Rates are firmer in October, but will ‘front-loading’ make the peak more muted?

Air freight rates were up again last month, with the global Baltic Air Freight  Index (BAI00) calculated by TAC Data rising +8.1% over the four weeks to 4 November, leaving it ahead by +10.9% over 12 months.

As a result, October delivered another in a series of solid gains this year, especially on big export lanes out of Asia to Europe and North America. However, it was not as spectacular as some had been expecting, especially for a period when the market enters its traditional peak season in the runup to Thanksgiving and Christmas holidays.

Some big forwarders now say there may be less of a peak season spike than they were expecting back in the summer, when a lot of forward capacity was being booked via block space agreements (BSAs).

Some big forwarders now say there may be less of a peak season spike than they were expecting back in the summer, when a lot of forward capacity was being booked via block space agreements (BSAs).

Kuehne+Nagel, for instance, said in its latest results statement that it now anticipates the peak to be ‘more muted’ than it expected earlier this year.

According to CEO Stefan Paul, this is due to customer ‘front-loading’ of volumes in order to avoid potential disruption – plus an easing of conditions in the sea-freight market and postponement of the threatened US dock strike.

That said, air freight rates were still rising last month on the big lanes out of China – led by higher spot rates, market sources said – and that was despite some reported shifting of capacity from other regions to busier routes from Asia, particularly onto TransPacific lanes.

The index of outbound routes from Hong Kong (BAI30) was up +8.2% over the four weeks to 4 November, leaving it ahead by +10.2% year-on-year (YoY).

Outbound Shanghai (BAI80) was up more – by +12.6% month-on-month (MoM) to leave it up by an even more impressive +22.4% YoY.

Rates on other lanes out of Asia, such as from India, Vietnam and Thailand, also remain a long way ahead of 2023 levels.

Out of Europe, where the market has been somewhat in the doldrums, there were also finally some gains in October, although rates remain slightly lower YoY on lanes to the United States, as well as still significantly down to China and Japan.

Out of Europe, where the market has been somewhat in the doldrums, there were also finally some gains in October, although rates remain slightly lower YoY on lanes to the United States, as well as still significantly down to China and Japan.

Boosted by a big spike over the final week of the month, the index of outbound routes from Frankfurt (BAI20) gained +10.9% MoM, cutting its decline to only -3.2% YoY.

Also boosted by a sharp rise in the final week of October, outbound London Heathrow (BAI40) jumped +15.3% MoM, lifting its gain to a much healthier looking +17.4% YoY above what had been pretty depressed levels 12 months ago.

Meanwhile, from the Americas, the index of outbound routes from Chicago bucked the rising global trend with a decline of -18.4% MoM – leaving it still in negative territory YoY at -15.1%. Overall rates from the US are not down so much but do remain lower YoY both to Europe and to China, although significantly up on lanes to South America.

From a global macro perspective, the air freight data arguably still reflects a market where European economies appear to be caught in a ‘doom loop’ scenario – of low to zero growth; high government debt-to-GDP levels (that they can not reduce without growth); and a loss of competitiveness in key sectors such as German automobiles (due in large part to higher energy prices).

In the US, by contrast, the economy has continued to defy fears of a recession, maintaining a trend towards a ‘soft landing’ with lower interest rates helping to ease the pain. 

While the market has been looking ahead beyond the US election to what that might mean for trade policy, tariffs, currencies, inflation and interest rates, in the meantime China has also become a focus of attention.

This followed the announcement in late September of major action by the government and People’s Bank of China to try and address a ‘balance sheet recession’ and arrest the trend towards deflation.

This so-called ‘fiscal bazooka’ – alongside lower interest rates, easing of lending requirements and other measures – sparked an immediate surge in Chinese equities in late September.

Since then, however, the market has oscillated around the same levels as investors have tried to work out whether the trillions of Chinese Yuan committed are really enough of a bazooka to move the dial on growth sufficiently. As we entered November, the jury was very much still out on that.

 

Meanwhile, there was some fascinating discussion regarding the capacity side of the market at the recent 30th annual Cargo Facts Symposium, held last month in San Diego.

Among key issues highlighted were various supply chain challenges and blockages. These ranged from current well-publicised problems with production at manufacturers like Boeing to a lack of sufficient ‘feedstock’ of older planes for freighter conversions, which looks significant given that dedicated freighters currently carry around 50% of air cargo volume (and a lot more on some important lanes).

Among various illuminating contributions was a presentation from Boeing market analysis director Aaron Tayler, highlighting how growth of freighter capacity was looking highly likely to lag a continuing rise in demand, driven not least by the continuing boom in e-commerce. Air cargo demand had risen about 7% year-to-date through August, according to figures Tayler cited – much in line with the rise in Baltic air freight index rates as measured by TAC. Looking ahead, demand is projected to grow an average of 2.7% a year, he added – significantly faster than capacity looks able to grow alongside it.

Among various illuminating contributions was a presentation from Boeing market analysis director Aaron Tayler, highlighting how growth of freighter capacity was looking highly likely to lag a continuing rise in demand, driven not least by the continuing boom in e-commerce. Air cargo demand had risen about 7% year-to-date through August, according to figures Tayler cited – much in line with the rise in Baltic air freight index rates as measured by TAC. Looking ahead, demand is projected to grow an average of 2.7% a year, he added – significantly faster than capacity looks able to grow alongside it.

So this year’s peak season may not be quite so strong as expected. However, with air freight rates up while average jet fuel prices were down some -20.7% over the 12 months to 1 November, according to Platt’s data, 2024 should still prove a considerably profitable year for airline carriers.

In addition, with capacity looking tighter again in future, the air cargo market looks potentially even stronger going forward. That is of course if there are no major geopolitical developments and big changes to global trade patterns.

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.