Air freight rates in a holding pattern as new rules in the US target e-commerce – and port strike starts

Overall, air freight rates showed little change last month, with the global Baltic Air Freight Index (BAI00) edging up +1.8% over the four weeks to 30 September, leaving it ahead by +7.5% over the previous 12 months.

The index of outbound routes from Hong Kong (BAI30) – still the world’s biggest airport for cargo volume – was up +0.3% over the month, leaving it ahead by +16.8% YoY.

Meanwhile, outbound Shanghai (BAI80) was up +2.7% MoM to leave it ahead +20.4% YoY.

In Europe, the index for outbound routes from Frankfurt (BAI20) was higher by +1.5% but remained at -11.2% YoY. 

Similarly, outbound London Heathrow (BAI40) jumped +11.6% MoM, although it still showed a YoY decline YoY of -1.3%.

From the Americas, the index of outbound routes from Chicago (BAI50) was lower by -0.7% MoM to still languish at -31.5% YoY. However, overall rates from the US were generally stable for most major markets.

The flattish tone of the market was arguably starting to deflate expectations of an earlier and/or more pronounced peak season surge than usual after an unexpectedly strong summer. At least before a dock strike threatened to disrupt ocean shipping along the US East Coast and push yet more shippers to switch to air cargo instead.

Sources have been suggesting for months that a lot of forward capacity for the upcoming peak was already sold out through block space agreements (BSAs), which could mean spot prices surge in the runup to Thanksgiving and Christmas.  

There were also a number of other factors pointing towards higher rates, including some big orders for items like solar panels and mobile phones known to be coming through. 

And that was before the US dock strike by the International Longshoremen’s Association (ILA) began on 1 October, affecting all ports down the Eastern seaboard.

Some market sources were also expecting a small uptick in average rates in the runup to Golden Week in China if shippers rushed to move goods ahead of the holiday.  

There were some signs these things might be starting to show in the TAC data during September. Rates achieved at the higher quintiles in the range of prices paid did spike at times on big lanes out of China – indicating spot rates might be on the rise, and the indices were rising in the final week of the month. However, all these things together did not appear to have had much overall effect on rates – as of yet. Indeed, some sources had been starting to say the expected peak season spike may not reach quite so high as last year. 

With the threatened US dock strike now going ahead, perhaps opinions will be revised.

Meanwhile, the mood in global markets has continued to be somewhat nervous. 

The steep selloff in equities in early August, even if followed by a quick recovery, revealed concerns about a number of things from US growth to rising interest rates in Japan.

It also revealed some areas of market fragility, including shallow levels of liquidity, herding in certain trading positions, and worries about leverage, especially among traders using the ‘carry trade’ to borrow cheaply in Japanese yen and invest in riskier assets.

That said, apart from Japan, interest rates in most major currencies have been trending downward, with uncertainty centred around the timing and extent of further cuts.  

Chances of a recession in the US may have increased marginally – but most traders were still expecting it to be mild, with a ‘soft landing’ if it happens. 

Markets had also been quick to respond positively to rate cuts so far, led by a half-point cut from the US Federal Reserve followed by similar moves by the European Central Bank and People’s Bank of China.

Furthermore, until the recent escalation of hostilities in the Middle East, the oil prices had been trending down, leaving the jet fuel prices more than 20% lower in the 12 months to 27 September, according to Platt’s data. This combination of higher air freight rates and lower jet fuel prices should benefit the profit margins of carriers this year.

For air cargo going forward, however, the most important issue is the outlook for global trade, given continuing prospects of higher tariffs and other barriers into the US, EU and elsewhere, perhaps in retaliation.  

Much attention has focused on former US President Donald Trump, who previously stated that if re-elected, he planned a 10% tariff on all goods imported into the US. More recently he’s talked of a 20% tariff – and up to 60% for goods from China.

Not to be outdone, the Biden administration has announced plans for stricter rules on e-commerce imports under the so-called ‘de minimis’ exemption. 

The exemption, under Section 321 of the US Trade Facilitation and Trade Enforcement Act, currently allows goods with a value of $800 or less to avoid duties and face less customs scrutiny when shipped directly to an individual. Under its proposals, the Biden administration aims to crack down on what it suspects to be evasion of duty, circumvention of safety standards and smuggling of illicit products under Section 321.  

A very significant proportion of US imports, including an estimated 70% of textile and apparel imports from China, may no longer be exempt under the new requirements. 

Whatever might be proposed by a re-elected Trump or a new President Kamala Harris, there is also now a bipartisan bill proposed in Congress to curtail Section 321. This would close the current de minimis loophole for textile and apparel importers, impose new penalties for violations, and impose a $2-per-package fee to allow closer inspection of goods.  

As noted previously, big Chinese players in e-commerce like Temu and Shein appear to have already made some moves in anticipation – such as altering distribution models to move goods closer to big markets like the US and then tranship from places like Mexico or Canada. This has led some to anticipate greater demand for narrowbody freighters used for short-haul journeys as opposed to widebody planes used for long-haul routes.

It seems questionable whether e-commerce players can effectively evade the new requirements through such moves. But many in the industry still believe that although e-commerce prices may be forced up a little, the model itself will not be broken.

Major changes to the trading rules are unlikely to be fully implemented before the US elections in November. However, beyond the next peak season, the outlook for global trade is looking uncertain.

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.