India to Europe air cargo rates may remain elevated: Xeneta

The India to Europe air cargo market has experienced a surge in volumes since the beginning of this year. This has been largely due to demand in apparel exports from India and Sri Lanka coinciding with disruptions to ocean freight services in the Red Sea region, which saw shippers switch transportation mode to air for some of their cargo, according to the latest update from Xeneta.

"These increased general air cargo volumes drove overall air cargo demand in the week ending February 25, 2024 to sit 40 percent higher than the 2019 weekly average. While volumes have dipped slightly since then, in the week ending March 24, they remained 24 percent above the 2019 weekly average."

With cargo capacity remaining relatively stable, the dynamic load factor from India to Europe climbed to 87 percent in the week ending March 24, which is its highest level since April 2022, the update added.

"This increasing load factor has also distorted the usual relationship between weight breaks. Traditionally, larger cargo volumes (more weight) are charged at a cheaper per kg price than smaller volumes (less weight). However, in the week ending March 24, the general cargo spot rate for +1,000 kg reached $3.50 per kg, above the spot rate for +500 kg which stood at $3.46 per kg.

"The last time Xeneta observed this market condition was during the onset of the Covid-19 pandemic when the air cargo market encountered a capacity squeeze."

International cargo up 30% in Feb
Indian airports reported a 30 percent increase in international air freight at 185,610 tonnes in February 2024, according to the latest data from the Airports Authority of India. For the April-February period, international freight carried was up eight percent at 1.8 million tonnes.

Sellers' market
India to Europe air freight is a seller’s market at present, which can be seen in the rates sold by airlines (airline-sell). "To demonstrate the scale of increase, in the week ending March 24, the average spot rate stood at $3.50 per kg, which is 158 percent higher than early December before the conflict in the Red Sea.

"The average airline-sell general air cargo spot rate (valid up to one month) in the week ending March 24 rose above the average seasonal rate by a significant $0.86 per kg. This development ended the trend of spot rates sitting below seasonal rates since early May 2022 due to the recovery of cargo capacity in the market."

Red Sea conflict impacting market
If we want to understand the current movements in the India to Europe air cargo market and how this situation is likely to develop, it is necessary to look towards the conflict in the Red Sea region and the impact it has had on ocean freight container services, the update added

"Ocean containerised spot rates between India and North Europe increased dramatically following the outbreak of conflict in the Red Sea in mid-December last year and reached a crisis peak in early February. Although ocean spot rates have fallen back by around 12 percent since then, on March 27 they still remained up by 310 percent compared to their pre-Red Sea crisis level.

"The slight dip in air cargo demand since the end of February (when it hit 40 percent above 2019 levels) could be due ocean freight shippers now building longer transit times into their supply chains."

Underlying demand growth
Xeneta also adds that the recent economic indicators may suggest evidence of an underlying demand growth.

"In February, India’s production growth reached its highest level in five months. In particular, this related to new export orders with HSBC reporting anecdotal evidence of demand increases from Europe. If so, this could add further upward pressure on the air cargo market."

Limited impact of summer schedules
Airlines will launch their summer schedules around the Easter holidays in Europe but, unlike other major air corridors, this is unlikely to reduce pressure on the India market, says Xeneta.

"For example, the introduction of summer schedules traditionally sees air cargo capacity increases of over 30 percent on Transatlantic corridors between the U.S. and Europe. However, the India to Europe trade is less sensitive to this seasonal factor with only single-digit increases in capacity. Therefore, India to Europe air cargo rates are likely to remain elevated in the near term.

"As we have seen in the recent past, ocean and air freight markets can be impacted severely - and rapidly - by major geo-political or environmental incidents. It would be a brave person to bet against further black swan events in 2024."