Air freight prices are spiking as a perfect storm of demand and supply factors drives up rates.

FIS reports a sizeable surge in prices this week, with China-US rates up 43 cents per kg, China to Europe up 23 cents and intra-Asia traffic up over 22% week-on-week.

Brian Wu, chairman of the Hong Kong Association of Freight Forwarding (Haffa) and director of BEL International Logistics Limited, told Lloyd’s Loading List that intra-Asia, Asia-US and Asia-Europe demand was accelerating.

“The airlines are taking advantage of the lack of capacity and selling into the market with crazy prices,” he added.

Paul Tsui, managing director of forwarding and logistics operator Janel Group, said the reduced capacity available from Asian carriers to the US and Europe was a key factor in rising rates on inter-regional lanes. 

“Right now, the demand for air freight is still moderate but rates have been adjusted to a high level for US and Europe,” he said.

“I can see there will be more space issues as there are quite a lot of products that need to be sent overseas to catch up with the (lack of recent) deliveries.”

Source: TAC Index.

On the air cargo demand side, global prices are climbing because China is returning to work, exports are again flowing and the world is desperately attempting to address its supply chain withdrawal symptoms – parts shortages, emptying inventories, a lack of raw materials – caused by factory closures since the start of the Lunar New Year holidays in late January.

On the supply side, a lack of passenger flights due to the continued spread of coronavirus (Covid-19) has devastated bellyhold capacity. And, despite the opportunities for freighter operators, global charter capacity is also not being maximised.

“I have been speaking with a few of the American freighter operators,” one source told Lloyd’s Loading List.

“The main issue is crewing the flights. Aircraft are available but due to country authorities changing regulations, or not being clear, it is making it very hard for the carriers to crew the charter freighters. Hence the spike in charter rates.”

“Carriers would like authorities to ease up on restrictions in order to operate more flights.”

The demand and pricing surges now starting to be seen on the major East-West trades mirror earlier pricing jumps on intra-Asia lanes, as reported in Lloyd’s Loading List.

That trend has continued over the last week as year-on-year price differentials, as recorded by TAC Index, have further widened (see chart).

Tsui told Lloyd’s Loading List there has been “a huge increase in intra-Asia air rates” due to the reduction of scheduled flights because of coronavirus.

“The demand is roughly the same as last year, but the overall capacity has tremendously reduced and this leads to high rates.”

The lack of supplies arriving from China is now denting business confidence in parts of South East Asia as well as driving up air freight rates.

The Bank of Thailand (BOT), for example, reports that its business sentiment index (BSI) fell to 44.1 in February from 48.5 in January, its lowest reading since the floods of 2011 which caused global auto and electronics supply chain shortages.

According to the BOT, the deterioration of confidence in the manufacturing sector was most pronounced in the electronics and electrical appliance sectors, with respondents citing “insufficient” inventories of raw materials.

“This reflects supply chain disruptions due to factory shutdowns in China,” noted Nomura.

Haffa vice-chairman, Ryan Hsu of CTI Logistics (HK), told Lloyd’s Loading List the majority of intra-Asia shipments relied on passenger flights. “As we can see, 70-80% of them are being cancelled due to coronavirus,” he added.

“With very limited capacity there is a rate increment from double to triple or even more depending on the destination.  

“Even with the vaccine developed for said virus, I believed it takes time for everything to recover so we are expecting the current situation will be maintained like this for the first half year unless there are solutions.”

 
Rising intra-Asia air freight rates are a possible indicator of further rate increases on Asia-Europe and trans-Pacific lanes, according to Stifel.

“Verticals with heavy reliance on intra-Asia supply chains, like semiconductors and certain retail and consumer goods manufacturers, are likely to see the most proximate impact,” noted the analyst.

“But elevated rates are likely to spill over into the Transpacific lane, which have already climbed ~13% year-over-year and drive costs higher for a broader swath of companies that rely on Chinese production, in our view.”

Tsui expects the current global increase in air cargo pricing to be a short-lived.

“The demand will not last for long, maybe 2-3 weeks and then it will go back to a steady level,” he said.

“I do not see that there will be a continuous demand for air freight unless the threat of epidemics goes away.”

Source:lloydsloadinglist

The opinions expressed herein are the author's and not necessarily those of The OLO News.