In terms of outright price action, July has been a somewhat uneventful month for airfreight based on the BAI index. It may well be that the previous two years’ worth of volatility has eclipsed what has been relatively gentle moves on index prices, even on historically volatile routes outbound from Asia. We’ would typically see a lull in airfreight rates leading through into Q3 but an immediate draw down in rates had been heavily disrupted by the invasion of Ukraine and the collapse of available capacity provided by market mainstay AirBridgeCargo. 

Extending beyond politics, any sabre-rattling brings in the looming threat of sanctions, which could have a material impact on demand for airfreight in the medium term. Demand for goods has already been under pressure as Covid restrictions lifted and its impact on spending habits in the demand centres in North America and Europe.

Looking forward, we see a stark range of volatility drivers. Alongside any escalation of a persistently volatile environment (particularly for the cost of fuel) linked to the war in Ukraine, we have seen a rapid escalation of tensions between the United States and China over Taiwan. Extending beyond politics, any sabre-rattling brings in the looming threat of sanctions, which could have a material impact on demand for airfreight in the medium term. Demand for goods has already been under pressure as Covid restrictions lifted and its impact on spending habits in the demand centres in North America and Europe. On top of this, growth of inflation and the technical threat of economic recession is sucking the energy out of the forward market. 

We have also seen the gradual elimination of cargo-in-cabin or passenger-freighter flights, with the European Union the latest to end the practice following on from China. Whilst this takes away capacity, it is more indicative of a drop-off in airfreight demand and a resumption of passenger travel.

Alongside the container market, airfreight could be seen as intrinsically bearish. Fuel has been supportive for outright prices, although the crude oil basis has slowly pulled back with a drop off in demand pulling oil back from the highs seen in the immediate aftermath of Russia’s invasion of Ukraine. We have also seen the gradual elimination of cargo-in-cabin or passenger-freighter flights, with the European Union the latest to end the practice following on from China. Whilst this takes away capacity, it is more indicative of a drop-off in airfreight demand and a resumption of passenger travel. Passenger travel itself has been going from shock to shock, disruption carried through into airfreight operations with airports such as Frankfurt refusing to handle non-passenger flights. However, this is not  an abnormality prior to 2020, with the Covid period proving to be the exception rather than the rule for priority handling of cargo given the complete lack of passenger traffic and the relatively free reign freighter aircraft would have into airports.

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.