Rockets in the Red Sea yet to rock air freight rates – but impact may be coming soon...

After rising steadily through September, October and November 2023, air freight rates remained buoyant through the first half of December 2023, before falling sharply over the Christmas and New Year holiday period.

According to data from TAC Index, the overall Baltic Air Freight Index (BAI00) ended lower by -16.9% in the four weeks to 1 January, leaving it down by -31.7% over the calendar year.

In the first week of January, there was no immediate bounce, with the BAI00 index shedding a further -6.6% to leave it at -31.8% year-over-year (y/y).

The fall in rates ran counter to some expectations rates would spike again following disruption to ocean shipping in the Red Sea – with Houthi rebels in Yemen firing rockets at ships and carriers diverting vessels around the Cape of Good Hope, adding a lot of time and cost for shippers.

The fall in rates ran counter to some expectations rates would spike again following disruption to ocean shipping in the Red Sea – with Houthi rebels in Yemen firing rockets at ships and carriers diverting vessels around the Cape of Good Hope, adding a lot of time and cost for shippers.

So far at least, it seems little, if any, ocean shipping was diverted immediately to air cargo – although that could of course change and looks increasingly likely in the weeks ahead. Indeed, sources are speculating this could stimulate a boost to Sea-Air solutions, with more shippers opting for sea lanes from Asia to the Middle East and then air to Europe to meet delivery deadlines.

With Chinese New Year also coming soon – which often stimulates a ‘mini-peak’ in any case – many do expect rates to spike again in the next few weeks.

What’s happened so far, however, seems to be that the traditional peak season for air cargo – through the runup to Thanksgiving in the United States, as well as Black Friday and the Christmas holidays – has followed its normal course.

The rise in air freight rates through the autumn was led very much by e-commerce business out of China – and so was the subsequent fall in the final two weeks of December.  

The index of outbound rates from Hong Kong (BAI30) suddenly dropped a whopping -22.9% in the final two weeks of December, putting it lower by -16.3% for the month as a whole and back in negative territory y/y by -14.4%.

The index of outbound rates from Hong Kong (BAI30) suddenly dropped a whopping -22.9% in the final two weeks of December, putting it lower by -16.3% for the month as a whole and back in negative territory y/y by -14.4%.

That said, the decline in rates over the full year was still far less from Hong Kong than from other big outbound centres, reflecting Hong Kong’s role as the leading hub for the boom in e-commerce activity out of southern China, and continuing status as the top airport in the world for air cargo.

After a big fall in the final fortnight of the year, the outbound index for Shanghai (BAI80) fell much more sharply by -30.8% month-on-month (MoM) to leave it lower by -30.3% over 2023.

Sources suggest the big drop in rates out of China overall probably reflected a sudden drop in spot volumes, which had been trending up sharply – leaving a much higher proportion of the business going through at previously agreed (and much lower) contract levels. 

Sources suggest the big drop in rates out of China overall probably reflected a sudden drop in spot volumes, which had been trending up sharply – leaving a much higher proportion of the business going through at previously agreed (and much lower) contract levels. Rates from elsewhere in Asia were not falling so much, they noted, and indeed still rising on some lanes to Europe – such as from Vietnam, Bangkok and India, as well as on Transatlantic routes.

The data on rates has certainly been following very different patterns on different lanes. Out of Europe, for instance, rates ended December actually higher – the index of outbound Frankfurt routes (BAI20) up +7.2% MoM, albeit still a long way lower by -47.8% over 12 months.

Likewise, rates out of London (BAI40) were higher by +4.0% MoM, though still languishing at -51.7% y/y.

While rates out of Europe did not see the same sort of dramatic fall as from China over the holiday period, they had not enjoyed the same sort of strong peak season rally either in the months before.

Out of the US, rates from Chicago (BAI50) did soften in December to a modest extent – showing a fall of -7.0% MoM to end lower by -45.2% YoY.

Aside from the obvious geopolitical concerns – with ongoing wars in Ukraine and Gaza, plus developments in the Red Sea – the global macro outlook actually brightened to some extent during the final part of 2023.

Sentiment in markets was buoyed by more dovish guidance on the direction of interest rates from Jerome Powell, chairman of the US Federal Reserve. That helped fuel a further surge in equity markets in December, with the S&P500 index ending the year up more than 24%.

The more bullish outlook even extended to Europe – where the economy has been in borderline recession for some time – with even the German DAX index ending the year up more than 18%.

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.