The airfreight picture has been rocked by the developing political and economic environment surrounding Ukraine, pitched against an improving outlook for international travel and a natural coming off of demand after Chinese New Year. This has made even the short-term market impossible to forecast.

On the Asia-Europe routes, rates on the BAI have progressively collapsed, although much of the data may well be delayed until the full weight of price changes from the previous five days  hits the index. Hong Kong to Europe pulled back -0.91$/kg from last week, however we saw a reversal from Shanghai to Europe, which was up +0.30$/kg.

The bulk of any near-term bullishness is on the back of a complete collapse of available capacity into Europe from Asia. Trade lane mainstay AirBridgeCargo has been dramatically impacted by sanctions on the Russian economy, pulling out of Western Europe completely and anecdotally moving back on to a fully chartered model at attractive rates purely within Eurasia. Meanwhile reciprocal flight bans have extended the transit time for the vast majority of scheduled freight, incurring delays, congestion and increasing fuel consumption, all of which feeds directly into freight prices. 

On the Asia-US trade, the destruction of available capacity is expected to spill over from Europe. While AirBridgeCargo was not a main player into the United States, the general lack of available capacity will creep over to long-haul/widebody markets, creating an overriding bullish outlook.

On the Asia-US trade, the destruction of available capacity is expected to spill over from Europe. While AirBridgeCargo was not a main player into the United States, the general lack of available capacity will creep over to long-haul/widebody markets, creating an overriding bullish outlook.

Whilst Asia-Russia flights on Russian or non-sanctioned equipment continue, large chunks of capacity will not be able to transit, increasing the likelihood of Air-Ocean conversions on both the Asia-Europe and Asia-US trades. This is a problem for supply chains given how tight ocean freight capacity still is, even with a slight easing in demand on all trades (mainly based on seasonality). That being said, Shanghai to North America (BAI82) has pulled back 1.28$/kg, with Hong Kong to North America down in almost equal measure, down 1.73$/kg since 7 March 2022. In Hong Kong, the market has started to recognise the extreme landside shortages of trucking. Hong Kong is also being rocked by a surge in Covid cases (similar to those seen in Europe and North America), although zero-Covid policies impact Chinese cities and airports much more than their European/North American (or indeed global) counterparts.

The big mover for freight across the board will be feedstocks, in particular crude oil and oil products. Crude rates progressively soared over the past week, with Brent Crude spot prices soaring to nearly 140 $/barrel (higher than 2008) and an overarching sentiment that this could go even higher.

The big mover for freight across the board will be feedstocks, in particular crude oil and oil products. Crude rates progressively soared over the past week, with Brent Crude spot prices soaring to nearly 140 $/barrel (higher than 2008) and an overarching sentiment that this could go even higher.

This feeds through into jet kerosene that, although less flying and a demand shock in Russia could be bearish, still sits extremely high, shooting up to 137.246 $/barrel on 7 March 2022. On top of this, the sanctioning of Russian business also threatens to suck away demand that would have otherwise been available, not just directly with Russia. Automotive manufacturers have started to report parts shortages, offering up a bearish case for short-haul and long-haul freight.

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.