The price gap between global trade maritime and air freight has narrowed to its lowest level in nearly two years.

According to data from market intelligence company Rotate, globally, the current maritime freight rate is only one-sixth of the air freight rate, marking the closest air freight prices have been to maritime freight prices since the global port congestion and "one box is hard to find" in the third quarter of 2022. Historically, air freight prices are typically 12 to 15 times that of maritime freight.

The increase in air freight prices is partly due to the "spillover effect" from the pressure on maritime freight. As the Red Sea crisis has led to a non-seasonal shortage of capacity, the already strained maritime freight prices have soared. Cargo data company WorldACD stated that with port congestion in some key markets and insufficient ship capacity, more and more shippers are beginning to opt for air cargo.

On the other hand, the surge in demand for cross-border e-commerce cargo also supports the high air freight prices.

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Liu Shuo Hu, Vice President of Logistics and Supply Chain at the cross-border e-commerce group Dunhuang Network, told reporters from First Financial Daily that the fluctuations in air freight prices are mainly influenced by the changes in supply and demand brought about by the development of cross-border e-commerce itself.

"Taking the China-US route as an example, the average annual growth rate of general cargo is basically around 5%, but the overall export growth rate of cross-border e-commerce is above 30%. Especially now, with the prevalence of full-service/semi-service models, the number of packages on e-commerce platforms has surged, far exceeding the current increase in cargo aircraft capacity." He stated that the aviation industry cannot meet the capacity by adding cargo planes in a short period, and at the same time, the belly capacity of international passenger planes has significantly decreased compared to 2019, which has helped to push up air freight prices.

The transmission relationship between maritime and air freight

According to data tracked by Rotate, over the past 12 months, there has been a significant fluctuation in the price difference between global air and maritime freight. In the third quarter of last year, as e-commerce demand surged and the maritime market became calm, the price difference soared to more than 20 times. At the beginning of this year, the Red Sea crisis led to a surge in maritime freight rates, and the price ratio between the two returned to between 5 and 10 times.

In the past two months, due to the overall tight state of capacity, the maritime market, which should be in the off-season, has seen a wave of price increases, keeping the air/sea freight price ratio at a low level. According to the global digital freight platform Freightos, as of June 21, the price of maritime cargo containers from East Asia to the U.S. West Coast and East Coast routes has risen to $6,840/40-foot equivalent unit (FEU) and $8,113/FEU, respectively, which is about a 36% and 21% increase from the prices at the end of May.

Liu Shuo Hu explained that the ongoing tension in the Red Sea has led to global port congestion, with a large number of container ships taking detours, increasing transportation distances and times, and decreasing container and ship turnover rates, resulting in a significant loss of maritime capacity.For instance, the shipping giant Maersk estimates that the available maritime transport capacity for the entire industry has decreased by 15% to 20% this quarter. Analysis from the maritime intelligence firm Sea Intelligence indicates that extended transit times and other delays in maritime shipping have led to a 12% year-on-year decline in schedule reliability for April. In the United States, the proportion of ships arriving at the West Coast within the scheduled time is less than 50%, and for the East Coast, it is less than 40%.

Research from Xeneta, a global freight market intelligence and analytics firm, has found that maritime disruptions have pushed the load factor for air freight on Asia-Europe routes up by nearly 10 percentage points to over 80%, thereby creating a seller's market. In May of this year, due to ongoing disruptions on the Red Sea route, the spot air freight rates from the Middle East and Central Asia to Europe surged by 110%, reaching $3.21 per kilogram, making it the route with the highest year-on-year rate increase in May. The spot rates from Southeast Asia and China to North America rose by 65% and 43%, respectively, reaching $4.64 and $4.88 per kilogram, while the spot rates from China to Europe also saw a double-digit increase, up by 34% year-on-year, to $4.14 per kilogram.

"Transshipment through India, Bangladesh, and Dubai has become a popular method to reduce shipping delays from Africa to Europe, with tonnage and freight rates in these countries being two and a half times the levels of last year, significantly contributing to the increase in freight rates," said Xeneta.

