Transatlantic Air and Ocean Trade Outlook

Transatlantic air cargo had a good year in 2022, with imports and exports up 17% and 9%, respectively, for the first 10 months of the year. This is much better than overall US air trade development, which saw imports and exports grow at only 3% and 5%, primarily due to falling trade with China. Transatlantic containerised trade, however, underperformed. Import weight grew at only 4%, while exports declined by 16%. By contrast, the overall imports grew by + 7% and exports declined 9%.

Both air cargo rates and container shipping rates have dropped substantially since the beginning of the year, but on the transatlantic they have been more resilient than in other markets. This is despite more belly-hold air cargo capacity entering the market and somewhat subdued import demand on the shipping side.

In this analysis, we look at how the interplay between demand, capacity, exchange rates, market access and the relative position between air and sea has impacted transatlantic trade and freight market performance. We also provide a view on how the market is expected to develop over the coming 12 months.

Trade Developments and Mode Share

The following four charts show the development of US air and containerised trade import and export weight through to the end of October. We have chosen to look at weight rather than value as the value figure has been skewed by high inflation in 2022.

In the import side, transatlantic air cargo outperformed all other regions. On the export side, transatlantic air cargo performed significantly better than the transpacific, but underperformed exports to North, South and Central America, as well as the Middle East and South Asia.

Containerised imports from Europe grew at 4%, but less than all other regions including imports from Asia which appear to be following their long-term trajectory. With regard to Asian trade, there have been some changes in market shares, while we will explore in forthcoming analysis. Containerised export weight was down to all markets, with exports to Europe showing the biggest declines.

Air cargo accounts for about 60% of the value of transatlantic imports and around 80% of the value of transatlantic exports. The overall air share is about 45% for imports and 65% for exports. In terms of weight air accounts for about 4% of imports and 7% of exports of non-bulk commodities on the transatlantic, which is also higher than the overall share of about 2.5% for both imports and exports

Over the longer term the air share of the value of exports on the transatlantic has remained fairly constant but since 2017, the weight share has been declining. Since the onset of the pandemic the trajectory has changed, and the air share of freight increased from around 5% to over 8%. The shift from sea to air has been consistent across all major product groups except food.

On the import side there has been longer term trend of increasing value share and a moderate long-term trend of increasing weight share. Since the onset of the pandemic, there was a drop in the share of import weight, but the air share has recovered pre-pandemic levels. The long-term trend in increased air share of value has been driven almost entirely by pharmaceutical traffic (including vaccines) and shipments of audio/visual/optical equipment.

Freight Capacity and Rates

The average containership capacity deployed to the US in 2022 and 2021 has been about 6-7% below 2019 levels, although by the end of 2022 deployed capacity was back at previous levels. However, while congestion at West Coast ports peaked in 2021, vessel data from the Bureau of Transportation Statistics shows high levels of congestion lingering at East Coast ports. This explains some of the resilience of transatlantic container shipping rates. While transpacific rates appear to be close to 2019 levels, Westbound transatlantic rates in November were still three times pre-pandemic levels, while Eastbound rates were still 40% higher.

Meanwhile, transatlantic air cargo capacity seems to have largely normalised. Belly capacity is more than 80% of pre-pandemic levels and forward schedules indicate levels above 90% for the coming year. Scheduled freighter capacity peaked in mid 2021 but has been declining to below prepandemic levels. Note that the figure below does not include express carrier freighter flights.

As of the middle of 2022, the freighter share of traffic was also close to prepandemic levels, with freighters (including express carriers) accounting for about 40% of traffic on Westbound and about 50% of Eastbound traffic. Despite this normalisation of capacity, non-inflation-adjusted air cargo rates at the end of 2022 were still at 2.5 times December 2019 levels. Given that the belly freighter split has reached equilibrium, it is unlikely that additional passenger capacity will dilute yields further.

Demand Outlook

With the supply situation normalising, the key determinant of near to medium term freight market performance will be how demand evolves. The chart below shows an overview of key US economic indicators between 2015 and a forecast through to 2027.

From a (transatlantic) trade perspective the key drivers will be:

• Economic Growth: trade and economic growth are correlated. With economic growth in the US expected to be less than one percent and economic growth in the Euro Area at only about 0.5%, 2023 transatlantic trade is likely to be at best flat.
• Inflation: While 2023 inflation is expected to be lower than in 2022 (3.5% vs 8% based on the IMF’s October forecast), lower real disposable incomes are likely to have an effect on purchasing power and affect the volume of imports and exports. Both import and export volumes are expected to decline by 2% and 1%, respectively.
• Exchange Rates: the Euro has declined almost 20% in value against the US dollar. While this has made US imports cheaper, it has made exports more expensive. This goes some way to explaining the gap in between import and export growth. 
• Market access and trade policy: some subsegments are likely to be affected by this more than others. For example, the Inflation Reduction Act (IRA) is likely to fundamentally change automotive supply chains. Transatlantic automotive trade currently account for about 210,000 tonnes of containerised and 15,000 tonnes of air freight per month. 
• Manufacturing Activity: The largest share of both air cargo and container shipping is supply chain cargo – either raw materials, intermediate or finished goods. Manufacturing activity on both sides of the Atlantic is intertwined and as such economic weakness in Europe is likely to weigh on transatlantic trade.

Global manufacturing activity has turned negative in most key markets, including the United States (since November) and the Euro Area (since July). Our research shows that US air cargo exports and imports tend to move in sync with manufacturing Purchasing Manager Indexes (PMI). The dashboard below shows global manufacturing PMI figures since January 2020 and a forecast for the next four quarters.