Asia–Europe trade lane strong but complex

2024 was a good year for demand for air cargo capacity on the Asia–Europe trade lane in most ways, but there remain many difficulties in predicting this year’s likely operating conditions.

Jae Dong Eum, senior vice president and chief of the cargo business division at Korean Air, notes that, in the first half of 2024, total air cargo demand from Asia to Europe surged by roughly 23% year over year.

However, while overall demand from Europe to Asia grew by 7% – driven by increased demand for airfreight flows to China, Southeast Asia and Oceania – Korean Air has encountered challenges in sustaining load factors due to stagnant demand for cargo to Korea and Japan, the airline’s principal destinations.

Tom Owen, director cargo at Hong Kong-based airline Cathay, adds that volumes from Asia to Europe have been very strong, primarily driven by a booming e-commerce sector. Meanwhile, volumes from Europe to Asia are also robust, supported by demand for a range of key commodities, including pharmaceuticals and luxury goods.

European carriers providing plenty of capacity between Europe and Asia are also seeing plenty of business on the lane. For Helsinki-headquartered Finnair Cargo, demand on the Asia–Europe route remained strong overall in 2024, although not as strong as the demand for capacity it enjoyed on the Asia–US route, informs senior vice president Finnair Cargo Gabriela Hiitola.

Bénédicte Duval, vice president intercontinental area at Air France KLM Martinair Cargo (AFKLMP) - another key cargo mover on the Europe Asia trade, agrees. She has seen high demand on the Franco-Dutch freight carrier’s Asia–Europe services since March last year, boosted by e-commerce and the geopolitical situation around the Red Sea (of which more later).

The trades between Greater China–Europe and between Greater China–Americas supporting the West’s demand for e-commerce are showing particularly strong performance, she says, adding that the India and Southeast Asian markets are also supporting those flows, with plenty of pharma and hi-tech products on the move.

Forwarders play a critical role in supporting cargo flows on these – and all – trade lanes. Loic Gay, global air product leader at CEVA Logistics, says that over the past six months or so, there has been a notable demand for the company’s air logistics services on the Asia–Europe trade. This demand has been driven by various factors, including the need for reliable and fast transportation of goods as tensions in the Middle East continue unabated.

“We have observed strong demand from e-commerce players ex-China and Southeast Asia as well as an increasing demand from manufacturers based in Thailand and Vietnam, both on Far East westbound and transpacific trade lanes, on top of our regular volumes that increased with the peak season,” Gay reports.

Cargo mix

As well as the e-commerce trade boosting volumes on the trade lane alluded to by airfreight executives such as Owen and Duval, other drivers are supporting high demand for cargo capacity between Asia and Europe.

For example, despite a temporary slowdown in Europe’s domestic electric vehicle (EV) market, major automotive manufacturers are actively shipping EV-related spare parts to ensure adequate regional stock levels, Eum notes.

From Europe to Asia, shipments of pharmaceuticals, semi-conductor equipment, machinery and auto parts continue steadily, with no major changes in volumes flown, he adds.

Owen points also to strong demand for perishable as well as pharmaceutical exports from Europe to Hong Kong and other regional destinations, while CEVA Logistics’ Gay has seen the demand for air logistics services on the Asia–Europe lane being particularly strong for high-value and time-sensitive cargo such as electronics as well as the pharmaceuticals and automotive parts that other carriers have reported.

Key routes that have seen significant demand include major hubs in Asia such as Hong Kong, Shanghai, and Singapore, connecting to European destinations like Frankfurt, Amsterdam and Paris.

Owen agrees, saying that Europe is still led in tonnage terms by Frankfurt. The market there “is in good shape”, he suggests.

Geopolitical pressures

The conflict between Russia and Ukraine, which resulted in the closure of Russian airspace to airlines, forced detours that lengthened flight times for routes from Korea to Europe by over two hours and from Europe to Korea by more than an hour – a significant change for Korean Air Cargo and its business.

