At face value, there was not a great deal of excitement in February as evidenced by the BAI change of only +2.03% over January. This is the same month that contained the Lunar New Year, starting February 12, which is normally considered a peak season for the air freight market. Let us, however, look below the surface.

If we concentrate on the impact of Lunar New Year using the example of BAI-PVG01 (PVG-Eur), we observe the following year-on-year comparisons (period compared – 2 weeks prior/post CNY):

2019 – overall period + 8%

2020 – overall period – 4%

2021 – overall period – 13%

However, examining the weeks just prior and post Lunar New Year the picture is slightly different:

2019 – 1 week prior/post + 2%

2020 – 1 week prior/post + 10%

2021 – 1 week prior/post + 7%            

In absolute terms, this period further compares as follows:

2019 – average RMB 19.50/kg

2020 – average RMB 17.40/kg - down 11% from the previous year

2021 – average RMB 31.16/kg - up 79% from 2020 and 63% higher than 2019

On the North Atlantic, pricing from Germany BAI-FRA04 was slightly up at +5.58% compared to a decrease of -10.56% on BAI-LHR04 from January. However, in absolute terms rates from London Heathrow to North America were still higher than from Frankfurt. 

Interesting observations can also be made when comparing PVG with HKG. 

On the tradelane BAI-HKG01 (HKG-EUR) rates went up 0.47% compared to BAI-PVG01 (PVG-EUR), which increased by 7.04% whereas on BAI-HKG04 (HKG-USA) the rates went up 2.36% whilst BAI-PVG04 (PVG-USA) saw a drop of 1.22%.

In absolute terms, for the month of February, the rate for HKG-EUR was USD 4.30 whilst PVG-EUR was USD 4.83, a difference of 12% and HKG-USA was at USD 5.75 compared to PVG-USA at USD 6.30, a 10% difference.

The most significant drop in rates from its Lunar New Year peak to month-end was seen on BAI-PVG04 (PVG-USA), down 38%

The most significant drop in rates from its Lunar New Year peak to month-end was seen on BAI-PVG04 (PVG-USA), down 38%. BAI-HKG04 (HKG-USA) dropped as much as 22% though there was a recovery in the last week of the month so that overall it was down only 14%.

We presume the spread of spot rates is likely to remain high, so up-to-date pricing information on a weekly basis is an absolute necessity to manage these volatile periods.

In summary, it can be concluded that month-on-month (and intra-month) volatility remains high, and given the much higher pricing levels compared to a year ago, this has a major impact. Looking at BAI-PVG01 (PVG-EUR), if you are 10% off with your procurement today (RMB 3.20) compared to 2020 levels it would have meant a deviation of 18%. Assuming gross margins of freight forwarders being around 8-10%, we can conclude this is an immediate loss. We presume the spread of spot rates is likely to remain high, so up-to-date pricing information on a weekly basis is an absolute necessity to manage these volatile periods.

 

About Robert P. Frei, Business Development Director, TAC Index

Robert was instrumental in defining the TAC Index product. His air freight experience spans over 25 years in high-level positions at one of the leading freight forwarding companies. He is recognized for his passionate involvement in several innovations in the air freight industry. At TAC Index he focuses on the data providers.