Global air freight rates maintained a firm tone again throughout the month of June according the latest data from TAC Index, the leading price reporting agency (PRA) for air freight. The overall Baltic Air Freight Index (BAI00) calculated by TAC ended the four weeks to 1 July down only a tad by -1.2%, leaving it ahead +10.4% over 12 months. The latest data confirms the market has remained surprisingly strong through what is normally a low season in the year – as extra bellyhold capacity comes on stream when passenger traffic increases in the summer. Sources said the relative strength of the market reflects continuing robust activity in e-commerce driven by big China-based exporters such as Temu and Shein. And also continued disruption to ocean shipping – which has been made much more expensive by ships diverting away from the Red Sea and around the Cape of Good Hope. A huge rise in ocean shipping rates has made air cargo look relatively less expensive. These trends are confirmed by TAC’s data on air freight rates out of China, with the index of outbound routes from Hong Kong (BAI30) gaining a further +2.3% in June to put it ahead +21.1% YoY. Outbound Shanghai (BAI80) was slightly lower by -2.7% MoM, but still ahead by a remarkable +42.1% YoY. Rates are also significantly higher YoY out of some other big markets in Asia, notably from India and Vietnam according to TAC data – particularly on lanes to Europe. Out of Europe, by contrast, the market remains somewhat weaker. The index of outbound routes from Frankfurt (BAI20) was lower again by -3.4% MoM, leaving it at -18.3% YoY. Outbound London Heathrow (BAI40) did enjoy a rise in the final week of June to push it ahead by +6.4% MoM, but is still down by -27.2% YoY. From the Americas, the market also ended the month on a weaker note – with a big drop in the final week leaving the often volatile index of outbound routes from Chicago (BAI50) down -15.9% MoM and -32.0% YoY. Nevertheless, the overall tone of the market clearly remains very firm for the time of year – with some reports even proclaiming peak season had come early. Such reports seem somewhat premature – given that traditional peak season is still months away. That said, sources report a lot of block space agreement (BSA) capacity has already been signed up for Thanksgiving and Christmas – which could presage a big spike in spot rates later in the year. Despite the strength of overall demand in the market, there has also been some news of a further tightening of capacity – with FedEx confirming in late June the permanent retirement of some 22 older Boeing 757-200 freighter aircraft from its fleet. In part, this reflects some changes in the structure of the market, including FedEx losing its position as primary cargo provider for the US Postal Service – with that role switching to UPS from September. Some sources suggest it also reflects a reduction in premium rate ‘express’ business – in a market now driven more by e-commerce players moving large volumes of lower value items. Looking ahead, some players are also speculating that e-commerce players could drive demand up for more short-haul narrowbody freighters – if they ship more items initially by ocean to air cargo distribution centres in locations like Mexico and Canada nearer to end-destination markets in North America and Europe. As noted last month, the macroeconomic outlook has also started to look somewhat more optimistic – with the US economy slowing down but at a very gentle rate, and the Federal Reserve looking to engineer an ‘immaculate soft landing’; Europe starting to revive after the shock of the Ukraine war; and Japan enjoying robust growth after years of stagnation. With the economic outlook not too bad, markets have started to fret instead about the political outlook – given the many elections around the world occurring this year, alongside ongoing conflicts in Ukraine and the Middle East. Markets seem relatively sanguine about the prospect of a Labour government in the UK. But traders and investors were rather more spooked by the unexpected snap election in France called by President Macron – which seems likely to result at best in an awkward period of ‘cohabitation’ with a National Assembly no longer aligned with the President. Likewise, there was a surprise when Narendra Modi did not achieve the big majority expected in India, though the result there has not knocked markets so much off course as initial reactions suggested. The big elephant in the room continues to be the US election in November – with increasing concerns about President Biden’s fitness for the task and prospects of a return to power for ex-President Trump. That leaves some fretting about all sorts of potential consequences from the future of democracy in the US to the stability and coherence of the NATO alliance and the wider western rules-based world order. Given Trump’s stance as a populist and previous record in power, one significant worry has been the prospect of more and higher tariffs – aimed at China in particular – and effects on global trade and economic growth. The economies of the US and China – the two biggest in the world – seem so hugely and intricately entwined that further impediments to trade may seem unlikely acts of self-harm for either side to make. That said, as we noted before some months ago, Biden and the Democrats have also proved pretty hawkish in practice on trade issues – not only not reducing or removing tariffs introduced by Trump, but continuing to add to them. Whatever the result in November, it may not be so great for trade and growth.

