July proved to be another unusual month in the air freight market.
The TAC Data indices ended the month more or less flat overall – but at levels still stronger than usual for the summer season, when there is often a lull.
The overall Baltic Air Freight Index (BAI00) calculated by TAC ended the four weeks to 29 July slightly lower by -0.9%, though still ahead by +8.0% over 12 months.
The underlying trends driving this were also still there – reflecting the continuing rise of e-commerce business, particularly out of China; and ongoing problems in ocean shipping, with higher prices and slower delivery times driving more business into the air cargo sector.
These trends continue to be reflected in the data for Asia – with the index of outbound routes from Hong Kong (BAI30) ending the month only slightly lower by -0.7% to be ahead by +21.8% YoY.
Outbound Shanghai (BAI80) was also off a little by -2.9% MoM by still well ahead by +33.2% YoY.
Other routes out of Asia also remain a long way up on levels of 12 months ago, particularly on lanes from Vietnam to the US and from India to Europe. And this was ahead of recent news that Apple, for instance, is starting to move some of its high-end iPhone 16 production to India.
Rates out of other regions, by contrast, continue to languish a long way from previous highs. The index of outbound routes from Frankfurt (BAI20) was down -1.6% MoM to be -28.1% YoY.
The index for outbound London Heathrow (BAI40) was looking similar at -0.3% MoM and -26.1% YoY.
Meanwhile, out of the Americas, outbound Chicago (BAI50) had a stronger month in July, gaining +10.0% MoM, but still lower by -19.4% YoY.
Looking ahead, some sources have been arguing for a while that the peak season surge started early – at least a couple of months ago – and capacity was already looking tight for later in the year. With a lot of capacity already reserved in block space agreements (BSAs), some thus predict a big spike in spot rates for the latter months of the year.
And that was before arguably the most significant market event of mid-July – the big global IT outage, which caused disruption to schedules including thousands of flight cancellations, particularly in the US affecting major airlines like United, American and Delta.
With the likelihood that at least some cargo got delayed and that some planes and crew were dislocated from planned positions, some feared this might have a further ratcheting effect on rates.
However, there was also a long list of other players – from UPS to Lufthansa to Saudia Cargo – who said there was little or no impact on them from the IT outage.
The disruption – and potential market distortions – has thus far been much less than initially feared.
From a macro perspective, markets were again overshadowed last month by political events – including the failed assassination of former US President Donald Trump and then withdrawal from the US election race of incumbent Joe Biden in favour of deputy Kamala Harris.
There were some bumps in the road in the market too in July, including a late-month sell-off of big US tech stocks. Yet markets overall remained relatively positive about the outlook – certainly for equities.
The global outlook continues to look steady, with US economic growth persisting even while inflation is dropping – and so prospects for lower interest rates improving. Though of course there are still some clouds on the horizon – such as in France, which is suffering serious government debt issues not helped by inconclusive election results.
Among other developments less widely noted – but supported by the TAC air freight data – were Chinese exports, which went up sharply in June. Imports, on the other hand, fell again in an economy still suffering from weak domestic demand.
Tariffs on Chinese goods have already been going up not just into the US but also into Europe. And China’s exporters are nervous about prospects for even more after US elections in November whichever candidate wins the race for the White House.
Some commentators who are more cautious about the outlook are also pointing out that, globally, absolute demand is perhaps not so strong as it might look – just rebounding from last year when it was pretty weak.
Global consumer demand still relatively lukewarm, they suggest, and rates could be rising mainly because shippers are moving goods earlier – which may simply cannibalise future growth.
If that more negative view proves correct, it could be that any strong peak season spike proves transitory – with rates then slipping back rapidly.
On the other hand, industry experts point out that serious problems remain in ocean shipping.
Costs in ocean shipping have gone up a lot, which means the difference in cost with air cargo has also narrowed significantly – making air freight a much more attractive option. That situation doesn’t look like changing any time soon.
