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Air cargo demand continues to grow but peak surge looking unlikely

Air cargo demand growth remained strong, but the chance of there being a further end-of-year surge seems to be fading, according to data provider Xeneta. The data firm's latest figures show that in October air cargo demand increased by 6% year on year while capacity was flat. As a result of demand growing faster than supply, the cargo load factor increased by two percentage points to 63%. Meanwhile, average spot rates were up 29% compared with last year at $3.11 per kg as carriers failed to add capacity to the growing market and fuel prices drove up the cost of air cargo operations. While demand is on a run of seven months of consecutive growth, Xeneta says it doesn't seem like there will be a further surge in volumes during the air cargo Christmas peak season. "Market conditions showed few signs of a sudden increase in capacity pressure, a surge in rates above the levels already seen across the year, or freight charter prices 'hitting the roof' that would signal a late peak in volumes," said Xeneta's chief airfreight officer, Niall van de Wouw. The transpacific has been this year's growth leader as AI-related shipments continue to fill aircraft. Xeneta figures show that Asia Pacific to North America volumes were up 15% in October. The demand growth fed through to freight rate increases. Southeast Asia to North America spot rates rose 3% month on month to $6.34 per kg, while Northeast Asia to North America prices were up 4% to $6.21 per kg. However, Xeneta said that the largest rate increase was on the transatlantic westbound corridor, where Europe to North America spot rates rose 10% to $2.31 per kg as airlines "shifted to their winter schedules". "Tighter capacity on this corridor is consequently pushing up airline rates being quoted to forwarders in recent tenders," Xeneta said. Rates from Northeast Asia to Europe increased 4% month on month in October to $4.97 per kg and Southeast Asia to Europe was up 3% to $4.35 per kg. However, Xeneta warned that Asia to Europe e-commerce volumes were 61% down year on year in the third quarter as a result of the European Union's €3 charge for packages that was added on 1 July. Meanwhile, exports from China to Europe fell by 29%, which was in part down to a tripling of exports to Russia, Xeneta said. "Freighter capacity has also moved," the data provider explained. "Direct freighter capacity between Asia and Europe fell again in October, on top of the capacity lost on routings via the Middle East." Outlook Looking ahead, Xeneta warned that some Asia-Europe air cargo volumes would shift back to ocean as shipping line transits through the Suez Canal continue to recover. "Scheduled container shipping capacity crossing the Red Sea reached around half of its pre-crisis level in October, according to Xeneta ocean data," Xeneta said. "Just over half of Asia-Europe capacity is now routed via the Suez Canal in at least one direction, with around a third sailing through both ways. "Air's share of European Import (EU) import tonnage from Asia rose from 1.1% in 2023 to 1.7% in 2024, at the height of the Red Sea crisis, as ocean freight schedule reliability from the Far East to North Europe fell from 28% to 9.3%. "When reliability recovered to 20% in 2025, air's share fell back to 1.2%. In the first eight months of 2026, it edged up to 1.3%, after the closure of the Strait of Hormuz in February led carriers to shelve their planned return to the Suez Canal." Xeneta expects cargo that moved to air for reliability rather than speed to start returning to ocean once schedule reliability shows a sustained recovery, most likely from the second quarter of 2027. "Until then, air will likely keep the cargo it has," it added. Next year, Xeneta's baseline is for airfreight rates to decline overall. "In the past couple of years, it has not been the level of demand that caused the uptick in rates; it has been the availability of capacity, says van de Wouw. "If the Middle East situation recovers, there will be a rebalancing of demand and supply, and rates will then become lower. But things will happen. We don't know what or where, but this is the lesson the market has learned. "We can't call these 'Black Swan' events anymore because they are too frequent. This makes contract negotiations challenging for everyone."