Air freight rates enjoyed another solid month in May, with the overall Baltic Air Freight Index (BAI00) calculated by TAC Data edging up +0.9% in the four weeks to 3 June, leaving it ahead by +6.4% over 12 months. The continuing strength of the market is slightly surprising for what is normally a low season of the year – when extra passenger bellyhold capacity is coming on stream over the summer holidays. Market sources cited various reasons for this year’s trend, including continued growth of e-commerce out of China, plus disruption to ocean shipping in the Red Sea and elsewhere pushing more business into air cargo. The index of outbound routes from Hong Kong (BAI30) – still the busiest airport in the world for cargo – was slightly lower by -0.9% over the month, but well ahead by +15.0% YoY. The outbound index from Shanghai (BAI80) gained +3.3% MoM to leave it up a chunky +41.4% YoY. Rates on other lanes out of Asia such as from India and Vietnam also ended the month rising again – particularly on routes to Europe. Out of Europe, by contrast, rates remained somewhat in the doldrums. The index of outbound routes from Frankfurt (BAI20) did have a strong final week of May, boosted by higher rates to Asia, to finish +2.3% MoM – but still down by some -26.0% YoY. Outbound London Heathrow (BAI40) dropped another -12.2% MoM to leave it languishing at -39.8% YoY. From the US, the market was stronger – with outbound Chicago (BAI50) gaining +6.5% MoM to leave it lower by only -17.7% YoY. Industry news at month-end was dominated by a reported US Customs and Border Protection (CPB) crackdown on compliance with rules for its Entry Type 86 programme for small packages entering the country – which allows duty free shipment for items worth $800 or less. The CPB announced in late May it had suspended ‘multiple customs brokers’ for suspected breaches of the rules. CPB said its aim was to tackle the import of illicit substances like fentanyl and other narcotics, counterfeits and other intellectual property rights violations, and goods made with forced labour. Some reports suggested the CPB action had caused considerable disruption for customs brokers and shippers, including delays and cancellations. Sources told TAC, however, that those reports were somewhat overblown – as most big customs brokers already had effective compliance systems in place and were not disrupted. That was supported by evidence cited on Air Cargo News that there had been no noticeable reduction on air freighter activity in late May between North East Asia and North America. Some see the reported crackdown into the US as potentially bad news for the e-commerce business model and leading players such as Temu and Shein. Others, however, point out that those players have already planned ahead – to prepare for tighter rules in the US – and also by expanding successfully into other markets around the world. Indeed, the other significant talking point in late May was the strength of rates from Asia into Europe – which some sources suggested was not yet fully reflected in the data so far on average rates achieved. Looking ahead, sources were also suggesting current patterns could presage a very strong peak season – which traditionally reaches its zenith during the runup to the Thanksgiving holiday in the US and on until Christmas and New Year in Europe. Apparently, a lot of available capacity for block space agreements (BSAs) has already been signed up for the peak season period. If so, that may mean spot rates could really spike later in the year. The current strength of the market will already be boosting the outlook for profitability among airline carriers – with cargo rates holding so steady while jet fuel prices were falling another -7.7% in the month to 31 May, according to Platt’s data. The strength of the market into Europe also chimes with macroeconomic patterns. Since the Covid pandemic, growth in the world economy has been led primarily by the US – which enjoyed a robust recovery led by its top tech companies. The US economy does now seem to be slowing down – but very gradually into what some anticipate will be the softest of soft landings. Europe, by contrast, has had to wrestle with the impact of the war in Ukraine – which led first to a massive increase in gas and electricity prices, and then inflation more generally. With European consumers reacting by cutting back on spending and saving more, that had the effect of strangling growth – both in the Eurozone and the UK. Now, however, with inflation increasingly back under control, there seems room for quicker and steeper interest rate cuts in Europe – particularly in the Eurozone – than in the US. As pointed out before, given their higher saving levels, European consumers also have plenty of firepower to increase spending. All of which is starting to raise expectations that economic growth in Europe will finally start to crank up – with the UK following a similar pattern despite core inflation there remaining a little more sticky. The strength of air cargo markets into Europe are perhaps starting to reflect that stronger market – as well as some diversion of ocean shipping traffic due to disruption in the Red Sea.

