Airfreight entered a seasonal comedown in January. However, as has been almost the norm over the past two years, rates remain elevated well above their pre-COVID levels. On top of this, the rate of change isnt really comparable to the speed-to-price declines we have seen in January out until 2016 on the index. 

From 31 December 2021 to 31 January 2022, BAI31 Hong Kong to Europe pulled back 14%, with BAI34 Hong Kong to USA down sharper, losing 25.74%. Figures should be taken with a bit of perspective given the Asia-US trade lane has been riding on highly inflated freight rates supported by strong demand and sea-air conversion on the back of persistent port congestion.

From 31 December 2021 to 31 January 2022, BAI31 Hong Kong to Europe pulled back 14%, with BAI34 Hong Kong to USA down sharper, losing 25.74%. Figures should be taken with a bit of perspective given the Asia-US trade lane has been riding on highly inflated freight rates supported by strong demand and sea-air conversion on the back of persistent port congestion. Rates out of Shanghai faired worse and the BAI84 Shanghai to USA was down 39.16%. But even with these large moves the past of change has slowed. Asian export markets remain largely driven by strong demand. However, the constant impact of COVID restrictions, particularly on Chinese airlines, keeps sentiment relatively bullish. Moving forward Asian export prices may be driven by the change in spending habits of end-user economies in the US and Europe, balanced against capacity impacted by zero-tolerance covid policies in China.

On the transatlantic, rates have also come off. However, characteristically falling on a support level of prices established in Q2 2020 after passenger traffic diminished. Whilst intra-week markets remain quite volatile, the overall picture based on BAI is relatively flat. Still an unknown will be the return of passenger travel. But given the progress and change in approach on the back of the COVID Omicron variant, sentiment for passenger travel is overwhelmingly bullish. Logically this should mean the return of passenger belly capacity and thus bearish conditions for airfreight rates. However, airlines are commonly pricing dynamically (rather than based on seasonal tariffs) and are acutely aware of the value of air freight in the airline business. Last year saw severe congestion in London Heathrow as demand overcame capacity - even with the return of passenger traffic. As of today, BAI24 Frankfurt to USA is down to $4.26/kg, down 15.47% since 31 December 2021.

A few immediate risks still stand to rock the market beyond what has become the norm of COVID restrictions and fluctuating capacity and demand. Tensions have risen regarding Ukraine and Taiwan, with Ukraine threatening to impact the cost of fuel against a Brent Crude basis. Taiwan might have more impact, with political and economic results directly impacting the demand and ease of exports out of Asia. There’s a general expectation for fuel prices to increase on the back of resurgent demand and throttled supply in any case, along with longer-term costs for the reduction of emissions and investments in Sustainable Aviation Fuel. All of this makes the outlook for airfreight persistently uncertain.

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.