraft capacity." He said that the airline industry cannot meet the capacity of freighters in the short term, and the supply of belly capacity of international passenger aircraft has dropped significantly compared to 2019, which has helped to push up air freight prices.
The conductive relationship between sea and air freight
According to data tracked by Rotate, the difference between global air and ocean freight prices has fluctuated dramatically over the past 12 months. In the third quarter of last year, e-commerce demand surged and the ocean freight market calmed down, with the price difference between the two soaring to more than 20 times. At the beginning of this year, the Red Sea crisis caused sea freight rates to soar, and the ratio of the two prices fell back to between 5~10 times. In the past two months, due to the overall tight state of capacity, the sea freight market, which should be the off-season, has seen a wave of price increases, keeping the air/sea freight price ratio low. According to global digital freight platform Freightos, as of June 21, the price of sea freight containers from East Asia to the West Coast and East Coast routes of the United States climbed to $6,840/40-foot container (FEU) and $8,113/FEU, respectively, up about 36% and 21% from the prices at the end of May. Liu Shuohu explained that the continued tension in the Red Sea has triggered global port congestion, a large number of container ships have been diverted, the transportation distance and transportation time have been lengthened, the turnover rate of containers and ships has declined, and the shipping capacity has been lost. For example, shipping giant Maersk estimates that available ocean freight capacity across the industry fell by 15% to 20% during the quarter. Analysis by shipping intelligence firm Sea Intelligence showed that longer ocean transit times combined with other delays led to a 12% year-on-year drop in schedule reliability in April. In the U.S., less than 50 percent of ships arrive on the West Coast on time and less than 40 percent on time. Research by Xeneta, a global freight market intelligence and analysis firm, found that maritime disruptions have pushed up aircraft load factors on Asia-Europe routes by nearly 10 percentage points to more than 80 percent, creating a seller's market. In May this year, due to the continued disruption of the Red Sea route, the spot freight rate of air cargo on the Middle East and Central Asia to Europe route increased by 110% to US$3.21 per kilogram, becoming the route with the highest year-on-year increase in freight rates in May. Spot rates from Southeast Asia and China to North America increased by 65% and 43% respectively to $4.64 and $4.88 per kilogram, while spot rates from China to Europe also recorded double-digit growth, up 34% year-on-year to $4.14 per kilogram. "Sea-air transshipments in India, Bangladesh and Dubai have become a popular way to reduce shipping delays from Africa to Europe, where tonnage and freight rates are two and a half times last year's levels, largely driving the rate growth." Xeneta said. But the across-the-board increase in ocean freight prices has not benefited the global air freight market "evenly". Xeneta data shows that spot prices for air freight from North America and Europe to China fell 32% and 23% year-on-year, respectively, to $1.61 and $1.65 per kilogram. The transatlantic market was also affected, with both fronthaul and posthaul rates falling in the corridor. The increase in belly capacity brought about by summer passenger transportation has led to a decline in air cargo spot rates. Overall, however, global air freight demand still grew 12% year-on-year in May, and Xeneta expects the global air cargo market to see double-digit percentage growth in cargo volume in 2024. Niall van de Wouw, the company's chief air freight officer, said that six consecutive months of "extraordinary" regional freight demand increases so far this year have raised expectations, "once by chance, twice by coincidence, three times by regularity, and in the air cargo sector, there is an undeniable pattern that is emerging." However, Xeneta said a large-scale shift from sea to air is unlikely. Compared to the Red Sea crisis or outbreak, this spike in prices is likely due to shippers importing goods ahead of peak ocean freight seasons to mitigate the impact of increased supply chain disruptions.
Cross-border e-commerce demand pushes up air freight prices
In addition to the transmission effect of the Red Sea crisis, the rise in air freight prices has also been stimulated by the surge in demand for cross-border e-commerce.
For example, according to market research institutes, e-commerce platforms account for about 30 to 40 percent of the space capacity (i.e., the portion of the cargo space reserved under long-term contracts) on flights from China to the United States. Many businesses that rely on air freight ship ahead of time to ensure that fewer and fewer space are booked for their cargo. WorldACD's report shows that on-demand air cargo quotes from Vietnam to Europe have exceeded twice the level of the same period last year for seven consecutive weeks.
Xeneta also said that with the rise of e-commerce, the sharp increase in demand for trade from China to Latin America has put pressure on available capacity. In May, spot air cargo prices on this route were more than double those for the same period in 2019. The freight rate from China to Brazil is 1.6 US dollars per kilogram higher than the freight rate from China to the United States.
Speaking at a webinar at the end of May, Glyn Hughes, director general of the International Air Cargo Association (TIACA), said: "According to statistics, about 20% of the world's [air] freight volume currently comes from e-commerce. In the Transpacific region, the proportion is between 60%~70%, and sometimes even higher. Even more alarming, we are only at the beginning of growth. E-commerce platforms have foreseen a considerable increase in their capacity demand in the third quarter of this year compared to now, and they are exploring new markets. ”
Hughes added that all-cargo carriers are likely to relocate aircraft from the less lucrative transatlantic market to the Asian market as passenger airlines are flexibly deploying their fleets for the summer travel season.
The increase in prices has also brought challenges to cross-border e-commerce. Liu Shuohu said: "From the perspective of consumers, they don't care about what happens in the middle, they just need to receive their packages as promised. And this time must be as soon as possible, and once you have a good experience, you can't go back. Therefore, for domestic merchants, stable timeliness and efficient performance are the lifeblood of business. Stable timeliness not only effectively improves the repurchase rate and reduces the return rate, but also ensures the rhythm of the seller's overall supply chain and ensures cash flow. ”
However, logistics originally accounted for 20%~30% of the overall transaction cost of cross-border e-commerce, and how to maintain controllable costs and timeliness in the current situation of drastic fluctuations in sea and air freight prices? Liu Shuohu said: "This uncertainty is forcing businesses to shift from choosing a single sea freight or a simple air parcel solution to seeking a comprehensive overall solution. ”
For example, Liu Shuohu said that merchants can choose the right logistics method according to the different attributes, different weights, and different urgency of the goods, rather than relying on a single route and a single supplier, "For example, replace some shipping routes with China-Europe trains." At the same time, we cooperate with a number of logistics companies to diversify risks. ”
"In addition, it is important to pay attention to policy changes in various countries. For example, the layout of the Southeast Asian supply chain in advance to reduce the tax burden, and the shift from cross-border direct mail to overseas warehouse fulfillment mode to avoid the impact of the cancellation of the small exemption policy in the United States. There are also subsidies and preferential policies provided by various governments, especially those formulated by various regions of the mainland to promote cross-border trade. Liu Shuohu reminded.
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