These changes have led to increased fuel consumption and a decrease in cargo capacity, adversely affecting these routes’ profitability and operational efficiency.

To navigate these challenges, Korean Air has simplified the structure of merged routes to mitigate the cost increases of extended flight times. Additionally, it has proactively adjusted and optimised routes with lower profitability to better align with changing conditions.

The closure of Russian airspace has also meant that a longer route has had to be flown to serve many of Finnair Cargo’s Asian destinations. To mitigate the impact of the change, the carrier adjusted flight routes and increased its ongoing risk monitoring.

“Safety always comes first at Finnair,” Hiitola declares. “Strengthening partnerships and maintaining clear communication with customers have also been essential strategies.”

The geopolitical situation is also heavily impacting AFKLMP’s operations, Duval confirms. Flying the North Pole route instead of over southern Kazakhstan has allowed the carrier to mitigate the impact somewhat, however. It is to be noted that Chinese carriers can still fly over Russia, creating what she terms a “competition distortion”.

More positively, the situation in the Red Sea has had an impact on seafreight industry lead-times, which has created some shift in cargo flows from sea towards airfreight, Duval adds.

In view of the ongoing situation in Israel, Cathay Pacific redeployed resources and temporarily suspended services to Tel Aviv.

One additional impact of the conflicts in the Middle East has been the rise of sea-air shipments, with forwarders seeing air shipping as less risky and converting at least part of their freight journeys to airfreight, Owen advises.

CEVA’s Gay notes that the situation in the Middle East and in Russia/Ukraine has impacted carriers but that it is the end customer who may pay the price. The various conflicts have “impacted the routing of aircraft, which leads to higher costs for airlines and higher rates eventually for the customers”.

Capacity

The capacity that Finnair Cargo offers on the Asia–Europe trade is influenced by various factors, including market demand and economic conditions. In the final analysis, while there may be sufficient capacity on any given lane at any given time, the dynamics can change quickly, affecting rates and yields, Hiitola points out.

It’s essential to consider specific trends to understand the situation fully, she adds. But, “The airfreight industry is reactive and versatile,” Owen declares. “In the event that capacity is in excess, freighters will adopt more profitable routes instead.”

Duval says that at AFKLMP, demand approaching seasonal peak time last year surpassed the actual available capacity.

However, capacity from Asia to Europe quickly evolves, she continues. The strong demand pushed several airfreight players to reposition some of their capacity to Asia and more specifically to China.

And, of course, the ‘supply versus demand’ balance remains the key factor affecting rates, Duval points out.

From the forwarder’s perspective, Gay also considers there to be a lack of airfreight capacity available on the Asia–Europe trade.

In order to compensate for this lack of capacity, CEVA Logistics contracted additional charter flights from Asia to Europe. The peak season started a bit later than had been anticipated but rates were then significantly impacted on those trade lanes and there was a premium to pay to access maindeck capacity, he says.

In a related development, Eum notes that the market between Asia and Europe is witnessing “a notable rise in direct flight services from European carriers, alongside an increasing dominance of two-stop shipments by Middle Eastern airlines”.

Airlines are keen on enhancing their competitiveness by enlarging their operational capacity by acquiring new passenger aircraft and elevating service standards to widen their customer base.

This has provided customers with a broader range of options, intensifying competition between airlines and decreasing profitability, he says.

Plans and expectations

Predicting future demand for air capacity between Asia and Europe involves consideration of significant uncertainties, Eum says, not least of them future economic performance on the two continents.

Additionally, airlines are experiencing increased operational costs due to the need to use alternative routes around Russian airspace, further impacting their profitability.

European routes are particularly challenging to operate due to diverse national regulations, slot availability constraints and specific airport curfew restrictions, making them more complex than other regions. Additionally, the market is highly competitive, with some airlines effectively utilising geopolitical-related advantages available to them.