Expeditors sees air cargo volumes and revenues rise in Q3

Expeditors International has reported a continued surge in air cargo volumes and revenues as a result of hyperscaler demand and rising freight rates. The US forwarder said that air cargo volumes were up 13% year on year in the third quarter of the year, with an 8% improvement in July, a 13% increase in August and 19% increase in September. Meanwhile, air revenues were also on the rise, increasing by 51.4% year on year during the quarter to $1.5bn. Revenues were boosted by higher volumes and also higher airfreight rates, the company said. Expeditors said that airfreight demand remained strong during the quarter, driven primarily by continued growth in South Asia, where export tonnage increased most notably. "Hyperscaler demand, which also includes shipments from Tier 1 and Tier 2 suppliers supporting AI infrastructure, was a significant driver of volume growth, while air capacity remains constrained by limited fleet expansion and ongoing new aircraft delivery delays," the company added. "Capacity was also impacted by aircraft redeployments that affected Asia-Europe e-commerce, stemming from European Union regulations meant to curb the flow of de minimis imports. "At the same time, China-US e-commerce tonnage has nearly recovered to what it was prior to the US termination of de minimis shipments in May 2025. Adding geopolitical events to this mix, airfreight rates remained elevated during the quarter, with demand outpacing available capacity." While airfreight revenues and volumes were up, the company also noted an increase in air operating costs, which grew by 52% to $1.2bn. Air Cargo News calculations show that the company's airfreight operating margin has actually declined marginally from 24.8% in the third quarter of last year to 24.3% this year. Airfreight service operating profits (airfreight service revenues minus operating expenses) reached $375m against $253m last year. The higher operating costs likely stem from higher carrier rates as demand growth has outstripped capacity additions and fuel prices have grown significantly as a result of the conflict in the Middle East. The latest IATA/Platts fuel price monitor figures show that jet fuel costs are up by more than 112% compared with last year.

Upswing in domestic demand gives railfreight operators a revenue boost

Union Pacific led the way on the North American containerised rail freight front over the three months to October, amid all the noise surrounding its pending acquisition of Norfolk Southern - but it was not alone in enjoying a bountiful summer. In general, North American intermodal operators benefited from an upswing in domestic freight demand and a continuing tightening in the trucking market, with revenues up for all four of the major carriers. Boasting a 27% year-on-year revenue increase, Union Pacific took home some $1.52bn over the quarter, with volumes up 11%, to 956,000 carloads, and pointing specifically to reduced trucking capacity as behind the gains. EVP marketing and sales Kenny Rocker said: "Domestic delivered its fifth consecutive record quarter in volume and revenue. Our foundation of service, combined with strong business development and deployment of buffer resources enabled volume growth. "International intermodal volumes improved 8%, driven by west coast import volumes and business wins. In automotive, business wins offset continued market softness. We saw strength in auto parts driven by growth with our current OEMs." EVP operations Eric Gehringer added that its intermodal service performance index finished the quarter at 92%, despite volumes increasing 11%, noting it responded to the improving freight market by "unstacking containers and utilising our buffer of resources". Sharing the positivity, CSX also boasted a strong third quarter, with intermodal revenue increasing 20%, to $634m, while volumes climbed 7%, to 820,000 units, attributing gains to landing key customers, new service offerings, and the tighter trucking environment. Chief commercial officer Maryclare Kenney said: "Conversions from the highway remain strong, and the new service offerings through Birmingham, Myrtlewood, Baltimore, and other areas are performing well and attracting new business." She noted that international volumes had been relatively flat, particularly during the latest quarter, but pointed to the completion of full double-stack clearances through the Howard Street Tunnel in Baltimore as another opportunity to attract traffic. "We're very optimistic about the opportunities as we close this year and go into next on the domestic intermodal side," she told investors, adding that the tightening in trucking could prove a boost when yields come up for renewal. Not one to miss out, Canadian Pacific Kansas City (CPKC) also reported double-digit revenue growth in intermodal, up 22% year on year to $583m, as volumes rose 9%, to 489,800 carloads. Together with the increased traffic, stronger pricing likely played its part in driving the improvement for the Canadian operator that saw its revenue per carload increase 12% year on year, to $1,190. There was another CPKC performance in the build-up to those results being released, namely its latest effort to derail Union Pacific's proposed purchase of Norfolk Southern, an intervention described by Premium as "extraordinary". In a 30 October submission to the US Surface Transportation Board, the carrier urged the regulator to terminate its review of the deal, alleging UP's campaign for approval "had intimidated shippers and compromised the integrity of the proceeding". The argument is not whether a coast-to-coast network would raise rates or eliminate competitive routes, but "whether the STB can reach a trustworthy decision if the people who depend on the applicants for rail service are reluctant to testify against them". Meanwhile, Canadian National was the only one of the big four railroads to record a decline in box volumes, as they fell 6% on the same period last year, to 542,000 teu, despite recording a 9% year on year revenue bounce, to $765m. Explaining the drop-off, CN pointing to the decline in international shipments through the ports of Halifax and Prince Rupert, with the upturn in Vancouver traffic insufficient to offset those losses. As to why this did not eat into revenues, it seems the higher income per RTM - 12% up on 2025 to a little over $6 - likely offset the reduction in volumes - although not doing enough to see a clean sweep of revenue and volume growth across all big four operators.