BAI Index October: Looking forward
September saw a classic draw down on rates. However, these air freight rates remain substantially higher than anything that could be considered normal in consideration to the 2019 market. A mixture of volatile fuel costs, volatile and depressed global cargo demand and an increasingly volatile capacity picture, makes the forward air freight market outlook distinctly unpredictable beyond the time horizon of BSA agreements typically agreed on a six-month basis.
The key for the Asia outbound routes will be to take a closer look at the complete collapse of rates on ocean-freight – demand for products in North America and Europe has been destroyed by a mixture of inflation, uncertainty and overstocking of inventories earlier in the year and into 2021. Majors including Nike and Apple had reported diminished earnings as a direct result of demand destruction and high freight costs – a key signal for the airfreight market.
In the numbers, fronthaul routes out of Asia have seen a wholesale decline. Out of Hong Kong, BAI 31 (Hong Kong to Europe) saw a $0.28/kg decline since 30 August 2022, matching a decline into North America on BAI32, down $0.88/kg. Considering the summer period would usually see a lull in demand, historical rates through September and back into July have been incredibly supportive. This has been joined by very supportive fuel prices as a factor of the all-inclusive capacity price. Out of Shanghai is has been much the same picture, with rates coming into alignment with Hong Kong. BAI81 Shanghai to Europe have seen a $0.45/kg drop since the end of August, with BAI82 Shanghai to North America also down extensively, dropping $1.29/kg. Price dynamics out of Shanghai have matched those out of Hong Kong, with disruption due to specific airport closures or reduced manpower due to lingering issues with COVID-19 earlier in the year somewhat alleviated. The key for the Asia outbound routes will be to take a closer look at the complete collapse of rates on ocean-freight – demand for products in North America and Europe has been destroyed by a mixture of inflation, uncertainty and overstocking of inventories earlier in the year and into 2021. Majors including Nike and Apple had reported diminished earnings as a direct result of demand destruction and high freight costs – a key signal for the airfreight market.
Outbound from Europe, and at the risk of sounding like a broken record, prices remain held up after ramping up all the way back in Q2 2020 – standing up as quite resilient versus the return of passenger belly freight capacity as COVID-19 restrictions were rapidly repealed. BAI22 Frankfurt to North America has increased in value, up +$0.32/kg since 30 August 2022 and in line with a bullish trend we have also seen on ocean freight. The balance of demand had shifted away from Asia outbound trades and movements on the transpacific towards Europe-North America. Meanwhile, the Europe-China backhaul has progressively declined in line with the general Asia import/export market trend, BAI25 Frankfurt to China down $0.33/kg over the same period.
The key shift in airfreight has been contractual, with murmurs of index-linking entering the market after two years’ worth of volatility. Moving forward, core feedstocks (primarily fuel) remain extraordinarily volatile, against a backdrop of new market entrants (the last being MSC Air Cargo) and violent swings in capacity driven largely by conflicts and the dynamics of new world norms, throttling available capacity into North America and North Europe and generating more dedicated capacity to off-index routes into Central Asia and Russia.
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.