Airfreight is on course for a slump, alongside the bulk of the freight markets, and largely driven by a collapse of demand across the vast majority of sectors. Retail spending is down sharply and this is having a negative impact on relative demand. The good news for the airfreight market is there appears to be a genuine shift in the perception of value in the air cargo market, something that held the market back pre-2019.     

Alongside this, demand restrictions remain with no end in sight for the Russia-Ukraine conflict, which had shifted capacity away from North Europe and put tension on air freight prices. As a result, the baseline price for airfreight is consistently higher than the levels we saw in 2019, even with demand destruction and poor output by key air freight shippers that had in prior years heavily supported the market.

Alongside this, demand restrictions remain with no end in sight for the Russia-Ukraine conflict, which had shifted capacity away from North Europe and put tension on air freight prices. As a result, the baseline price for airfreight is consistently higher than the levels we saw in 2019, even with demand destruction and poor output by key air freight shippers that had in prior years heavily supported the market. On the back of this, the price of Jet Kerosene remains high, bolstered by consistently high crude prices and a consistent passenger travel picture. More passenger travel results in more jet kerosene consumption, which impacts the cost of fuel surcharges paid on airfreight.

Looking forward, capacity and demand, and the impact of fuels remains a risk. Entering the fray is a push for decarbonisation. Whilst this is still quite a niche conversation relative to major fuels, sustainable aviation fuel has been growing in uptake. Fuels promoted by bio-fuels major Neste bring with them a much higher price tag than standard jet fuel. Whilst pioneering shippers have shown willingness to assume this cost for ESG reasons, there has been little clarity about how quickly this will be taken up by the wider market.

Moving on from this, a rising cost base collides with any changes in the inflationary/ recessionary environment large sections of the world economy find themselves in. Alongside ocean freight, the restriction of capacity in reaction to a drop in demand could trigger another cycle of freight rates. If capacity is low, prices remain relatively supportive compared to 2019 and demand returns post-recession in the future. This could - and indeed historically has - triggered strong volatility

About Peter Stallion, Head of Air and Containers, Freight Investor Services

Peter Stallion heads up the Air and Container Freight desks at FFA brokerage Freight Investor Services. He started his career in air freight chartering, and has a passion for emerging risk management markets and the logistics industry.