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Air freight rates high for the low season – and looking stronger ahead, especially to Europe

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.

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April is quiet – but e-commerce players Shein and Temu drive growth towards next peak season

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

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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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After gyrations in February, air freight rates end the month lower

February was a strange month in air cargo markets, with a range of conflicting factors driving market rates wildly up and down at different points over the period. Among the key factors were notably the continuing disruption to ocean shipping traffic in the Red Sea – and the big surge in shipping rates that had sparked late last year. There were also instances of congestion leading to the suspension of air cargo business for short periods in certain locations, notably in Dubai and then in Bangkok – though these did not seem to be related directly to events in the Red Sea. Plus the usual rush of business ahead of the Chinese New Year holiday – which often leads to an observable ‘mini-peak’ in air freight rates in the two to three weeks ahead of that. There was indeed a rise in rates in the period ahead of Chinese New Year, but when the holiday arrived there was also then the usual big fall in volumes – and rates – out of China. After various ups and downs the overall Baltic Air Freight Index (BAI00) ended the four weeks to 4 March lower by -8.7%, leaving it at -25.0% over 12 months, reflecting a market that despite growth in some areas such as e-commerce, remains relatively soft overall. After a rebound in rates in the final week of the month, the index of outbound routes from Hong Kong (BAI30) – still the busiest airport in the world for air cargo – was lower by some -12.0% MoM, leaving it at -13.9% YoY. Despite a similar rebound following Chinese New Year, outbound Shanghai (BAI80) was also lower by -15.1% MoM leaving it at -9.9% over 12 months. Elsewhere out of Asia, however, there were some pretty big moves on other lanes – notably out of India. Rates from India started to surge in mid-February both to Europe and to North America and have kept going up – suggesting that more shippers from there are indeed turning to air cargo to beat the problems with ocean transport in the Red Sea. In other regions, however, the market was quieter. From Europe, the index of outbound routes from Frankfurt (BAI20) edged up by +1.8% MoM, though leaving it still a long way lower YoY at -45.5% reflecting what has continued to be a sluggish economy in Europe. Outbound London Heathrow (BAI40) was also close to flat at -3.0% MoM, leaving it at -48.3% YoY. From the Americas, outbound Chicago (BAI50) was an exception – higher by +9.8% MoM, though still lower by some -35.0% YoY. Debate about the global macro outlook continued to focus heavily on interest rates and prospects for rate cuts – starting in the US and then Europe – and how that might stimulate a revival in economic growth.  Markets appeared to be gearing up for rate cuts ahead – despite guidance from Federal Reserve chairman Jerome Powell and other central bank governors that they plan to proceed with caution. And despite the ongoing geopolitical crises in Ukraine and the Middle East, energy price levels – including for jet fuel – remained subdued. Indeed, crude oil prices were flat to down over the month, and the ‘crack spread’ between crude and jet fuel prices also tightened by some 16.8% in the month to 1 March according to Platt’s data, making jet fuel considerably cheaper for carriers. Equity market activity continued to be dominated by the top few US tech stocks, but with some now citing a ‘Magnificent 5’ of Amazon, Alphabet / Google, Meta, Microsoft and Nvidia – no longer a ‘Magnificent 7’ – with Apple and Tesla falling back, partly as they seem to have fewer short to medium term opportunities in artificial intelligence (AI). In Tesla’s case, some investors have argued for a long time that it was hugely overvalued – given continued consumer preferences for hybrid cars rather than electric vehicles (EVs).  That has turned out to be more good news so far this year for markets in Japan – given that Toyota is the market leader in hybrids followed by Honda and Hyundai of South Korea. All those stocks have enjoyed a surge since the start of 2024, with the Nikkei 225 index storming ahead by close to 20%. In China, by contrast, the market has struggled – with investors still underwhelmed by official efforts to stimulate stronger economic growth and address problems with the housing sector and youth unemployment. That said, China continues to be by some distance the most important exporter in world markets – including in fast growing sectors like e-commerce. In Europe, too, markets remained somewhat in the doldrums – with the war in Ukraine and higher gas and power prices continuing to cast a shadow.  That said, there are some bright spots in Europe too – including stocks like Novo Nordisk in Denmark, which has got investors very excited with its GLP-1 weight loss drugs which appear to offer a highly effective treatment to the global problem with obesity. They seem to be very much the sort of high value products that can and will be transported by air cargo. Another notable development over the month was a surge in cryptocurrencies led by Bitcoin and Ethereum amid renewed optimism about the potential applications and use cases for blockchain technology – something else that would seem to have potential in air cargo markets.

