As the second year impacted by Covid ended, the key question is whether or not the world will be in a similar situation this time next year.  2021 was a year continuously impacted by disruption to supply and demand as a consequence of the Covid pandemic.  Consumer spending on household goods continued to grow rather than services. This significantly increased the demand for air freight. At the same time capacity continued to be constrained due to less demand and restrictions on passenger flying as well as manpower shortages as Covid caused congestion and backlogs at many international airports.   Air freight capacity in 2021 was down 5% on 2019 levels with passenger declines of 36% offset by a 17% increase in freighter capacity and 31% integrator capacity increase. 

The result of all this disruption and demand and supply imbalance was inevitably higher rates.  

The index broke through 5,000 for the first time at the beginning of the month, peaking at 5,254 in the week ending December 13th.  The average for the year of 3,473 was up 36% versus 2020 and 117% versus 2019.

The BAI index average of 4,954 for the month of December was an increase of 4% on November, +55% versus 2020 and a staggering 210% increase over the same period in 2019.   The index broke through 5,000 for the first time at the beginning of the month, peaking at 5,254 in the week ending December 13th.  The average for the year of 3,473 was up 36% versus 2020 and 117% versus 2019.

The differences by market in the air freight indices are detailed below.

CN/HK Markets

China and Hong Kong markets saw a similar increase in December versus November at 8% and 5% respectively.  Both continued to show strong gains versus last year at +71% and 63% and exceptional growth versus 2019 (285% and 220%).  Shanghai’s capacity continued to be constrained due to covid restrictions.

  • The indices (BAI31 & BAI81) to Europe saw mixed results month on month with China strong at +15% whilst Hong Kong was -2%. 
  • Both markets saw strong growth to North America with HKG +8% versus November levels whilst PVG was +4%.
  • Hong Kong to Southeast Asia (BAI33) rates continued to improve, up 4%, after a decline of 7% in October.

US Market

The market ex Chicago saw mixed performance to Europe and Southeast Asia.

  • ORD – EUR (BAI51) was up 1% versus last month, up 3% versus 2020 and +87% versus 2019.
  • ORD – SEA (BAI53) was down 15% versus November, 63% higher than last year and 67% growth versus 2019.

EUR Markets

The European markets continued to see mixed performance in December by lane whilst overall both were positive versus last month with FRA +2% and LHR +5%.

  • FRA – US (BAI24) was up 17% versus November, 10% on last year, and +226% versus 2019. 
  • FRA – SEA (BAI23) was -7% over last month and 62% versus 2020 whilst FRA – China (BAI25) was -6% and +110%.
  • LHR – US (BAI44) was +10% versus November, up 4% versus 2020, and up a huge 365% versus 2019.
  • LHR – SEA (BAI43) saw a 1% decline month on month although it was up 64% on 2020.

SEA Market

SIN to SEA (BAI63) continued its erratic behaviour with December’s average level down by 4% versus last month, although it was up 4% on 2020 and 96% versus 2019.

In summary, the air freight index finished the year at double the levels seen in January in response to increased demand and capacity constraints driven by the unprecedented levels of continued disruption across all supply chains.   There is currently little evidence that rates will fall significantly in the period up to Chinese New Year as backlogs are cleared and inventories restocked.  Demand for international passenger flights is expected to be subdued throughout 2022 as many regions in the world still have a long way to go in their vaccination programmes.

 

Gareth Sinclair, Advisor to the Board, TAC Index

Gareth started with British Airways Passenger Business in Financial & Commercial management roles almost 30 years ago. In 2007 he joined British Airways World Cargo, driving significant transformation in Pricing and Revenue Management systems. As Head of Revenue Management and Pricing for IAG Cargo, he introduced enhanced analytical capabilities, dynamic bid price vectors and the move towards dynamic pricing.