Red Sea Attacks Drive Air Freight Volumes, Anxiety Up

The Houthi rebel attacks in the Red Sea are causing an increase in air freight volumes, and are soon expected to drive up the cost of shipping cargo by plane, as anxious companies seek an alternative to the lengthy diversions for ocean cargo vessels.

According to supply chain intel firm Xeneta, the current surge in air freight is mainly due to cargo volumes headed for Europe, as companies increasingly seek to avoid the longer Red Sea diversion around Africa's Cape of Good Hope.

Niall van de Wouw, chief air freight officer for Xeneta, told CNBC that the last week of December and the first week of January tend to be "quieter" for air freight.

Recent data and information gleaned from clients show that this period is different, however.

"A couple of weeks ago, I started speaking with companies and I found retailers were starting to consider air freight as a way to get their products directly to their customers," van de Wouw said. The Red Sea attacks have fueled fears of another round of supply chain inflation, but so far, "what's even more compelling is the spike in volumes. To see increases of this magnitude, with higher volumes than at any point in 2023, is significant," he said.

From a cargo perspective, flights are already 93% full on average and air freight rates will likely spike much more than 10% if the current level of demand continues unabated.

"If the Rea Sea crisis continues, you'll have more and more companies getting nervous," van de Wouw told CNBC.

Industry observers are making comparisons between the pandemic supply chain problems and ocean/port bottlenecks and shipping industry rate increases. According to van de Wouw key differences for air freight between then and now include a lower level of consumer demand and the return of passengers.

"It was a capacity issue," he said of the coronavirus pandemic. "Here you have a demand spike not because consumers are spending more but the need of companies to move products. This is all a result of companies trying to mitigate the ocean transit delays."

Air cargo volumes on the major apparel route from Vietnam to Europe jumped 62% in the week ending Jan. 14, which is 6% higher than last year's peak week in October, according to Xeneta data. There was a 16% increase over the same January time period in 2023.

"Rates have not yet hit anywhere near the levels we saw during COVID-19, but the sudden nature of the Red Sea crisis has seen a more rapid increase in rates which is arguably creating even more disruption than during the early months of the pandemic," Xeneta data analyst Emily Stausbøll told CNBC.

Approximately 28% of the world's container trade travels through the Red Sea/Suez Canal, with nearly 30% of the goods being furniture, household goods, and clothing, according to Bank of America. General Electric appliances are also frequently transported along this route.

In a recent note, Lorraine Hutchison, of Bank of America, identified the companies with substantial European exposure because of longer transit times from Asia as Phillips-Van Heusen Corporation, Birkenstock, Capri Holdings Limited, Nike, Ralph Lauren, VF Corp, and Levi Strauss & Co.

Phillips-Van Heusen brands include Tommy Hilfiger, Calvin Klein, Warner's, Olga, and True & Co.

Capri Holdings Limited brands include luxury labels Versace, Jimmy Choo, and Michael Kors.

VF Corp brands include outdoor and workwear lines Vans, The North Face, Timberland, and Dickies.

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