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TAC Index air freight rate index from Europe to the United States from 2020

Track air freight prices from Europe to United States with TAC Index

TAC Index launches air freight rate data from Europe to the United States (US). You can now track outbound and inbound air cargo costs between Europe and the US with TAC Index data. This new route complements existing air cargo price coverage from Frankfurt (Germany), London (United Kingdom) and Milan (Italy) to the United States. The United States is the largest trading partner with Europe. In 2022, the EU exported 509 billion Euros in goods, and imported 359 billion Euros (source: Eurostat). This makes the US the largest export market, and second-largest import market, for Europe. Since 2017, numerous exogenous factors such as the Covid pandemic, geopolitical unrest, and volcanic eruptions have impacted air cargo prices from Europe to the US. In early 2020 air cargo costs increased by nearly 200% with price volatility remaining high until mid 2022. Since then air freight rates have declined globally and in mid 2023 returned to levels seen before the Covid pandemic. Use TAC Index for data-driven supply chain decisions and leverage its accurate, real-time insights into air cargo price dynamics to gain a competitive edge. You can track the latest air cargo market data at TAC Index.

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Buy the rumour, sell the news?

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

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Vietnam to Europe air freight rate index

Air freight rates out of Vietnam driven up by Red Sea crisis and Lunar New Year demand

Air freight rates from Vietnam to Europe are on the rise. The combination of demand from the ocean freight disruptions and Lunar New Year is finally driving up prices. TAC Index data shows that, although air freight volumes increased in the two weeks to the 22nd January, the average achieved price per kg from Vietnam to Europe decreased (-20%). This trend has reversed with rates to Europe increasing 15.9% WoW to the 29th January. With the current ocean freight disruptions air cargo demand increased earlier this year relative to Lunar New Year. Air cargo volumes increased by 79% in the week to the 15th January, in line with the volume increase (75%) seen in the same period in 2023. This increase came a month, rather than 2 weeks, before Lunar New Year. We now enter the typical demand period with higher sustained volumes and increasing prices. If we look in more detail at the volume dynamics leading up to Lunar New Year we observe similarities and differences with previous years. The differences are likely caused by the ocean freight disruptions. Vietnam to Europe: air cargo volumes up earlier than usual In the lead up to Lunar New Year there is usually an increase in air cargo volumes from Vietnam to Europe. You can see this for the last three years in the chart above. Volumes increased 79% in the week to the 15th January this year, with a similar increase of 75% observed in the first two weeks of 2023. So this move is not atypical for this time of the year. There are two major differences relative to the preceding years. First, is in the timing relative to Lunar New Year. Usually volumes increase two weeks before the holidays, but this year the increase comes a full month beforehand (see chart above). Second, is in the size of the increase relative to peak season volumes. This year, volume increases are above peak season whereas in the previous two years the increase in volume remained below peak season highs. This early timing and relative size of the increase indicate that these changes are related to the ocean freight disruptions. You can track the impact on Vietnam to Europe air cargo prices at TAC Index.

