December had been fairly classic in terms of market direction with gains across the majority of the head-haul routes that resembled a peak atop another peak as prices surged on the back of Q4 demand. Although a peak in Q4 is seasonal, the scale of price changes is on a completely different level to what you might expect in a ‘normal’ market. 

BAI-81 from Shanghai to Europe has slipped 16.68% since 29 December, BAI-31 Hong Kong to Europe pulling back further down 22.34% since 6 December and BAI-34 Hong Kong to USA down 24.28% since 13 December

However, looking forward, we have started to see rates come off (albeit remaining very high).  BAI-81 from Shanghai to Europe has slipped 16.68% since 29 December, BAI-31 Hong Kong to Europe pulling back further down 22.34% since 6 December and BAI-34 Hong Kong to USA down 24.28% since 13 December. Marking out a forward price remains difficult and prices remain very much spot and charter orientated with very little stability provided by enforced BSA contracts. A sign of the times coming was Cathay Pacific’s implemetation of a General Rate Increase (GRI) on BSA capacity at the end of last year. And without focusing on the Hong Kong carrier unduly, Cathay Pacific remains a bellwether of Asia export market fortunes, with capacity pulled out of the market largely because of virus related quarantine restrictions rather than a lack of appetite to take on very high air freight demand.

Whilst the outlook for European and North American COVID restrictions appear to be quite positive (the UK dropping most of its testing requirements for travel) China holds on to a zero-case approach which continues to throttle supply chains both in air and ocean freight

There are then a few key focus points as we move into 2022. Whilst the outlook for European and North American COVID restrictions appear to be quite positive (the UK dropping most of its testing requirements for travel) China holds on to a zero-case approach which continues to throttle supply chains both in air and ocean freight. Air-sea and sea-air conversions have been a common feature leading to a supportive demand environment for both markets, regardless of any positive developments at import destinations. This cautious approach will almost certainly impact the return of passenger travel on the long-haul Asia routes, putting the brakes on large chunks of belly freight capacity, with capacity further diminished by a changing in rules prohibiting passenger to cargo ‘preighter’ conversions that have been common through 2020-2021. Additionally, oil (although dipping due to Omicron) has seen significant recovery, bolstering freight rates factoring in fuel costs.

On the trans-Atlantic, we also saw a slight peak that has since come-off, BAI-22 Frankfurt to North America pulled back 13.5% since 6 December. However for the most part the index has remain fairly flat, supported by the continual lack of passenger travel. Usually, the sentiment might be that trans-Atlantic prices would collapse as soon as passenger travel returns. But freight businesses are cautious given the experiences in major airports such as Frankfurt and Heathrow which saw extremely high levels of congestion, bolstering rates. We also need to keep an eye on Q2 and Q3 2022 demand which puts more unknown and potential volatility into the forward markets.

 

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.