After a series of six successive weekly gains starting in February and running through March, it was a quieter spell for global air freight markets during April. The overall Baltic Air Freight Index (BAI00) calculated by TAC Data was exactly flat at +0.0% over the four weeks to 29 April, leaving it modestly lower by -7.7% over 12 months. After a further rise in the first week of May, however, the YoY comparison was getting close to flat overall at only -2.2%. There were also as usual some significant regional variations. Rates out of China continued to edge up, driven by the e-commerce sector. The index of outbound routes from Hong Kong (BAI30) – still by some distance the biggest airport in the world for cargo according to the latest Airports Council International (ACI) report – gained a further +2.0% in April to put it ahead by +10.7% YoY, and a little more again in the first week of May. Outbound Shanghai index (BAI80) gained a further +5.3% in April to leave it up by some +15.9% YoY, and even stronger a week later at nearly +30% YoY as in this latest index chart: After the further gains in the week to 7 May, the YoY figures overall for China to Europe and the US were looking considerably higher than last year – as in this latest TAC Freight chart: Sources say it is unusual for prices to remain so strong during what is normally the low season – which may indicate a stronger than usual peak season later in the year. Elsewhere out of Asia, there were also further gains on rates from both India and Vietnam to Europe and to the US. After sharp rises in recent months, they are now both a long way up YoY. Out of Europe, however, the market remained weaker. The index of outbound routes from Frankfurt (BAI20) shed a further -7.2% in April to leave it lower by some -37.8% YoY, and rebounded only a little in early May. Outbound London Heathrow (BAI40) was off a similar looking -6.5% in April to leave it languishing at -43.4% YoY, though did have a modest rebound in the week to May 7. Rates out of the US were softer too, with outbound Chicago (BAI50) dropping a lot in the final week of April to leave it lower by some -43.8% YoY – though it did also bounce back quite strongly in the first week of May. Overall rates out of North America ended April on a weaker note – though between North and South America were rising again, led by routes from Miami. Despite the conflicts in Ukraine and Gaza, the global macro picture did not change a great deal – and turbulence in the Middle East did not seem to unduly affect a cautiously positive outlook. Oil prices were up a little, but not much – with crude oil falling back under $90 per barrel. Although the crude price was up +3.8% in the year to 3 May, according to Platt’s data the crack spread continued to tighten – leaving jet fuel prices still below where they were a year before by some -8.9%. Having previously anticipated interest rates to fall quite a lot this year, markets have now gone back to expecting rates to fall more slowly – or stay ‘higher for longer’ – but do not appear too perturbed. Part of the reason is that China is caught in what some see as a ‘balance sheet recession’ – with domestic consumers saving more and paying down debt. Which means China going back again to its previous role as an exporter of deflation. According to some measures, Japan’s rate of GDP growth in 2023 even exceeded that of China – for the first time in many years. In air freight markets, e-commerce continues to be the biggest driver – with sources suggesting e-commerce players already locking in capacity for peak season, and a lot of block space agreement (BSA) capacity already sold. According to a Cargo Facts Consulting presentation to its Asia conference in Singapore last month, e-commerce currently represents about 20% of air cargo traffic – though some others estimate a lot higher at 40% or more on certain lanes. CFC estimated e-commerce as a $5.8 trillion market in 2023, with that rising towards $6.3 trillion this year – and to over $8 trillion by 2027, which would represent an increase of over 38% in five years. The market is currently being driven by the dramatic growth of two players in particular – Shein, an online retailer known for affordable fashion; and Temu, not a retailer but an online marketplace offering a wide range of products. According to another presentation in Singapore by Tom Hoang, regional director for market analysis at Boeing, by December 2023 the four biggest e-commerce players were accounting for somewhere around 10,800 tonnes of air cargo – equivalent to an astonishing 108 widebody 777Fs –every single day. Currently, Temu and Shein take advantage of a US tax exemption for imported goods of under $800 to minimise logistics costs. Apparently, about 85% of all shipments currently entering the US fall in that category. Some argue, however, that their business model is threatened by a proposed US bill to eliminate the import tariff exemption. In response, Temu has already established warehouses in Mexico – so already seems to be planning ahead of any potential restrictions. China’s overall exports to the US fell about 14% in 2023 – to below those from Mexico for the first time in more than 20 years. So perhaps a chunk of trade is going via Mexico already. Looking ahead, CFC forecasts the air cargo market to grow at an average of 3.4% a year over the next two decades – and that this will result in significant new demand for air cargo freighters. According to Hoang at Boeing, the market remains very reliant on freighters – especially on TransPacific routes, where passenger traffic

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.

There’s been fevered speculation that trouble in the Red Sea could spark a surge in air freight rates, and there was indeed a rise in late January – though nothing huge yet