IT outage and other distortions cause turbulence – but fail to throw air freight markets off course
July proved to be another unusual month in the air freight market.
The TAC Data indices ended the month more or less flat overall – but at levels still stronger than usual for the summer season, when there is often a lull.
The overall Baltic Air Freight Index (BAI00) calculated by TAC ended the four weeks to 29 July slightly lower by -0.9%, though still ahead by +8.0% over 12 months.
The underlying trends driving this were also still there – reflecting the continuing rise of e-commerce business, particularly out of China; and ongoing problems in ocean shipping, with higher prices and slower delivery times driving more business into the air cargo sector.
These trends continue to be reflected in the data for Asia – with the index of outbound routes from Hong Kong (BAI30) ending the month only slightly lower by -0.7% to be ahead by +21.8% YoY.
Outbound Shanghai (BAI80) was also off a little by -2.9% MoM by still well ahead by +33.2% YoY.
Other routes out of Asia also remain a long way up on levels of 12 months ago, particularly on lanes from Vietnam to the US and from India to Europe. And this was ahead of recent news that Apple, for instance, is starting to move some of its high-end iPhone 16 production to India.
Rates out of other regions, by contrast, continue to languish a long way from previous highs. The index of outbound routes from Frankfurt (BAI20) was down -1.6% MoM to be -28.1% YoY.
The index for outbound London Heathrow (BAI40) was looking similar at -0.3% MoM and -26.1% YoY.
Meanwhile, out of the Americas, outbound Chicago (BAI50) had a stronger month in July, gaining +10.0% MoM, but still lower by -19.4% YoY.
Looking ahead, some sources have been arguing for a while that the peak season surge started early – at least a couple of months ago – and capacity was already looking tight for later in the year. With a lot of capacity already reserved in block space agreements (BSAs), some thus predict a big spike in spot rates for the latter months of the year.
And that was before arguably the most significant market event of mid-July – the big global IT outage, which caused disruption to schedules including thousands of flight cancellations, particularly in the US affecting major airlines like United, American and Delta.
With the likelihood that at least some cargo got delayed and that some planes and crew were dislocated from planned positions, some feared this might have a further ratcheting effect on rates.
However, there was also a long list of other players – from UPS to Lufthansa to Saudia Cargo – who said there was little or no impact on them from the IT outage.
The disruption – and potential market distortions – has thus far been much less than initially feared.
From a macro perspective, markets were again overshadowed last month by political events – including the failed assassination of former US President Donald Trump and then withdrawal from the US election race of incumbent Joe Biden in favour of deputy Kamala Harris.
There were some bumps in the road in the market too in July, including a late-month sell-off of big US tech stocks. Yet markets overall remained relatively positive about the outlook – certainly for equities.
The global outlook continues to look steady, with US economic growth persisting even while inflation is dropping – and so prospects for lower interest rates improving. Though of course there are still some clouds on the horizon – such as in France, which is suffering serious government debt issues not helped by inconclusive election results.
Among other developments less widely noted – but supported by the TAC air freight data – were Chinese exports, which went up sharply in June. Imports, on the other hand, fell again in an economy still suffering from weak domestic demand.
Tariffs on Chinese goods have already been going up not just into the US but also into Europe. And China’s exporters are nervous about prospects for even more after US elections in November whichever candidate wins the race for the White House.
Some commentators who are more cautious about the outlook are also pointing out that, globally, absolute demand is perhaps not so strong as it might look – just rebounding from last year when it was pretty weak.
Global consumer demand still relatively lukewarm, they suggest, and rates could be rising mainly because shippers are moving goods earlier – which may simply cannibalise future growth.
If that more negative view proves correct, it could be that any strong peak season spike proves transitory – with rates then slipping back rapidly.
On the other hand, industry experts point out that serious problems remain in ocean shipping.
Costs in ocean shipping have gone up a lot, which means the difference in cost with air cargo has also narrowed significantly – making air freight a much more attractive option. That situation doesn’t look like changing any time soon.