Geo-politics and climate-related events have caused turbulence across the world’s air cargo supply chains in 2024 – but few regions have been impacted as severely as Bangladesh.
Not only has Bangladesh had to deal with the knock-on impacts of conflict in the Red Sea throughout 2024, it has also experienced widespread civil unrest within its borders since early July which has caused factory shut-downs and cargo stockpiles at sea and air freight terminals.
More recently in August, major flooding halted rail and road transportation on the critical route between Chittagong and Dhaka.
Bangladesh is the world’s second-largest garment exporter, so the implications of these disruptions are serious – particularly for importers in Europe and the US.
Air freight market shocks
Bangladesh’s air cargo market is very short-term oriented because about 70% of the capacity procured by freight forwarders comes at a price which is valid for no more than a month.
This series of adverse events led to outbound Bangladesh air cargo spot rates accelerating at one of the highest paces on record (+163% year-on-year) in the week ending 25 August, reaching their highest level in over two-and-a-half years. Bangladesh also holds the record for the highest air freight rate increase so far in 2024 across all global air corridors.
More specifically, the air cargo spot rate from Bangladesh to Europe, one of Bangladesh’s major corridors, exceeded its previous Red Sea peak in May by reaching USD 4.95 per kg in the week ending 18 August. The market did ease slightly in the week following the August peak, falling to USD 4.77 per kg.
For context, the all-time record freight rate on this corridor was observed during the pandemic when it reached USD 5.71 per kg in mid-November 2021.
The spot rate from Bangladesh to North America in the week ending 25 August reached its highest level in over two years, rising to USD 6.91 per kg. This is an increase of 127% compared to the same week in 2023.
The scale of these increases is made all the more remarkable considering the market was in decline in the first half of 2023 when high inventory levels and weak demand from European and US consumers saw air cargo rates fall back below pre-pandemic levels.
This market stress is echoed in the ocean container market. For instance, the average spot rate to ship a 40ft dry container from Chittagong to North Europe stood at more than USD 6 300 in late August, which is +270% higher than 12 months ago.
Immediate repercussions
As a result, shippers are facing hefty demand surcharges and shrinking margins. These increases are driven purely by a supply/demand imbalance, demonstrated in the fact the air cargo load factor from Bangladesh to Europe hit 97% in the week ending 25 August.
This will likely prompt some shippers with urgent cargo to re-route from Dhaka and truck it to alternative air freight hubs, such as Delhi and Kolkata in India – such events were previously observed during the height of the Red Sea crisis.
There is currently also a financial incentive for shippers to re-route supply chains away from Bangladesh. In the week ending 25 August, the air cargo spot rates from India to Europe and North America were USD 3.14 per kg and USD 4.78 per kg respectively, which is about 30% lower compared to corridors out of Bangladesh.
Longer term repercussions
Bangladesh will emerge from the civil unrest and flood waters will subside, but there may be a longer term impact if the turmoil of 2024 spooks shippers into shifting supply chains to other regions.
Currently, several global fashion brands are reportedly canceling orders from Bangladesh and shifting them to other garment export markets such as Cambodia and Indonesia in Southeast Asia.
This shift between Bangladesh and Southeast Asia underscores the interconnectivity of global air cargo markets. It is no longer enough to monitor individual corridors – shippers must think at a global, regional and trade level. The uncertain geo-political landscape demands shippers to be able to react quickly to disruptions in their supply chain.
Up-to-date market data and intelligence surely can help with that.
