And despite worries about higher tariffs into the US and trade wars, with capacity still tight the outlook for air cargo may not look too bad  Air freight rates were up again last month as the market entered its traditional peak season period, with the global Baltic Air Freight Index (BAI00) calculated by TAC Data rising +4.6% in the four weeks to 2 December. The index was, however, still a little below the level of 12 months before – by -1.1% – when the market was heading into a pronounced peak season spike. Prospects for peak season and beyond were major talking points at the recent TIACA Air Cargo Forum, which brought together over 3,000 industry executives in Miami just after last month’s US elections.  Despite concerns about new, more severe tariffs imposed by a re-elected President Donald Trump – and how that might affect trade flows – the mood was sanguine if not upbeat about the outlook for air cargo, at least in public.  In an industry leaders’ panel session, Ashok Kumar of DB Schenker, for instance, said peak season would be big – if not quite as big as expected – and that he was “cautiously optimistic” about 2025. In another session, Delta Airlines Cargo president Peter Penseel said he thought the impact of the US election would probably be “not huge” – as he expected consumers to keep buying even if prices were hiked to some extent.  As various speakers noted, 2024 has turned into an unexpectedly good year.  The industry has already been anticipating some sort of crackdown on e-commerce conducted under the so-called de minimis exemption – which exempts items shipped into the US worth under $800 – as proposed by both Democrats and Republicans in Congress. But working out ways to navigate it.  While the other four speakers on his panel all gave 8 out of 10 ratings for the outlook, Penseel gave a full 10 out of 10 – emphasising how “very adaptive” the industry typically is in response to changing needs. And with capacity still looking very tight – due mainly to a low supply of new freighters – there seems good reason to stay positive. As for this year’s peak, it has indeed so far proved not as explosive as expected earlier this year – when a lot of capacity was being secured months ahead via block space agreements (BSAs). Spot rates have been rising strongly, sources report, but the rise in average rates achieved – as shown in the TAC data – has been held back by a relatively high proportion of ‘controlled capacity’ booked by forwarders planning ahead. Nevertheless, average rates on the biggest lanes – such as those out of Hong Kong, still by some distance the biggest airport for cargo volume – have continued to grind relentlessly higher. The index of outbound routes from Hong Kong (BAI30) gained a further +6.6% in the four weeks to 2 December, leaving it narrowly lower by -1.4% from the level 12 months before – when it was entering a steep peak season spike.  Rates to Europe, in particular, have been surging – driven partly by a loss of bellyhold capacity following the closure of air space over Russia, plus some switching of capacity to other lanes, sources say. By contrast, outbound Shanghai (BAI80) edged up only +1.7% MoM to leave it lower YoY by -0.7% – reflecting perhaps a very different mix of cargo that moves from there as compared with southern China. Rates on lanes out of India, Vietnam and Thailand also remain a long way above levels of a year ago – reflecting no doubt further movement of manufacturing out of China to other locations in Asia. How much further this can go – at least in the short term – is doubtful, however, given capacity constraints, sources suggest. Rates out of Europe were also trending up over the month, especially on Transatlantic lanes. The index of outbound routes from Frankfurt (BAI20) was up +11.6% MoM, finally lifting it back into positive territory YoY by +6.3%. Outbound London Heathrow (BAI40) was slightly lower by -1.6% MoM but also now well ahead YoY by +13.8%. From the Americas, outbound Chicago was up +4.7% MoM though still a long way lower YoY – by -18.0%. However, rates on certain lanes from the US, such as on Transatlantic routes to Europe, were rising strongly last month – as well as from Miami to South America, which is still well up YoY.  Looking ahead to the positive macro outlook many expressed at the TIACA meeting in Miami: What may not have been expressed directly but implicitly was a general feeling about Trump’s intentions on tariffs and trade – namely, that Trump is nothing if not a dealmaker, and hence that his campaign threats of 10-20% tariffs across the board, and 60% on China, would probably prove no more than an opening gambit. Some describe this as an ‘escalate to de-escalate’ strategy – often adopted as a negotiating stance by Trump. Only time will tell.  Initial market reactions to the election result were positive, with promised tax cuts for corporations, deregulation measures and a more liberal energy policy on fossil fuels all helping drive a strong rally in equity markets, as well as in alternative assets like bitcoin and other cryptocurrencies. That said, there are also worries going forward that Trump’s policies could stoke inflation, lead to higher interest rates, and further enlarge the huge US federal deficit – as well as hitting global trade and growth. So far, signs are that Trump will not go softly-softly on trade and will play hardball – indeed, threatening since the election to slap 25% tariffs from day one even on ‘friendly’ countries like Canada and Mexico, plus 10% more on China.  In the short term, there has been some excitement in India that their market in particular may benefit – as it was not identified initially as a target for new tariffs. On the