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Change in air cargo prices from China to Europe and China to US since July 2023

No surge yet in air freight rates from North Asia due to Red Sea crisis

Data released by TAC Index on Monday 15th January showed that air cargo prices from North Asia to Europe had increased, but we have yet to see a ‘surge’ in rates from the current ocean freight disruptions.  Higher air freight rates from North Asia to Europe compared to the US, relative to pre-peak levels (average rate in July 2023), supported by the underlying price distribution dynamics, suggest higher and increasing air cargo demand, especially out of China. This is likely in reaction to the ocean freight disruptions combined with the upcoming Lunar New Year holidays when demand and rates tend to rise. The aggregate data does mask some more granular variations as rates on some lanes showed larger increases. For example, Shanghai and Hong Kong to Amsterdam, increased by +9.7% and +6.2% respectively in the week to 15th January. China to Europe and the United States Air freight rates out of China to both Europe and the US saw a slight increase in the week to 15th January. Average air cargo prices from China to Europe increased by +1.3% week on week (WoW), and prices from China to the United States halted their decline with a +0.8% WoW increase. There are significant differences in the current prices compared to their pre-peak average for the two markets (see chart above). From China to Europe air freight rates were 21.6% above their pre-peak average compared to only 6.4% to the US. This suggests that relative demand, in respect to pre-peak levels, is higher to Europe than to the US. Although average rates for both China-Europe and China-US increased slightly last week there were differences in the underlying dynamics of the price distribution observable in the inter-quintile (20th to 80th percentile) ranges (see charts above). From China-US the upper-quintile was stable, but the lower quintile was still declining. Whereas from China-Europe the lower-quintile was stable and the upper-quintile increasing. These price dynamics suggest that air cargo demand to Europe is increasing. Hong Kong to Europe and the United States In the week to the 15th of January air freight rates out of Hong Kong to Europe stabilised with a -0.2% WoW decrease, whereas from Hong Kong to the United States rates continued to decline with -4.6% WoW decrease.  In contrast to China, there are no significant differences in the current prices compared to their pre-peak average for the two markets (see chart above). Average prices to Europe indicate the market has stabilised 13% above pre-peak levels whereas to the US they were now only 10% above and still decreasing. Comparing the air cargo price time series for the two markets (plotted above), there were differences in the underlying dynamics of the price distributions. From Hong Kong-Europe, across the full range, prices have been stable WoW. This is in contrast to Hong Kong-US where they have all been decreasing.  You can keep up to date with all air cargo price developments at TAC Index.

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Europe to China air freight rate index from 2020

TAC Index Launches Air Freight Rates from Europe to China

TAC Index is pleased to announce that air freight rates for general cargo from Europe to China are now available on the TAC Index website. This route complements our more granular air cargo market coverage to China, such as Frankfurt to China and Frankfurt to Shanghai. China is the second largest export market from Europe (excluding intra-Europe trade). The EU alone exported more than 230 billion Euros of goods to China in 2022 (source: Eurostat). The EU also imported more than 620 billion Euros worth of goods from China in 2022 making it the EU’s largest import partner (source: Eurostat). With TAC Index data you can now track air cargo price volatility on both Europe to China export and China to Europe import markets. Air freight rates from Europe to China currently sit below pre-Covid levels, but they have had a turbulent journey since the start of 2020. Air cargo prices surged more than 200% with the initial impact of Covid in 2020 and then again with further lockdowns in September 2021. Then in 2022, as rates were declining, air cargo capacity was rocked by Russia’s invasion of Ukraine sending rates to their peak in mid 2022. Since then, and with the reopening of China in early 2023, air freight rates have been on a consistent downward trend before stabilising in Q2 2023. Use TAC Index to make data-driven supply chain decisions and gain an edge with accurate, real-time insights into air cargo price dynamics. You can now track the latest air freight rate market data through the TAC Index dashboard.

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Rockets in the Red Sea yet to rock air freight rates – but impact may be coming soon

