Renewed strikes in the Gulf and surging jet fuel – yet airfreight rates continue trending lower in July

July was a strange month in air cargo markets. After the ceasefire in June, there were renewed hostilities in the Middle East between the US and Iran – leading to a renewed surge in jet fuel prices. But overall air freight rates, as tracked by TAC Index, mostly continued to fall.

With the fragile ceasefire between the US and Iran starting to unravel, and the two sides trading strikes across the Gulf, jet fuel prices started to rise again – and kept going up for most of the month.

According to IATA’s Jet Fuel Price Monitor, based on Platts data, jet prices increased for four successive weeks through July 24 – and even after a slight fall over the week to July 31 were still up some +76.4% versus the previous year.

Yet the global Baltic Air Freight Index (BAI00) calculated by TAC did virtually the opposite – falling for five successive weeks through July 27, losing -8.8% month-on-month, leaving it at only +16.8% year-on-year.

There was then a small rise over the week to August 3, leaving the BAI00 index down – 5.0% MoM and at +19.6% year-on-year. That was still well ahead of where it was in 2025 – but nothing like so high as in March and April.

Of course, jet fuel is not the only input into the running costs of an airline –so not directly correlated. There is also of course the very significant cost of acquiring or leasing the aircraft as well as hiring the skilled personnel to run it, plus various other fixed costs. But jet fuel is certainly a key input – typically accounting for one-third or more of a carrier’s total expenses.

So why did air freight rates not rise in July – as they had done so spectacularly in March after the US and Israel first launched air strikes against Iran?

Sources pointed to a number of factors – including the fact that we were now entering the summer or ‘low season’ when there is usually a lull in air cargo rates. That often occurs when the summer holidays start – with more passenger traffic, which may increase demand for jet fuel. But it also adds extra bellyhold capacity, particularly on certain lanes – such as Transatlantic routes.

There were also specific one-off factors, such as the end of the de minimis regime for small parcels entering the EU – taking effect from the start from July – leading to a sudden drop in volumes from Asia to Europe.

The latter effect seemed to be reflected in BAI Spot rates out of Hong Kong to Europe, which fell pretty steeply from HK$42.53 per kilo on June 30 to HK$35.08 by July 31. And that was despite reductions in capacity on Asia-Europe, sources suggested, with some freighters withdrawn for maintenance and others redeployed to other lanes.

By contrast, BAI Spot rates from Hong Kong to the US remained much firmer. HK to the US East Coast dropped only a little from HK$53.49 per kilo on June 30 to HK$50.78 by July 31. HK to the West Coast also dropped only marginally from HK$49.43 to HK$46.34 between the same dates – with volumes continuing to be strong.

But the biggest factor, sources suggested, is that this time carriers were simply better prepared for further market shocks – through various hedging strategies and methods to secure jet fuel supplies further forward.

Back at the end of February when the US and Israel attacked Iran – and Iran responded by hitting oil and gas infrastructure across the Gulf and effectively shutting the Strait of Hormuz – many carriers were taken by surprise. This time, according to one source, they may have had to pay more for jet fuel – but were not so worried about finding supplies.

The index of outbound routes from Hong Kong (BAI30) – reflecting the full spectrum of spot and forward contract rates to multiple destinations from the world’s busiest cargo airport – fell in line with the global index over the month, losing -9.6% over four weeks to July 27 to leave it at +16.5% YoY. After a small rise in the week to August 3, it was at +22.0% YoY.

Outbound Shanghai (BAI80) – second only to Hong Kong by volume globally – fell a similar -8.8% MoM to July 27 to leave it at +23.3% YoY. After a modest fall over the week to August 3, it was at +20.5% YoY.

From Shanghai as well as from major cargo centres in South East Asia, rates were generally softer, and also dropping further to Europe – while remaining a little firmer on Transpacific lanes.

However, from some locations in North Asia such as Taiwan and Seoul – both big exporters of semiconductors – rates were on the rise again through month end, especially to the US.

From Europe, the index of outbound routes from Frankfurt (BAI20) was falling steadily for most of the month – but then rebounded strongly over month-end, taking it to a gain of +4.4% over four weeks to August 3 and back into positive territory YoY at +32.1%.

Outbound London Heathrow (BAI40) by contrast went the other way – being boosted for much of July by firmer rates on disrupted lanes to the Middle East, but then dropping sharply over month-end to leave it at -11.6% YoY.

From the US, rates generally remained firm through July – though the index of outbound routes from Chicago (BAI50) dipped -3.9% MoM to August 3, leaving it at +21.0% YoY.

From a global macro perspective, markets continued to fixate on the AI trade.

There was continued debate not only about who the winners might be between competitors like Anthropic, OpenAI and others including Chinese ‘open source’ competitors. But also about the sheer scale of investment in the sector – though some
continued to believe outcomes may yet exceed expectations.

Many investors were fretting in particular about whether such levels of investment can ever be justified by returns, given the heroic levels of growth in revenues and profits needed. Or even sustainable given the scale of growth implied for data centres, power generation and network capacity.

All of this led to further wobbles in equity markets in July – with sharp falls during the month for some big tech players including semiconductor producers like Samsung and SK Hynix in Korea, which had only recently reached giddy new highs.

It was too early to tell whether such short term volatility might translate into a more general sell-off – and bursting of the ‘AI bubble’ as some have been predicting.

According to TAC Freight data, air freight rates out of Korea and Taiwan – both big exporters of semiconductors and related kit – were rebounding again at month-end, especially to the US. For now at least they remain a long way up YoY, and comfortably above the global averages.