In recent weeks, the global logistics landscape has been hit by a perfect storm, sending shockwaves through air freight routes and prompting the first surge in rates for the year. The ongoing crisis in the Red Sea, characterized by Houthi rebel attacks and maritime disruptions, has significantly impacted shipping routes, forcing a sharp increase in demand for air freight.
The major apparel route from Vietnam to Europe has witnessed a remarkable 62% spike in air cargo volumes during the week ending January 14, marking a stark departure from the usual lull in air freight activity during this period. This surge is attributed to companies seeking alternatives to the longer and riskier sea routes around Africa’s Cape of Good Hope.
Xeneta, a leading benchmarking platform for ocean and air freight rates, has been closely monitoring the situation. Chief Air Freight Officer, Niall van de Wouw, highlighted the growing anxiety among companies as they grapple with the uncertainty caused by the Red Sea crisis. The fear of prolonged disruptions to ocean cargo vessels has prompted a significant shift towards air freight, triggering a potential domino effect on pricing.
While air freight rates have not experienced an immediate sharp rise, concerns loom large. If the Houthi attacks persist and cargo demand continues its upward trajectory, industry experts predict that air freight prices are likely to witness a notable increase.
Van de Wouw stressed that the current situation is reminiscent of the pandemic supply chain shocks but with key differences. Unlike the capacity-related challenges of the pandemic, the current surge in demand is driven by companies looking to circumvent delays in ocean transit caused by the Red Sea crisis.
Data from Xeneta reveals that air cargo volumes on crucial routes, such as from Vietnam to Europe, have surpassed 2023’s peak levels, indicating the severity of the situation. With flights already operating at an average of 93% cargo capacity, any sustained increase in demand could push air freight rates well beyond the 10% mark.
The Red Sea crisis has not only affected the shipping industry but has also sent ripples across various sectors. Approximately 28% of the world’s container trade passes through the Suez Canal and Red Sea. Bank of America reports that nearly 30% of the goods in these containers include furniture, household goods, clothing, and apparel, with significant implications for global supply chains.
Specialty retailers with European exposure, including major brands like Phillips-Van Heusen Corporation, Nike, and Capri Holdings Limited, are among those feeling the impact. The longer transit routes around the Cape of Good Hope are adding one to two weeks to shipping journeys, particularly affecting Europe.
As the logistics industry grapples with these challenges, the Red Sea crisis serves as a stark reminder of the delicate balance within global supply chains. The coming weeks will be crucial, with the potential for further disruptions and an intensified reliance on air freight as companies seek agile solutions to navigate through turbulent waters.
