BAI Index May: Looking forward
Riding a wave of cargo on the back of the delays in the Suez, airfreight saw a lift ex-Asia with substantial gains across the core Asia-Europe and Asia-US front haul. Much of this was driven by sea-air conversions and a boost on the transpacific lane as a result of the collapse of capacity provided mostly by Cathay Pacific ex-Hong Kong. Cathay had engaged in extremely strict crew quarantine procedures, cutting capacity on routes which have since returned at the tail end of April. In terms of forward sentiment, the outlook for the Asia market remains uncertain. However support from record March and April cargo demand has fed back into price support all the way through into June and July. Given this is typically the start of slack season for airfreight, this is almost certainly an upset (on top of the many upsets in 2020) for company balance sheets, especially those still relying heavily on air cargo. The scale of delays on container freight has maintained the viability of airfreight, despite enormous price increases.
In terms of a cross-market analysis, we have been seeing large volume on the tanker FFA routes, reflecting a large import of clean fuels (most likely jet kerosene) into Europe, driving speculation that passenger schedules will return in force from the end of May onwards
On the trans-Atlantic route, vaccine cargo and a persistent lack of passenger volume are supporting prices. At the risk of wearing out the record, this has been the consistent factor on trans-Atlantic and indexed backhaul routes. In terms of a cross-market analysis, we have been seeing large volume on the tanker FFA routes, reflecting a large import of clean fuels (most likely jet kerosene) into Europe, driving speculation that passenger schedules will return in force from the end of May onwards. This removes the support for high container prices, if and when passenger volumes return. There is particular focus on the intra-Europe and trans-Atlantic routes, in line with positive progress regarding vaccines. As European governments have provided official guidance regarding holiday travel, this is a positive sign for passenger volumes. There is still doubt as to whether this will impact the long-haul routes, particularly those into East and South East Asia – Singapore is on the road to another lockdown after another bump in COVID cases.
In the longer term, the forward order book for freighters, and the enthusiasm for airfreight as a means of long-term support for supply chains, have arguably been damaged. Although most freighter airlines have posted record profits (indeed far in excess of anything the market has seen before) there is still substantial doubt, and substantial risk, in the forward market. This is particularly the case for asset owners.
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.