Air freight rates were up again last month, with the global Baltic Air Freight  Index (BAI00) calculated by TAC Data rising +8.1% over the four weeks to 4 November, leaving it ahead by +10.9% over 12 months. October thus delivered another in a series of solid gains this year, especially on big export lanes out of Asia to Europe and North America. Though not as spectacular as some had been expecting – for a period when the market enters its traditional peak season in the runup to Thanksgiving and Christmas holidays. Indeed, some big forwarders now say there may be less of a peak season spike than they were expecting back in the summer, when a lot of forward capacity was being booked via block space agreements (BSAs).  Kuehne+Nagel, for instance, said in its latest results statement that it now anticipates the peak to be ‘more muted’ than it expected earlier this year.  According to CEO Stefan Paul, this is due to customer ‘front-loading’ of volumes in order to avoid potential disruption – plus an easing of conditions in the sea-freight market and postponement of the threatened US dock strike.  That said, air freight rates were still rising last month on the big lanes out of China – led by higher spot rates, market sources said – and that was despite some reported shifting of capacity from other regions to busier routes from Asia, particularly onto TransPacific lanes. The index of outbound routes from Hong Kong (BAI30) was up +8.2% over the four weeks to 4 November, leaving it ahead by +10.2% YoY. Outbound Shanghai (BAI80) was up more – by +12.6% MoM to leave it up by an even more impressive +22.4% YoY.  Rates on other lanes out of Asia, such as from India, Vietnam and Thailand, also remain a long way ahead of 2023 levels. Out of Europe, where the market has been somewhat in the doldrums, there were also finally some gains in October – though rates do remain slightly lower YoY on lanes to the US, as well as still significantly down both to China and to Japan. Boosted by a big spike over the final week of the month, the index of outbound routes from Frankfurt (BAI20) gained +10.9% MoM, cutting its decline to only -3.2% YoY. Also boosted by a sharp rise in the final week of October, outbound London Heathrow (BAI40) jumped +15.3% MoM – lifting its gain to a much healthier looking +17.4% YoY above what had been pretty depressed levels 12 months ago. Meanwhile, from the Americas, the index of outbound routes from Chicago bucked the rising global trend with a decline of -18.4% MoM – leaving it still in negative territory YoY at -15.1%. Overall rates from the US are not down so much but do remain lower YoY both to Europe and to China – though significantly up on lanes to South America. From a global macro perspective, the air freight data arguably still reflects a market where European economies appear to be caught in a ‘doom loop’ scenario – of low to zero growth; high government debt-to-GDP levels (that they can’t reduce without growth); but a loss of competitiveness in key sectors such as German autos (due in large part to higher energy prices). In the US, by contrast, the economy has continued to defy fears of a recession – maintaining a trend towards a ‘soft landing’ with lower interest rates helping to ease the pain.   While the market has been looking ahead beyond the US election to what that might mean for trade policy, tariffs, currencies, inflation and interest rates, in the meantime China has also become a focus of attention.  This followed the announcement in late September of major action by the government and People’s Bank of China to try and address a ‘balance sheet recession’ and arrest the trend towards deflation. This so-called ‘fiscal bazooka’ – alongside lower interest rates, easing of lending requirements and other measures – sparked an immediate surge in Chinese equities in late September.  Since then, however, the market has oscillated around the same levels – as investors have tried to work out whether the trillions of RMB committed are really enough of a bazooka to move the dial on growth sufficiently. As we entered November the jury was very much still out on that. Meanwhile, there was some fascinating discussion regarding the capacity side of the market at the recent 30th annual Cargo Facts Symposium, held last month in San Diego.  Among key issues highlighted were various supply chain challenges and blockages. These ranged from current well-publicised problems with production at manufacturers like Boeing to a lack of sufficient ‘feedstock’ of older planes for freighter conversions, which looks significant given that dedicated freighters currently carry around 50% of air cargo volume (and a lot more on some important lanes). Among various illuminating contributions was a presentation from Boeing market analysis director Aaron Tayler, highlighting how growth of freighter capacity was looking highly likely to lag a continuing rise in demand, driven not least by the continuing boom in e-commerce.  Air cargo demand had risen about 7% YTD through August, according to figures Tayler cited – much in line with the rise in Baltic air freight index rates as measured by TAC. Looking ahead, demand is projected to grow an average of 2.7% a year, he added – significantly faster than capacity looks able to grow alongside it. So this year’s peak season may not be quite so strong as expected. But with air freight rates up while average jet fuel prices were down some -20.7% over the 12 months to 1 November, according to Platt’s data, 2024 should still prove a considerably profitable year for airline carriers. And with capacity looking tighter again in future, the air cargo market looks potentially even stronger going forward. Absent any major geopolitical developments – and big changes to global trade patterns.

