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Air cargo rates surge – as shippers race to get business done in a polycrisis world

It was a strong month for global air freight markets in March. The overall Baltic Air Freight Index (BAI00), calculated by TAC Data, notched up five successive weekly gains, ending the month up +12.2% over the four weeks to 1 April, and cutting its year-on-year decline to only -16.5%.

Sources cited various reasons for this renewed strength in the market – from the continuing rise of e-commerce to upcoming product launches, plus ongoing disruption to ocean shipping in the Red Sea and elsewhere.

E-commerce was certainly a big theme at last month’s IATA World Cargo Symposium, which attracted record numbers to Hong Kong, with various players predicting the current growth trend still has a long way to run.

The renewed rise in rates, however, also looks surprising to many given the tensions in global trade – with continuing trends towards deglobalisation, onshoring / near-shoring plus new tariffs and other trade barriers either threatened or already in place.

With both Republicans and Democrats backing more protectionist measures from the US, some suggest the rise in rates may reflect a short to medium term rush – to get more business through the door before global trading conditions worsen.

As ever, the big trading lanes out of China were at the heart of the surge in rates last month. The index of outbound routes from Hong Kong (BAI30) was up +18.9% month-on-month, putting it back into positive territory over 12 months at +0.5%.

Likewise, outbound Shanghai (BAI80) was up by an even greater +20.9% MoM, though still narrowly lower YoY by -5.1%.

A number of lanes out of Asia registered even greater gains in March, with some high double-digit percentage weekly surges in rates first out of India and then out of Vietnam as well – to the US in particular, but also to Europe.

Out of Europe, the market continued to be more mixed. The index of outbound routes from London Heathrow (BAI40) did edge up by +2.7% MoM, but was still languishing a long way down by -43.5% YoY.

And outbound Frankfurt (BAI20) was slightly lower again by -2.6% MoM, leaving it also long way down by -42.6% YoY.

From the Americas, outbound Chicago was also weaker by some -10.7% MoM, leaving it at -32.8% YoY – though overall rates from North America ended the month rising both to China and to South America.

The rise in rates overall reflected the continuation of a cautiously optimistic mood in markets, with equities continuing to rise on expectations of interest rate cuts this year starting in the US and spreading across other global economies.

As March came towards a close the US Nasdaq Composite index was near a gain of 35% over the past 12 months. Markets continued to be driven by the top handful of US tech stocks – now dubbed by some the Famous Five (Alphabet, Amazon, Meta, Microsoft and Nvidia) – with the latter enjoying a further massive boost to its share price after smashing market expectations on earnings.

Also continuing the trend, Apple and Tesla appeared to be dropping out of that elite group – formerly dubbed the Magnificent Seven – with both getting hit by falling sales in China.

Meanwhile, markets in China bounced a little from their lows in late February – though the Shanghai Composite was still in negative territory by about 6% over 12 months and the Hang Seng about 17% lower YoY by the beginning of April.

That contrasted with markets in Japan, where the Nikkei was showing a gain of over 42% YoY by the end of March, taking it back above highs not seen since the early 1990s. As we noted previously Japan has been boosted by various factors – from the popularity of hybrid vehicles where Japanese companies like Toyota are market leaders to greater awareness of shareholder value in general.

Another key ingredient has been the formal end of Japan’s negative interest rate policy (NIRP), which the Bank of Japan has been signalling for a while –now finally starting to take effect, opening up prospects of a whole new era of sustained growth after years of stagnation.

In Europe, markets also continued to edge up, led by the German DAX index – up more than 17% over 12 months at the start of April – and the French CAC40 index, up more than 11% YoY. The main laggard has been the UK – with the FTSE100 up only about 4% YoY, but with equity valuations “staggeringly low” and ripe for a rerating according to some commentators.

In the past month, the oil market edged up a little – though the crack spread tightened further according to Platt’s data, helping offset any new cost pressures on cargo carriers.

Indeed, given the long list of serious geopolitical concerns – from wars in Ukraine and Gaza to US-China tensions and worries about the US election in what some are calling a ‘polycrisis world’ – market volatility has remained remarkably low. So far at least.

Some view a re-elected President Trump as potentially more hostile on trade and other issues with China, and likely to impose more and higher tariffs. In practice, however, the current Biden administration has also been pretty hawkish on trade issues anyway – with protectionist measures arguably one of the few things Democrats and Republicans seem to agree about.

If they agree so much about tariffs on China, the outcome of the US election may not make much difference – which is not necessarily good news for global trade or economic growth.

The volume of global trade has already been declining – albeit at a slow pace – ever since the global financial crisis of 2008, a slow-motion trend towards deglobalisation that seems set to continue.

Which may be one reason recent air cargo rates have been rising – as transactions get accelerated ahead of a potentially less open market in years to come.

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