The air cargo market is at risk of burning out its Covid gains, both in terms of earnings and importance inside of the air transport complex, or at least this is how the market reads in industry headlines, with a gloomy outlook hiding a fairly reasonably normalisation of market rates that started way back in July 2022. The Baltic Airfreight Index headline average (BAI00) fell on a fairly straight progression down 53.69% from the beginning of July 2022.

The fortunes of the air cargo market also reflect a cross-mode collapse in demand (at least relative to the Covid period), with weak export data from China the bellwether for a lack of downstream demand in North Europe and North America. It is also important to note that even with all the bad news on freight (and consumer markets generally), airfreight indexes still remain above 2018 and 2019 levels. The trajectory for pricing is, however, worrying, especially for those who had locked in charter capacity, with a general belief that owned/chartered capacity is depressing an already weak market. This likely links back to charterers being forced to dump rates as contracts refresh, although the fact that charter contracts have not collapsed gives hopes of market recovery, with less of the activity you might expect in the container markets where we saw near-complete collapse of key long-term agreements that meant to prop up asset owners during the throngs of a supply/demand bullwhip.

Its also important to note that air freight markets are typically depressed through to the end of Q3, with the bulk of high paying cargo ex-Asia falling inside of Q4. Even with the damp squib of a container market seasonal peak, this does not detract from the potential for the air freight market to see some gains leading into and through Q4, which could upset bleak forecasts formed as the air freight market slowly comes off of its Covid highs.

Its also important to note that air freight markets are typically depressed through to the end of Q3, with the bulk of high paying cargo ex-Asia falling inside of Q4. Even with the damp squib of a container market seasonal peak, this does not detract from the potential for the air freight market to see some gains leading into and through Q4, which could upset bleak forecasts formed as the air freight market slowly comes off of its Covid highs. Alongside this, key inflation benchmarks have either been moving sideways or coming off in Europe and North America. Even the United Kingdom as a bulwark of inflation post-Brexit has seen its inflation figures lower than expected, which could indicate a turning point in inflation, thus a turning point in consumer spending and demand. It will then become more of question as to how much air freight capacity overshadows changes in demand over the next 12 months.

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. Contact Peter Stallion on PeterS@freightinvestor.com.