Gas prices in Europe skyrocketing. Lockdowns in China lingering. Russia losing ground - but now seeking to annex chunks of Ukraine.

Countries like the UK responded with huge subsidies for energy consumers – and large tax cuts to boot – massively increasing their fiscal deficits and shaking the confidence of markets.

Central banks also responded – not with more monetary largesse this time, but by raising interest rates sharply.

Nevertheless, this still leaves the serious threat of inflation running out of control.

And how is all this being reflected in air freight markets – often a leading indicator for the global economic outlook?

Normally, at this time of year, prices tend firm up as the air freight sector gears up for peak season. This is when demand traditionally rises in the run-up to Thanksgiving, Black Friday, Christmas and New Year. But this year, prices have not been rising but slipping for many weeks. And even with a recent rise in mid-September, market sources suggested this tended to reflect ongoing longer-term contracts prevalent on many of the major routes - rather than spot prices, which were continuing to trend lower.

Well, the air cargo sector is certainly looking a little edgy and nervous. Prices have been slipping for a while, with the overall Baltic Air Freight Index (BAI00) – calculated by TAC Index – down by some -21.6% year-on-year to 3 October, after another drop of -2.8% in the latest week.

Normally, at this time of year, prices tend firm up as the air freight sector gears up for peak season. This is when demand traditionally rises in the run up to Thanksgiving, Black Friday, Christmas and New Year.

But this year, prices have not been rising but slipping for many weeks. And even with a recent rise in mid-September, market sources suggested this tended to reflect ongoing longer-term contracts prevalent on many of the major routes - rather than spot prices, which were continuing to trend lower.

The Baltic air freight indices for almost all of the major outbound locations fell on the latest weekly data – leaving Shanghai (BAI80) now down year-on-year by a steep -35.7%, Hong Kong (BAI30) down YoY -14.3%, Frankfurt (BAI20) down YoY -12.3% and London (BAI40) off YoY-27.0%. Chicago (BAI50) was showing a more modest YoY drop of -3.7%.

That left Singapore (BAI60) as the only major outbound location still up year-on-year – with a YoY gain of +44.7%.

Recent price trends out of other locations, where more of the market is conducted at spot rates, have been more mixed. Nevertheless, both India to US routes and Vietnam to US routes have declined even more steeply YoY.

Earlier in the year, when air freight prices were still high or rising, many market watchers had been expecting to see the very opposite of those trends. 

It is indeed a murky outlook ahead – as the recent Q1 results from FedEx, which surprised the market, arguably underlined. FedEx announced a miss on projected earnings of some $500 million –described by some as ‘of epic proportions’ – with the company issuing a profit warning that slashed its share price by more than -21% in a single day. Lower rates for freight are of course not bad news for everyone. Indeed, for shippers and forwarders lower rates mean they might be able to move things much more cheaply than they expected  and perhaps take some of the sting out of inflationary pressures across many sectors.

With local lockdowns – and Covid policies – continuing to disrupt supply chains from important manufacturing centres like Shanghai and Shenzhen, many had expected air cargo business to move where possible via other locations such as Vietnam. But that doesn’t seem to have happened – certainly not to much of an extent.

It is indeed a murky outlook ahead – as the recent Q1 results from FedEx, which surprised the market, arguably underlined.

FedEx announced a miss on projected earnings of some $500 million –described by some as ‘of epic proportions’ – with the company issuing a profit warning that slashed its share price by more than -21% in a single day.

Industry observers pointed to various factors, not least a loss of business due to disintermediation caused by other players such as Amazon taking business away, for some of the troubles at FedEx.

But the weaker recent market will surely not have been helping, with FedEx CEO Raj Subramaniam forced to respond with an urgent plan to introduce cost savings going forward.

The market does present a complicated picture as highlighted by Marie-Christine Lombard, CEO of Geodis, when presenting her company’s first-half results in September.

Reflecting on what had been a period of strong growth in the first half for Geodis in terms of both revenues and profits, Lombard also highlighted that rates had already been falling in recent months for air freight as well as for ocean traffic.

That said, there were some areas where demand remained strong – notably in the automotive sector, according to Lombard. And although e-commerce sector volumes had been weaker than expected, she still expected some uptick to be coming as usually happens by Q4.

That may yet pan out, but it seems highly likely to be a bumpy ride ahead.

Neil Wilson, TAC Editor

Neil Wilson is Editor of TAC Index, which provides independent, accurate and actionable global air freight data, allowing our customers to make comparative, cost-effective and intelligent air freight decisions.

Neil has more than 30 years’ experience in financial journalism and publishing, specialising mainly in derivatives and alternative investments. He has contributed to various publications including The Financial Times, The Economist and Risk magazine. He has also been a guest speaker at many industry events.

Neil has a B.A. with Honours in Philosophy, Politics and Economics from the University of Oxford.