Buy the rumour, sell the news?

There’s been fevered speculation that trouble in the Red Sea could spark a surge in air freight rates, and there was indeed a rise in late January, although nothing huge yet

Going forward, it looks like the main drivers of volatility over the next 12 months will be factors like the US elections, global freight issues related to both the Red Sea and the Panama Canal, the Middle East and Black Sea conflicts, and likely US and EU interest rate adjustments. 

January, however, was dominated by speculation about an immediate surge in air cargo rates that – contrary to predictions – took some time to start arriving.

Expectations of rising rates were driven mostly by the attacks on commercial shipping in the Red Sea. That led to large-scale diversion of vessels away from the Suez Canal and around the Cape of Good Hope – and a massive surge in ocean shipping rates.

Expectations of rising rates were driven mostly by the attacks on commercial shipping in the Red Sea. That led to large-scale diversion of vessels away from the Suez Canal and around the Cape of Good Hope – and a massive surge in ocean shipping rates.

With Chinese New Year also looming, that led to speculation that the disruption in ocean traffic might drive an even stronger surge in air cargo rates if shippers were scrambling to meet delivery deadlines.

Anecdotally, some forwarders suggested there was rising interest in sea-air solutions, with shippers exploring options for moving goods from Asia to Europe for instance by sea to ports like Dubai in the Middle East or even via Los Angeles on the US West Coast – and then on by air.

For most of the month, however, data on air freight rates simply did not indicate any major surge in demand or prices. The overall Baltic Air Freight Index (BAI00) calculated by TAC Data was flat to down for the first three weeks of the year before rising +6.4% in the week to 29 January. That still left it lower by -4.1% for the month and at -24.2% over 12 months.

For most of the month, however, data on air freight rates simply did not indicate any major surge in demand or prices. The overall Baltic Air Freight Index (BAI00) calculated by TAC Data was flat to down for the first three weeks of the year before rising +6.4% in the week to 29 January. That still left it lower by -4.1% for the month and at -24.2% over 12 months.

At the margins, there were signs of differences emerging between the patterns on the big lanes, with rates firming up more from China to Europe than to the US and spikes on specific routes such as Shanghai to Amsterdam.

Overall, the index of outbound rates from Shanghai (BAI80) was up +5.4% in the month to 29 January, leaving it lower by only -2.1% year-on-year (YoY).

However, despite a jump in the final week of the month, outbound Hong Kong (BAI30) was lower by -8.8% in the month to 29 January, leaving it at -11.8% YoY.

Volumes rose after the Christmas to New Year period, when the market is typically quiet, but a rise in both volumes and prices in January is also quite normal ahead of Lunar New Year when factories in China close – so not necessarily linked to disruption in the Red Sea, though this time the rise was a week or two earlier than usual ahead of Chinese New Year.

Out of other regions, rates were following different patterns. From Europe, the index of outbound rates from Frankfurt (BAI20) was down another -12.9% in the month to 29 January, leaving it at -49.2% YoY.

On the other hand, outbound London Heathrow (BAI40) was slightly up +0.8% in the month to 29 January, albeit much lower YoY by some -50.0%.

Out of the US, outbound Chicago (BAI50) was lower by -4.7% in the month to 29 January, leaving it at -44.1% YoY.

Other than geopolitical developments, little seemed to change early in the year in the global macro backdrop.

After rising optimism in late 2023 about prospects for falling interest rates, equity markets paused to some extent in January – but did not completely puncture a mood of cautious optimism about the outlook.

That was despite analysts pointing out how difficult it has been historically for central banks to achieve a perfect ‘soft landing’ – or ‘immaculate disinflation’.

The year began with the US economy looking ever more dominant in areas of growth and innovation, such as artificial intelligence, IT, biotech/pharma and blockchain.

The Chinese economy, by contrast, after years of rapid growth, appears to have been knocked back in the post-Covid period by trends towards onshoring, ‘near-shoring’ or ‘friend-shoring’.

That said, China remains by far the most important global supplier in many key sectors from mobile phones to PCs, and in areas of strong growth like e-commerce, as well as a rising contender in electric vehicles.

The Ukraine conflict has cast a long pall over European markets. However, an undoubtedly sombre mood has also perhaps disguised genuinely impressive progress the European economy has made in reducing its reliance on natural gas.

Even the UK now boasts by some distance the highest proportion of electricity of any major economy produced by (relatively cheaper) renewables, mainly from wind power.

Going forward, some are now pointing out that the ability to produce cheap renewable power including solar in places like Spain – plus renewed growth in nuclear power led by France – may spur some surprising new competitiveness in the European economy.

That may be boosted further by consumer spending – hitherto held back by continued high savings levels compared to the US as European consumers remained more cautious after events in Ukraine.

Japan – another big developed economy long seen as trapped in an era of low to negative interest rates – is also expecting significant positive changes. One factor, as noted previously, is the prospect of a return to more ‘normal’ monetary policies, which should help revive growth.

Another factor that has not attracted much attention yet is a change in the corporate culture in Japan, with listed companies increasingly more responsive to the interests of shareholders, in a similar manner to the US.

Going forward, all these factors promise to change the shape of the global economy and demand patterns this year in air cargo markets, whatever the short-term impact of events in the Red Sea.

Neil Wilson, TAC Editor

Neil Wilson is Editor of TAC Index, which provides independent, accurate and actionable global air freight data, allowing our customers to make comparative, cost-effective and intelligent air freight decisions.

Neil has more than 30 years’ experience in financial journalism and publishing, specialising mainly in derivatives and alternative investments. He has contributed to various publications including The Financial Times, The Economist and Risk magazine. He has also been a guest speaker at many industry events.

Neil has a B.A. with Honours in Philosophy, Politics and Economics from the University of Oxford.