China’s air cargo to Europe and the U.S. freight rates rise by 50%

In Europe and the United States, consumers appear to be seeking cheaper goods, and exports of goods from Chinese low-cost e-commerce firms such as Temu and Shein are on the rise. There has also been a surge in Chinese transit cargo exports to North America via Japan.

Freight rates for air cargo from China to Europe and the U.S. have risen 50 percent from recent lows. Demand for e-commerce-related exports such as low-priced apparel is strong. The use of flights via Japan to transport exports to North America has increased, and freight rates are rising as space is tight on flights from Japan to North America. Japanese shippers are also having to accept higher freight rates in order to secure the necessary space.

Freight rates to North America from Shanghai stood at $5.94 per kilogram as of Nov. 20, up 50 percent from the first week of July, when they hit a recent low, according to TAC Index, an air cargo data company. Freight rates to Europe were US$4.64 per kilogram, up 53 percent. For freight from Hong Kong, rates to North America rose by 32% and to Europe by 37%, both showing large increases.

Air cargo is transported either through cargo space in the lower part of passenger aircraft or by freighter aircraft. After 2020, when the New Crown epidemic took place, the grounding of passenger planes led to a reduction in supply, coupled with the influx of cargo into the air space due to disruptions in sea transportation such as container ships, demand increased substantially and freight rates saw a sharp rise. With the resumption of passenger flights and the normalization of maritime transport, the tension between supply and demand tended to ease, and freight rates have been on a downward trend since 2022.

Nonetheless, freight rates have not returned to pre-event levels. Freight rates from Shanghai and Hong Kong have turned back up again since July. Neil Wilson of TAC Index said, “E-commerce is driving the market. Some freight forwarders are competing for space, leading to higher spot (immediate contract) rates.”

Nippon Cargo Airlines (NCA), which operates freighters, says shippers in mainland China and Hong Kong are commissioning charters almost weekly. Demand for transportation is so strong that if a shipment is refused for space reasons, the counterparty may re-offer a higher freight rate.Exports of goods from low-priced e-commerce companies such as Temu and Shein appear to be increasing rapidly.

In Europe and the United States, consumer demand is waning due to long lasting inflation and monetary tightening. Retail inventories cannot be absorbed and import demand for general consumer goods continues to be weak. Consumers appear to be seeking cheaper goods.

Strong demand from Chinese companies is also having an impact on Japan. As of October, Japan’s exports were lower than the previous year for the 22nd consecutive month, but spot freight rates to North America have rebounded since around September. Transit cargo from China to North America via Japan has surged, and transportation space is getting tighter.

Japan Cargo Airlines uses most of its space on scheduled flights for long-term contracts of six months to one year, and sells the remaining 10% to 20% on a spot basis “for cargoes with higher freight rates” (Ichiro Watanabe, Director of Marketing Department). The amount of space rented by Chinese shippers who do not hesitate to pay high freight rates to stabilize and secure cargo transportation is increasing.

Most air cargoes are carried by freight forwarders who rent space from airlines and sell it to shippers. The head of a major Japanese freight forwarder said, “From mid-September, cargo from mainland China and Hong Kong has increased, and space toward North America has become difficult to obtain,” noting that current freight rates for shipments from Japan to North America have also risen.

While it is common for cargoes from other countries to be transported on flights from Japan as transit cargoes, the said executive said, “It is unprecedented that the impact of cargoes from other countries has led to space constraints and has had such a large impact on freight rates from Japan.”

Globally, passenger flights, which had previously plummeted due to the epidemic, are recovering, but the recovery of passenger flights between China and the U.S. is lagging behind other routes. As a result, supply appears to be insufficient in relation to the surging demand for cargo, and the use of flights via Japan for transportation is prone to increase.

Freight forwarders are in a dilemma due to weak demand in Japan. The head of another large freight forwarder said, “In terms of purchase prices, although we are making offers to shippers throughout Asia, we are unable to pass them on directly to sales prices due to price competition with other companies, so we are restraining the prices we offer to shippers.”

The manager said that he was trying to secure the necessary space to carry out transportation stably, and was trying to gain the shippers’ understanding of the price pass-through. In order to avoid losing out on prices to shippers in China and other countries, which pay high freight rates for fast and reliable transportation, and to secure sufficient space, Japanese shippers have had to accept freight rate increases.