TAC Index | Global Air Freight Rate Market Data
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Onwards and upwards – through peak season and beyond

After a long and at times dizzying fall from the giddy peaks of the Covid era, it seems that air freight rates may have finally bottomed out – and are now rising into not just a genuine peak season bounce, but perhaps beyond that

During the month of September, the overall Baltic Air Freight Index (BAI00) gained +11.0% over the four weeks to 2 October, cutting its decline over the past 12 months to -34.1%.

The overall trend was fairly broad-based across major lanes around the world. But a leading theme again was the continuing rise of e-commerce business out of southern China. This was reflected in the index for outbound Hong Kong routes (BAI30) – still the biggest by volume in global air cargo – gaining +7.3% over the month to leave its YoY change at -32.3%.

Outbound rates from Shanghai (BAI80) gained even more strongly, rising some +19.0% in October to leave the YoY change from there at only -28.2%.

From other regions, rates were more mixed. Out of Europe, the index of outbound Frankfurt (BAI20) rates rose only slightly by +2.7% MoM, leaving the YoY decline at -42.6%. And outbound London (BAI40) also edged up only a modest +4.5% MoM to leave its YoY change still a long way lower at -48.0%.

From the Americas, Chicago (BAI50) rates ended a volatile month with a big rise, leaving the YoY change at -30.7%. Rates on other lanes out of the US, such as to South America, were also generally on the rise.

And rates out of Vietnam ended the month with a big spike – indicating strong spot market activity.

As we said last month, airline sources have been suggesting for some time that major product launches coming up looked sure to boost demand. In September, it seems that started to feed through into rising rates.

Some sources remained sceptical, calling the rise a ‘dead cat bounce’. But others are if anything becoming even more bullish about the future.

Among the product launches they are pointing to is the new iPhone, for instance, with suggestions that pre-order bookings are looking very solid not just through year-end – the traditional peak season – but also well into Q1 next year at least as far as Chinese New Year.

The rise in rates would as usual be visible first on TransPacific routes, these sources predicted – ahead of Black Monday – but would soon pick up pace to Europe too as spare capacity started to tighten in TransPac.

Some forwarders had seen this sort of bounce coming, sources said – and had moved to secure capacity going forward. But others, including some newer players on the fast-growing e-commerce side, had not – preferring to keep paying spot prices at the recent low rates.

According to some, that may soon leave some of those players scrambling for shrinking capacity – and drive spot rates sharply higher.

In the meantime, the macro background to the market has started to look a little more constructive. Most major central banks, led by the US Federal Reserve, seem to be coming towards the end of a series of sharp rises in interest rates – with decisions to put rates up further put on hold during the last month.

This has led to speculation about whether inflation has been slayed – and thus whether interest rates may have peaked. Various commentators have become more positive about the outlook for a ‘soft landing’ in the US, which would help global markets considerably.

All of that said, there are still plenty of not inconsiderable clouds on the horizon – including the continuing tensions in Congress over the US government debt ceiling.

And outside the US, things are still not looking so great. Much of the Eurozone is already in recession – led by Germany, which has been hit hard by an energy policy that relied so much on Russian gas and had also removed the alternative of nuclear power.

The UK is also not looking great. Despite the headline rate of inflation falling, the underlying or ‘core’ rate of inflation remains stubbornly high.

And China, as noted in previous months, continues to suffer from post-Covid weakness in the key construction and property sectors.

The one economy which seems to have de-coupled from these trends – at least so far – is Japan, where a continued policy of ultra-low or negative interest rates has brought the yen down a long way. That has made the corporate sector substantially more competitive. Whether such a policy can or will be maintained, however, remains to be seen – as rising inflation may well finally force interest rates up in Japan too.

Meanwhile, weaker demand from China has weighed down on prices for various commodities.

One important exception has been in the oil market, where cuts in production led by Saudi Arabia boosted the crude price back above $90 a barrel during September – threatening to stoke inflationary pressures again just as they had been easing.

In the air cargo industry, the impact of that has not been so significant – yet at least. An 11.2% increase in crude oil prices in the month to 29 September had only fed through to a 5.8% increase in jet fuel, according to Platt’s data – as the ‘crack spread’ closed a little over the month.

If the Saudis persist in a lower oil supply strategy, that will be something to keep watching.

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