However, the comprehensive increase in maritime freight rates has not "evenly" benefited the global air freight market. Xeneta data shows that the spot air freight prices from North America and Europe to China have respectively decreased by 32% and 23% year-on-year, to $1.61 and $1.65 per kilogram. The transatlantic market has also been affected, with both the eastbound and westbound freight rates experiencing declines. The increase in belly cargo capacity due to summer passenger traffic has led to a decrease in spot air freight rates.

Nevertheless, overall, global air freight demand still increased by 12% year-on-year in May, and Xeneta expects that the global air cargo market's freight volume is likely to achieve double-digit percentage growth by 2024. The company's Chief Air Freight Officer, Niall van de Wouw, said that the "unusual" increase in regional freight demand for six consecutive months since the beginning of the year has raised expectations: "Once is happenstance, twice is coincidence, three times is a pattern, and in the air freight sector, an undeniable pattern is emerging."

However, Xeneta stated that the likelihood of a large-scale shift from maritime to air freight is slim. Compared to the Red Sea crisis or the outbreak of the pandemic, this round of price surges is likely due to shippers importing goods in advance before the peak maritime shipping season to mitigate the impact of exacerbated supply chain disruptions.

Cross-border e-commerce demand boosts air freight prices

In addition to the ripple effects of the Red Sea crisis, the increase in air freight prices is also stimulated by the surge in demand for cross-border e-commerce.

For example, according to market research institutions, e-commerce platforms occupy about 30% to 40% of the cargo capacity (i.e., the part of the cargo hold reserved under long-term contracts) on flights from China to the United States. Many businesses that rely on air freight are shipping goods in advance to ensure they can book the increasingly scarce cargo space for their shipments. A report from WorldACD shows that the demand-driven air freight rates from Vietnam to Europe have been more than double the levels of the same period last year for seven consecutive weeks.

Xeneta also stated that with the rise of e-commerce, the sharp increase in trade demand from China to Latin America has put pressure on available capacity. In May, the spot air freight rates for this route were more than double the prices of the same period in 2019. The freight rate from China to Brazil is $1.6 higher per kilogram than the rate from China to the United States.The Director General of The International Air Cargo Association (TIACA), Glyn Hughes, stated during a webinar at the end of May: "According to statistics, approximately 20% of global air cargo volume currently comes from e-commerce. In the trans-Pacific region, this proportion is between 60% and 70%, and sometimes even higher. What's more astonishing is that we are just at the beginning of this growth. E-commerce platforms have anticipated a significant increase in their capacity requirements for the third quarter of this year compared to the present, and they are exploring new markets."

Hughes added that as passenger airlines are flexibly adjusting their fleets for the summer travel season, all-cargo airlines may shift aircraft from the less profitable transatlantic market to the Asian market.

The increase in prices also poses challenges for cross-border e-commerce. Liu Shuo Hu said, "From the consumer's perspective, they do not care about what happens in the middle links; they just need to receive their packages as agreed. Moreover, the sooner the better. Once they have had a good experience, there is no going back. Therefore, for domestic merchants, stable timeliness and efficient fulfillment are the lifeblood of their business. Stable timeliness not only effectively increases repurchase rates and reduces return rates but also ensures the rhythm of the seller's overall supply chain, safeguarding cash flow."

However, logistics already account for 20% to 30% of the total transaction costs of cross-border e-commerce. In the current situation where maritime and air freight prices are highly volatile, how can businesses maintain controllable costs and timeliness? Liu Shuo Hu said, "This uncertainty is forcing merchants to shift from the past choice of relatively singular maritime headway or simple air freight small package solutions to seeking comprehensive overall solutions."

Liu Shuo Hu gave an example, saying that merchants can combine sea, land, and air transport, choosing the appropriate logistics method according to the different attributes, weights, and urgency of the goods, instead of relying on a single path and a single supplier. "For instance, replacing some maritime routes with the China-Europe Railway Express. At the same time, cooperate with multiple logistics companies to diversify risks."

"Furthermore, it is also important to pay attention to policy changes in various countries. For example, laying out supply chains in Southeast Asia in advance to reduce tax burdens, shifting from cross-border direct mail to overseas warehouse fulfillment models to avoid the impact of the cancellation of the U.S. small exemption policy, etc. There are also subsidies and preferential policies provided by governments, especially the various preferential policies formulated by regions in our country to promote cross-border trade." Liu Shuo Hu reminded.