The outbound China air freight market, which serves as a bellwether for the global economy, is showing some signs of recovery.
March saw air cargo exports out of China surge by 29% month-on-month, with further gains in April, although at a slower pace of 2%. This suggests China’s export activity has picked up after the seasonal slowdown and the end of its high-profile zero-COVID policy.
However, there remains room for improvement. Despite the increase in month-on-month volumes, Chinese air cargo volumes in Q1 were still down 7% from Q1 2022.
In terms of capacity, the picture is complex. Outbound China air cargo capacity in March increased by 25% over the previous month, largely due to the post Lunar New Year recovery. However, in the first two weeks of April air freight capacity out of China dropped by 4% compared to the same period a month ago.
This shows that the airlines’ summer schedules, starting from 26 March, have yet to deliver any meaningful increase in passenger belly capacity, as shown on the transatlantic trade, with outbound international travel demand remaining subdued compared to domestic demand.
Deceptive growth
Due to the very low level of capacity out of China at this time last year, the year-on-year growth rates can appear impressive, despite the relatively low levels. In March, outbound air cargo capacity was up 28% year-on-year, while in the first two weeks of April it was up 133%. But April 2022’s capacity was particularly low as it coincided with the start of a two-month lockdown in Shanghai. Therefore, the high growth rate reflects a low base effect, rather than a strong increase in supply.
In terms of capacity utilization, outbound air cargo load factors dropped from 93% in March to 89% in the first half of April. However, these levels are still high - sitting 6 percentage points above pre-pandemic levels - indicating there is still a tight balance between supply and demand in the market.
Bucking the trends
One of the most interesting trends in the outbound China market is April’s rise in air freight rates, running against the tide of the general air cargo market and occurring despite the drop in the filling factor. Outbound China air freight spot rates increased by 8% from the first two weeks of March to the same two weeks of April.
More specifically, the spot rates, including both general and special cargo, rose by 2% to USD 3.74 per kg for the China to Europe corridor, and by 5% to USD 5.26 per kg for the China - US route. In contrast, the average global air freight rate declined by 2% between the first two weeks of March and the same period in April.
Demand dictates
The increase in outbound air freight rates from China was not driven by cost factors, as jet fuel price continued its downward trend (disconnected from the trend of crude oil) and disinflation continues. Instead, it was driven by demand factors, mainly by the rise of general cargo demand. General cargo spot rates increased by 13% from the first half of March to the same period of April for the China to Europe market, and by 5% for China to the US.
On the other hand, special cargo spot rates continued their downward trends for the outbound China market. Special cargo spot rate decreased by 4% from early March to early April from China to Europe, while the trend for China to the US market stayed the same.
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