For the first of a series of monthly updates on the Baltic Air Freight Index rates and the air freight FFA outlook, we look forward into substantial uncertainty after the market was rocked by enormous moves in available capacity, relative demand and subsequent market price for air freight capacity. 2020 was also the year that saw renewed and widespread interest and acceptance of price indices for the market. In terms of FFA pricing, the interest lies in adopting forward contracts to adapt to rapidly changing fundamentals for pricing whilst maintaining stability particularly prized by airlines and shippers alike.

BAI-PVG04 Shanghai to USA sat at monthly high of $8.14/kg, compared with $3.29/kg in December 2019.

For December, we sat at the end of the second (albeit dulled) peak market of the year. As a marker, BAI-PVG04 Shanghai to USA sat at a monthly high of $8.14/kg, compared with $3.29/kg in December 2019. Ex. Asia forward prices continue to undergo corrections – whilst the bulk of the market sentiment is relatively bearish considering the very high current index prices on all routes – much of the fundamental movements in price relies heavily on the return of passenger travel, rather than growth in underlying demand. Much of the Cal 2021 pricing (full calendar year contracts) has reverted to a toss-up between the old normal for annual pricing and block-space agreements, to the new normal of high market-based price heavily focused on ad-hoc agreements. Unsurprisingly, a renewed focus has been placed on both index-linking of contracts in 2021, and dynamic pricing fed through and driven by airlines and forwarders to try to operate more efficiently to the elapsing market. Both of these factors have been driving FFA interest, to provide a means to stabilise pricing without locking counterparties into inflexible bi-lateral fixed-price contracts.

Recognising new importance in terms of price levels (however retaining historic levels of volatility), ex. Europe prices continue to be rocked by a collision of factors. On top of the challenges of low passenger volumes and lockdowns, rates now contend with an influx of Asia outbound vaccine cargo, the ups-and-downs of the Brexit agreement and a new strain of COVID throttling cross-border commerce. Trans-Atlantic price has been the focus of FFA interest, with bid/offer levels continuing to chase volatile index price swings that have boosted Q1 21, however, remain highly unpredictable for Q2 21 onwards. Typically less BSA-heavy even in a normal market condition, the trans-Atlantic longer-dated contract prices have been notoriously difficult to lay-in – whilst vaccines have provided a prospective return of passenger volume to a lane dominated by belly cargo rather than freighter cargo, the timeframes for these changes remains impossible for predict.

 

About Peter Stallion, Head of Air and Containers, Freight Investor Services

Peter Stallion heads up the Air and Container Freight desks at FFA brokerage Freight Investor Services. He started his career in air freight chartering, and has a passion for emerging risk management markets and the logistics industry.

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