A change from our usual reporting on the airfreight market. As we enter Q3 the airfreight market is, at least in the short term, unnervingly predictable. The seasonal summer lull for airfreight falls in line with a market rate that has been steadily and consistently coming off since June 2022, with the BAI Global Average index shedding 54.24% to date. The linear nature of price reductions over such a long period of time should leave plenty of writing on the wall as to the direction of the market, which is slowly converging on its pre-Covid average prices according to BAI. The drama of 2022, inclusive of the cut-off of freight capacity because of the Russia-Ukrainian War and the shock of energy prices that directly impacted crude oil and jet kerosene prices, has arguably dissipated. This still leaves plenty of potential risk, inclusive of escalation of this conflict and the growing (or rather resurgent) tensions between China, Europe and the United States provide plenty of jeopardy.

In terms of feedstocks to prices, the rug was slowly pulled from brent crude prices (with some notable bumps), with crude prices ultimately tracking quite accurately against the BAI ever since reaching its post-pandemic high of $112/barrel in May 2022. Whilst this might be more correlation rather than causation, the drop in crude prices also tracks similar demand metrics as air freight, which revolves around inflation, the reduction in consumer spending and the reduction in global industrial output. 

However, in reality, focus shifts back towards fundamentals we saw as commonplace that drove factors pre-2020. The story of the return of passenger capacity has been run, with air traffic largely back to pre-pandemic levels,  resulting in lower passenger airfares, and reduced air freight price metrics. In terms of feedstocks to prices, the rug was slowly pulled from brent crude prices (with some notable bumps), with crude prices ultimately tracking quite accurately against the BAI ever since reaching its post-pandemic high of $112/barrel in May 2022. Whilst this might be more correlation rather than causation, the drop in crude prices also tracks similar demand metrics as air freight, which revolves around inflation, the reduction in consumer spending and the reduction in global industrial output.

The trick for air freight will be in pulling round a peak season win that could support prices above their pre-Covid levels and stem current losses. Looking to ocean freight as a pre-Q4 indicator, this might seem unlikely. Container freight rates continue to perform poorly in line with overcapacity and weak demand. However, the lack of requirement for businesses to overstock via ocean freight before the seasonal peak in airfreight demand could actually lead to more urgency in moving freight should there be any semblance of an increase in consumer demand in Q4. Urgent cargo will inevitably end up on airfreight, perhaps resembling the market we saw in 2017 with a sudden dump of last-minute deliveries by a major technology company sucking up capacity and spiking rates. The key takeaway from this is that, whilst the current market seems quite depressingly predictable, this also makes the environment precarious and sensitive to sudden (or somewhat plausible) changes in demand. 

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.