BAI Index April: Looking forward
A thoroughly confusing picture developed over March with the Russian invasion of Ukraine triggering the collapse of capacity primarily on Asia-Europe routes on widebody aircraft. Asia-Europe spot rates had since surged with an initially muted response on the Baltic Airfreight Index. Shanghai to Europe (BAI81) rates picked up 39.96% from 28 February to 28 March, with resulting price action weighted down by existing Asia-Europe contract rates. This price surge has been supported by a dazzling surge in energy prices – Generic 1st line Singapore Jet Kerosene prices hitting a high of $149.632/barrel on 8 March and since settling back down to $135.307/barrel on 4 April – that generally helps support airfreight rates as fuel surcharges start to be reviewed.
This has been reflected in rates that have not reacted to the drop in capacity as a result of the war in Ukraine. Hong Kong to Europe has recently ticked up very slightly, however, from 28 February to 28 March BAI31 moved down -6.54%. This is in stark comparison to rates out of Mainland China, which have been bolstered.
Out of Hong Kong, export volumes have been severely constrained mainly due to trucking issues across the former border between Hong Kong and Mainland China – with the city itself under the constant strain of the zero-Covid policy locking business out of the city and almost permanently throttling passenger travel. This has been reflected in rates that have not reacted to the drop in capacity as a result of the war in Ukraine. Hong Kong to Europe has recently ticked up very slightly, however from 28 February to 28 March BAI31 moved down -6.54%. This is in stark comparison to rates out of Mainland China, which have been bolstered. Since the Ukraine invasion the focus has shifted back to demand, with China’s zero-Covid policy locking down Shanghai and its major airport connections. China had placed a restriction on passenger-freighter converted aircraft, although volume has been sucked out of both the air and container freight markets (container freight has been coming off sharply over the past 2-3 weeks).
On the trans-Atlantic routes there has been a marked recovery in passenger travel, mostly spurred by Europe and North America’s new and completely hands-off approach toward Covid restrictions, with testing requirements either completely dropped or incredibly minimal. However, carriers have been disrupted by staff absences that have been affecting route schedules, which has been slightly bullish for short-term rates. Longer-term is overwhelmingly bearish especially in the run up to the summer and the normal leisure travel season.
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.