STOP PRESS: the war in Ukraine is having a material impact on cargo air capacity with some removed from the market due to sanctions or restrictions to flying over Russian airspace. Many services are now having to carry more fuel due to longer flying routes around Russian airspace.  The impact of this is being seen on some trade lanes, but has not yet impacted the average global rate levels as demand continues to be somewhat subdued post Chinese New Year.

The first week of March shows index increases on China to Europe and Singapore to Southeast Asia with others falling. However, for some this was after an increase in the last week of February.  With the war and disruption to capacity expected to last for some time, it is likely we will see rates rise on more lanes in the immediate future.

The first week of March shows index increases on China to Europe and Singapore to Southeast Asia with others falling. However, for some this was after an increase in the last week of February.  With the war and disruption to capacity expected to last for some time, it is likely we will see rates rise on more lanes in the immediate future.

 

In February, average air freight rates fell with demand softening due to Chinese New Year and the normal slowdown in Chinese production, but there was a mixed performance by region.  With further disruption to supply chains driven by Russia’s actions in Ukraine there is likely to be an increase in rates in the short term as capacity becomes tight with Russian operators banned from European airspace.

The BAI index average of 3,706 for the month of February was a decrease of 9% on January after a 17% on December. However, this level was still +31% versus 2021 and +119% increase over the same period in 2020. Six of the 17 lane indices were positive versus the previous month, which was an improvement on the two of 17 lane indices in January.

The differences by market in the airfreight indices are detailed below.

 

CN/HK Markets

China and Hong Kong markets both saw declines as expected versus January at 18% and 15% respectively.  Both continued to show good gains versus last year at +48% and 27% and exceptional growth versus 2020 (175% and 163%).  Shanghai’s capacity continued to be constrained due to covid restrictions.

  • The indices (BAI31 & BAI81) to Europe saw similar results month on month with China -18%, whilst Hong Kong was -12%. 
  • Both markets saw strong declines to North America with HKG -11% versus January levels, whilst PVG was -18%.
  • Hong Kong to Southeast Asia (BAI33) rates declined a more modest 4% versus January.

 

US Market

The market ex Chicago saw strong improvements to Europe and Southeast Asia.

  • ORD – EUR (BAI51) was +18% versus last month, +6% versus 2021 and +94% versus 2020.
  • ORD – SEA (BAI53) was +8% versus January, 23% higher than last year and with 16% growth versus 2020.

EUR Markets

The European markets continued to see mixed performance in February versus last month with FRA +10% whilst LHR declined by 7%.

  • FRA – US (BAI24) was +18% versus January, +14% on last year, and +212% versus 2020. 
  • FRA – SEA (BAI23) was +3% over last month and +52% versus 2021 whilst FRA – China (BAI25) was +7% and +79%.
  • LHR – US (BAI44) was -10% versus January, -7% versus 2021, but up a huge 300% versus 2020.
  • LHR – SEA (BAI43) declined 3% month on month but was up 42% on 2021.

 

SEA Market

SIN to SEA (BAI63) continued its erratic behaviour with February’s average level down by 6% versus last month, +5% versus 2021 and +70% versus 2020.

After the good news that the Omicron variant was not as severe as originally expected and the easing of travel restrictions, we now have the world of logistics heavily impacted by war and the impact it has on fuel prices and European supply chains.  It is difficult to predict how long this latest disruption will be in place and what the long-term effects will be on the world economy and trade.  Air freight rates are expected to stay at levels significantly above pre-pandemic levels for some time, whilst supply and demand continue to be disrupted by not only the covid virus and rising inflation - but also by the impact of war.

Gareth Sinclair, Advisor to the Board, TAC Index

Gareth started with British Airways Passenger Business in Financial & Commercial management roles almost 30 years ago. In 2007 he joined British Airways World Cargo, driving significant transformation in Pricing and Revenue Management systems. As Head of Revenue Management and Pricing for IAG Cargo, he introduced enhanced analytical capabilities, dynamic bid price vectors and the move towards dynamic pricing.