Ex-China air freight rates continue rise

Ex-China air freight prices are continuing to rise this week on the back of highly constrained air freight capacity and strong demand, leading to very high load factors.

Air freight data specialist TAC Index highlighted that as air cargo capacity is continuing to tighten, “some carriers are starting to take advantage of the situation by forcing trade-up from economy product to priority due to constrained capacity”, likening this to airlines “moving the curtain in business class to the max”.  

Among the ‘Top Movers’ this week of lanes tracked by TAC Index data is Shanghai-Amsterdam, where spot rates have seen a rise this week of around 18% to more than CNY34 (US$5.25) per kilo, while prices from Shanghai to a basket of European airports have risen a further 7% this week to $5.11 per kilo, according to the Baltic Exchange’s Baltic Air Index (BAI).

China-US rates top $9/kg

And average spot prices from Shanghai and Hong Kong to the US rose to more than $9.20 per kilo, according to the BAI – rises of 8% and 7%, respectively, compared with last week.

The latest analysis by industry analysts CLIVE Data Services and TAC Index highlights that 

global air cargo demand bounced back into growth in April after a slight dip in March, “with high load factors keeping the international air freight system under significant strain as the traditional surge in summer capacity has so far failed to materialise for a second consecutive year”.

CLIVE’s air cargo market data shows volumes in April up 1% over April 2019 and +78% compared to the same month of 2020, continuing the positive trend seen in the opening two months of this year, highlighting that the second half of April 2021 showed particularly strong year-over-year growth, up 6%. 

To provide a meaningful perspective of the air cargo industry’s performance, CLIVE Data Services is continuing to focus on comparing the current state of the market to pre-Covid 2019 volume, cargo capacity and load factor data until at least Q3 of this year. This is being produced alongside the 2020 comparison.

Despite the similar volumes as in April 2019, the pressure on available airline cargo capacity is much higher, CLIVE highlighted, with overall capacity down 18% versus 2019 “as the increase in belly capacity seen then and in previous years, as airlines increased from winter to summer schedules, remained grounded due to continuing Covid restrictions on international passenger movements”. Consequently, CLIVE’s ‘dynamic loadfactor’ for April of 71% – based on the volume and weight perspectives of cargo flown and capacity available – was 10 percentage points (% pts) higher than in 2019 and 4 pts above the level of a year ago.

“The air cargo market shifted gear again in April said Niall van de Wouw, Managing Director of CLIVE Data Services. “The month-over-month change from -3% to +1% is quite a jump, but a dynamic load factor of 71% represents a tremendous strain on the air cargo system.

“This lack of bandwidth capacity-wise is being exacerbated by the fact there is no summer schedule based on passenger demand, which is contributing to the high rates being reported in the market.”

He added: “Airlines operating ‘preighter’ services need these rates in order to operate cargo-only operations because the margins on these services are very thin.”

China to Europe ‘completely full’

China to Europe volumes were 18% higher in April 2021 than in 2019, with load factors ex China at 95% or “completely full”, he said. Despite a 10% drop in volumes from Europe to North America compared to 2019, CLIVE’s latest data also shows the fall in capacity of around 40% on this lane, resulting in a dynamic load factor at 87% – 21% pts higher than in 2019.

The decline in North America to Europe volumes is less pronounced at -4% versus 2019, producing a load factor of 69% or 19% points higher than in 2019.

TAC Index data for April “shows the impact of the volume vs. capacity conundrum on air freight rates”. Gareth Sinclair of TAC Index commented: “There has been a big bounce back from the slowdown we saw in March with prices strengthening, driven by demand outstripping capacity in several markets, with some lanes recording higher pricing levels versus the highs seen in 2020.

“The BAI (Baltic Air Freight Indices) increased by almost 17% in April over March largely driven by China (HKG & PVG) with growth around 30% but London Heathrow also saw an improvement on 3 out of 4 indices although at more modest levels (~3%) building on similar growth levels in March. Frankfurt, Chicago and Singapore origins all saw declines over March levels.

“There continues to be a dynamic market environment with operational crewing and permits continuing to impact some carrier operations.” 

TAC Index says the differences by market can be seen in the performance of the China and Hong Kong markets, which continued to lead the way in terms of price strength, whilst the US and Europe saw a more volatile and mixed picture in April.

For China/Hong Kong to the US (CN/HK-US), April ended on the highest rate this year of US$8.56 or +60% vs. March, with continuous week-on-week increases since 22 February, TAC noted.  Prices are up 8% versus last year and 153% higher versus 2019.

HKG-US is exceptionally strong with the highest rate of the year at US$8.65 compared to US$4.91 on 1 March “and is approaching the highest level seen last year of $8.81 in May as market capacity tightens”. The April price is up 29% on the same period last year and +153% over 2019. And data for this week indicate that spot prices have risen beyond that high last May.

“In summary, the air freight market continues to be strong, particularly CN/HK to US, and may continue, at least in the short term, with demand strengthening as countries relax lockdowns and subdued passenger travel continues to impact capacity,” Sinclair said. “With the easing of Hong Kong quarantine rules for crew, Cathay Pacific, for example, are looking to restore their full market presence as soon as possible, which may dampen pricing.”