Air freight prices continue to surge

4/25/2020

Air freight rates are continuing to surge, especially ex-China and in particular Shanghai, as the rush for personal protective equipment (PPE) from China by governments and health agencies around the world uses up much of the diminished available air freight capacity in the market and further drives up prices.

The latest trading update from Freight Investor Services (FIS) for the seven days to Monday notes that “Shanghai continues its monumental price surges, with Shanghai to US gaining 67 cents (up 9.68%) and into Europe up a softer 14 cents to a monumental high of $8.79”. Meanwhile, prices ex-Hong Kong slackened again, as shippers looked to source direct capacity from Chinese markets, with the Hong Kong-US trade-lane down 21 cents last week – although figures from the TAC Index indicate that Hong Kong-US prices remain up 50%, year on year, and up around 75% to Europe.

Figures from the TAC Index also highlight that average China to Europe prices have risen almost threefold since the beginning of March, when they were at a more normal price for the trade of just below US$3 per kilogramme. Prices in the opposite direction, from Europe to China, have also gone in the opposite direction pricewise, after peaking at around $3 per kilogramme at the end of February, and sliding gradually to around $1.50 per kilogramme last week - although still up from there more normal level last year of around $1 per kilogramme.

Average China-US prices have now soared to around $8 per kilogramme, compared with below $3 per kilogramme in February. Meanwhile, in the opposite direction, prices from the US to China have gradually reduced from a brief peak north of $3.50 per kilogramme in February, dropping back below $2 per kilogramme last week.

Transatlantic pricing still high

Transatlantic pricing also remains way above its normal levels, following the huge cuts in transatlantic passenger bellyhold capacity, with Europe-US prices stabilising at well above €4 per kilogramme for the last three weeks, around three times the normal level, while prices from the US to Europe have levelled out at around $2.40 per kilogramme, more than double the normal rate last year.

Prices from China to southeast Asia remain more than three times their level last year, although prices to China from key markets such as Singapore have fallen back from their very high levels in early March, although they remain around 75% higher than last year.

In his weekly market comments, Peter Stallion, aviation and freight derivatives specialist at FIS, noted that the administration proceedings this week for Virgin Australia “will resonate across the airline industry, as COVID-19 starts to cause casualties”, adding: “The focus is on how well airline cargo elements can provide buoyancy to beleaguered airlines”, a reference to the growing networks of dedicated cargo bellyhold capacity being reintroduced by passenger airlines in the form of passenger aircraft operated purely for their cargo uplift.

He added: “The continued mayhem surrounding PPE ex-China drives the price. The air freight market sits atop ballooning demand for medical equipment at eye-watering mark-ups, being absorbed by end-users (governments)”, noting ‘on-the-street’ rate highs reaching $14-16/kg.”

But Stallion said “the post-COVID environment” remained “impossible to forecast, as a result of the PPE ‘bubble’ and projections for recession and a 2-year airline recovery cycle”, adding: “Any analysis will rely on the unforeseen; will there be a COVID-19 resurgence? How long will the ‘Big Lockdown’ actually last? What will consumer demand be like on the other side? How will airline capacity react, and how confident will passengers be to fly?”