Upward pressure on air freight rates eased somewhat in May due to what we believe is a more balanced supply/demand environment.

Hong Kong to Europe (BAI 31) dropped slightly by -1% month-on-month (MoM) while Shanghai to Europe (BAI 81) was flattish at +0% MoM. Compared to last year, BAI 31 was up almost 18% year-on-year (YoY) and BAI 81 was up almost 50% YoY at the end of May. In contrast, Hong Kong to North America (BAI 32) and Shanghai to North America (BAI 82) continued to advance. On a monthly basis, BAI 32 rose 2% MoM while BAI 82 jumped another 8% MoM. That said, the annual increase of  about 15% YoY for BAI 32 and about 30% YoY for BAI 82, respectively, remained below their European counterparts. 

Clearly, the strong monthly performance of BAI 82 is remarkable, but we don’t believe this signals a divergence in growth dynamics between trade lanes. Rather, rates for Shanghai to North America rose a bit more slowly at the start of the post-CNY trading season, which is why we believe the current outperformance is more likely to be a catch-up effect.

Clearly, the strong monthly performance of BAI 82 is remarkable, but we don’t believe this signals a divergence in growth dynamics between trade lanes. Rather, rates for Shanghai to North America rose a bit more slowly at the start of the post-CNY trading season, which is why we believe the current outperformance is more likely to be a catch-up effect.

With respect to air freight volumes, annual rates of change remained fairly in double digit percentage territory in April according to data provided by IATA. When compared to last year, volumes in April rose by 11% YoY which is the fifth consecutive month of double-digit growth on an annual basis.

With respect to air freight volumes, annual rates of change remained fairly in double digit percentage territory in April according to data provided by IATA. When compared to last year, volumes in April rose by 11% YoY which is the fifth consecutive month of double-digit growth on an annual basis.

From a regional perspective, trade activity in the Middle East slowed down to +9% YoY from ~20% YoY last month although the Middle East – Europe trade lane continued to show strong growth of 30% YoY. Activity in the Asian Pacific region remained stable at ~14% YoY while European trade activity increased slightly to ~13% YoY from ~10% YoY in the previous month. We observed the strongest step-change in trade activity for the North American region which jumped to +7% YoY from +1% YoY previously.

While there weren’t any major surprises in the air freight market in May, it is worth pointing out that the ocean freight market witnessed a major reversal in May. According to the Baltic Exchange FBX Index, ocean freight rates for the China – Europe trade lane jumped by 33% MoM (324% YoY) while freight rates for the China – US West Coast trade lane rose by 41% MoM (309% YoY) in May. Clearly, freight rates already stood at elevated levels due to the Red Sea crisis, but we observed a stead decline in ocean freight rates since the peak in February until the start of May when the sudden reversal propelled ocean freight rates to new peak levels for the Red Sea crisis period (although still somewhat lower than pandemic peak levels). 

According to the Baltic Exchange FBX Index, ocean freight rates for the China – Europe trade lane jumped by 33% MoM (324% YoY) while freight rates for the China – US West Coast trade lane rose by 41% MoM (309% YoY) in May. Clearly, freight rates already stood at elevated levels due to the Red Sea crisis, but we observed a stead decline in ocean freight rates since the peak in February until the start of May when the sudden reversal propelled ocean freight rates to new peak levels for the Red Sea crisis period (although still somewhat lower than pandemic peak levels).

According to carriers and freight forwarders, an unexpected increase in ocean volumes due to the early arrival of peak season trading caused port congestions and container shortages in the Asian trading region. Consequently, shippers struggling to secure capacity drove freight rates. As of now, it is not yet clear if (or to what extent) the surge in demand is driven by shippers pulling forward orders to avoid potential bottlenecks later this year or by a genuine increase in end customer demand. While the former might not spill over into the air freight market, a genuine increase in end customer demand might also lift air cargo volumes beyond the e-commerce segment, which remains the main driver of current air cargo volumes.

About Marc Zeck, Senior Research Analyst, Stifel

Marc Zeck is a Senior Research Analyst covering Global Logistics and Aerospace & Defence at Stifel. Mr. Zeck is based in Frankfurt, Germany and joined Stifel in 2020. He previously worked in Equity Sales at Lehman Brothers, Nomura and UBS.

Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation or needs of individual investors. For more information and current disclosures for the companies discussed herein, please go to the research page at www.stifel.com.

©2024 by Marc Zeck.