After rising steadily through September, October and November, air freight rates remained buoyant through the first half of December – before falling sharply over the Christmas and New Year holiday period. According to data from TAC Index, the overall Baltic Air Freight Index (BAI00) ended lower by -16.9% in the four weeks to 1 January, leaving it down by -31.7% over the calendar year. In the first week of January, there was no immediate bounce with the BAI00 index shedding a further -6.6% to leave it at -31.8% YoY. The fall in rates ran counter to some expectations rates would spike again following disruption to ocean shipping in the Red Sea – with Houthi rebels in Yemen firing rockets at ships and carriers diverting vessels around the Cape of Good Hope, adding a lot of time and cost for shippers. So far at least, it seems little if any ocean shipping was diverted immediately to air cargo – though that could of course change and looks increasingly likely in the weeks ahead. Indeed, sources are speculating this could stimulate a boost to Sea-Air solutions, with more shippers opting for sea lanes from Asia to the Middle East and then air to Europe to meet delivery deadlines. With Chinese New Year also coming soon – which often stimulates a ‘mini-peak’ in any case – many do expect rates to spike again in the next few weeks. What’s happened so far, however, seems to be that the traditional peak season for air cargo – through the runup to Thanksgiving in the US, Black Friday and the Christmas holidays – has followed its normal course. The rise in air freight rates through the autumn was led very much by e-commerce business out of China – and so was the subsequent fall in the final two weeks of December. The index of outbound rates from Hong Kong (BAI30) suddenly dropped a whopping -22.9% in the final two weeks of December – putting it lower by -16.3% for the month as a whole, and back in negative territory YoY by -14.4%. That said, the decline in rates over the full year was still far less from Hong Kong than from other big outbound centres – reflecting Hong Kong’s role as the leading hub for the boom in e-commerce activity out of southern China, and continuing status as the top airport in the world for air cargo. After a big fall in the final fortnight of the year, the outbound index for Shanghai (BAI80) fell much more sharply by -30.8% MoM to leave it lower by -30.3% over 2023. Sources suggest the big drop in rates out of China overall probably reflected a sudden drop in spot volumes, which had been trending up sharply – leaving a much higher proportion of the business going through at previously agreed (and much lower) contract levels. Rates from elsewhere in Asia were not falling so much, they noted, and indeed still rising on some lanes to Europe – such as fromVietnam,Bangkokand India – as well as on Transatlantic routes. The data on rates has certainly been following very different patterns on different lanes. Out of Europe, for instance, rates overall ended December actually higher – the index of outbound Frankfurt routes (BAI20) up +7.2% MoM, though still a long way lower by -47.8% over 12 months. Likewise, rates out of London (BAI40) were higher by +4.0% MoM, though still languishing at -51.7% YoY. While rates out of Europe did not see the same sort of dramatic fall as from China over the holiday period, they had of course not enjoyed the same sort of strong peak season rally either in the months before. Out of the US, rates from Chicago (BAI50) did soften in December, though to a modest extent – showing a fall of -7.0% MoM to end lower by -45.2% YoY. Aside from the obvious geopolitical concerns – with ongoing wars in Ukraine and Gaza, plus developments in the Red Sea – the global macro outlook actually brightened to some extent during the final part of 2023. Sentiment in markets was buoyed by more dovish guidance on the direction of interest rates from Jerome Powell, chairman of the US Federal Reserve. That in turn helped fuel a further surge in equity markets in December, with the S&P500 index ending the year up more than 24%. The more bullish outlook even extended to Europe – where the economy has been in borderline recession for some time – with even the German DAX index ending the year up more than 18%. One significant exception continued to be the UK, where the FTSE100 delivered a paltry 3.5% in 2023 – weighed down by slower progress on quelling inflation, and hence expectations for interest rate cuts in sterling. The other major developed economy still in a different place is Japan, which continues to be the last holdout against normalisation of monetary policy following the prolonged era of low to negative interest rates and quantitative easing (QE). Even there, however, there have been increasingly strong signals from the Bank of Japan that it is setting a course towards normalisation – which could have significant effects on markets given Japan’s status as the third biggest economy in the world. That task will of course be made much easier for the BoJ if rates are already falling in dollars and euros. Some see the recent rise in equities as a case of investors getting over-excited – which may lead to disappointment with returns ahead. But plenty now foresee the first interest rate cut being just weeks away, starting in the US. If so, that should stimulate faster economic growth – and a better outlook ahead for markets. For air cargo in particular, with demand likely to be stimulated at least to some extent by the problems with shipping in the Red Sea, any pressure on capacity levels – such as from higher levels of military traffic – could indeed spur more than just

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