BAI Index September: Looking forward
The global air cargo markets are enduring their summer lull, at least in terms of rates. The demand picture is slightly different, with the amount of cargo moved via air lower than in 2021 for the first half of 2022 and IATA pegging demand 4.3% below 2021 levels.
Inflationary pressures have been crippling for demand into Europe. And, as a predicator for Q4, air freight needs to take a look at the collapse of spot rates on the container freight markets. The seasonal demand peak for ocean freight is typically in Q3, but this seasonal peak has all but evaporated.
The global air cargo markets are enduring their summer lull, at least in terms of rates. The demand picture is slightly different, with the amount of cargo moved via air lower than in 2021 for the first half of 2022 and IATA pegging demand 4.3% below 2021 levels. However, demand was up from 2019, +2.2%. Air cargo, like the majority of freight modes, will be at the whims of global inflation and threats of recession in leading importing economies in North America and Europe. Inflationary pressures have been crippling for demand into Europe. And, as a predicator for Q4, air freight needs to take a look at the collapse of spot rates on the container freight markets. The seasonal demand peak for ocean freight is typically in Q3, but this seasonal peak has all but evaporated. Underlying all of this has been high inventory levels for retailers following heavy congestion earlier in the year and pressures on consumers, who will be paying significantly more on utilities rather than goods.
The bull case is still the lack of demand driven by the drawdown of Russian capacity earlier in the year, linked entirely to the war in Ukraine.
The bull case is still the lack of demand driven by the drawdown of Russian capacity earlier in the year, linked entirely to the war in Ukraine. On top of this, soaring energy prices - whilst having a negative impact on demand - will also have a positive impact on freight rates. Fuel surcharges will likely remain high as long as the underlying cost of fuels remains high. Likewise, the development of the emissions markets places a premium on the Jet Kerosene burned by airlines moving in and out of Europe. The actual cost of burning fuel is much higher than the straightforward US Doller per Tonne cost of jet fuel. On this we are also seeing greater adoption of Sustainable Aviation Fuels, many of which carry a vast premium versus standard petrochemicals. Whilst a lot of the purchase of SAF has been completely voluntary, in the run up to 2050 the prevalence of SAF may become greater, thus having more of an impact on forward freight rates.
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.