Overall air freight rates were little changed last month, with the global Baltic Air Freight Index (BAI00) edging up +1.8% over the four weeks to 30 September, leaving it ahead by +7.5% over the previous 12 months. The index of outbound routes from Hong Kong (BAI30) – still the world’s biggest airport for cargo volume – was up +0.3% over the month, leaving it ahead by +16.8% YoY. Meanwhile, outbound Shanghai (BAI80) was up +2.7% MoM to leave it ahead +20.4% YoY. From Europe, the index of outbound routes from Frankfurt (BAI20) was higher by +1.5% but still at -11.2% YoY. Meanwhile, outbound London Heathrow (BAI40) jumped +11.6% MoM, though also still in negative territory YoY at -1.3%. From the Americas, the index of outbound routes from Chicago (BAI50) was lower by -0.7% MoM to still languish at -31.5% YoY – although overall rates from the US were generally firm to most major markets. The flattish tone of the market was arguably starting to deflate expectations of an earlier and/or more pronounced peak season surge than usual after a stronger than expected summer. At least before a dock strike threatened to disrupt ocean shipping through the US East Coast – and push yet more shippers to switch to air cargo instead. Sources have been suggesting for months that a lot of forward capacity for the upcoming peak was already sold out through block space agreements (BSAs) – which could mean spot prices surge in the runup to Thanksgiving and Christmas.  There were also a number of other factors pointing towards higher rates, including some big orders for items like solar panels and mobile phones known to be coming through.  And that was before the US dock strike by the International Longshoremen’s Association (ILA) began on 1 October – affecting all ports down the Eastern seaboard. Some market sources were also expecting a small uptick in average rates in the runup to Golden Week in China – if, as often happens, shippers rushed to move goods ahead of the holiday.  There were some signs these things might be starting to show in the TAC data during September. Rates achieved at the higher quintiles in the range of prices paid did spike at times on big lanes out of China – indicating spot rates might be on the rise, and the indices were rising in the final week of the month. However, all these things together did not appear to have had much overall effect on rates – as of yet. Indeed, some sources had been starting to say the expected peak season spike may not reach quite so high as last year.  With the threatened US dock strike now going ahead, perhaps opinions will be revised. Meanwhile, the mood in global markets has continued to be somewhat nervous.  The steep selloff in equities in early August – even if followed by a quick recovery – revealed worries about a number of things from US growth to rising interest rates in Japan. It also revealed some areas of market fragility, including: shallow levels of liquidity; herding in certain trading positions; and worries about leverage, especially among traders using the ‘carry trade’ to borrow cheaply in Japanese yen and invest in more risky assets. That said, other than in Japan, interest rates in most major currencies have been trending down – with uncertainty only about the timing and extent of further cuts.  Chances of a recession in the US may have increased marginally – but most traders were still expecting it to be mild, with a ‘soft landing’ if it happens.  Markets had also been quick to respond positively to rate cuts so far, led by a half-point cut from the US Federal Reserve followed by similar moves by the European Central Bank and People’s Bank of China. Furthermore – at least until the latest escalation of hostilities in the Middle East – the oil price had continued to trend down, leaving the jet fuel price more than 20% lower in the 12 months to 27 September, according to Platt’s data. This combination of higher air freight rates and lower jet fuel prices should be good for the profit margins of carriers this year. For air cargo going forward, however, the most important issue is the outlook for global trade – given continuing prospects of higher tariffs and/or other barriers into the US as well as into the EU and elsewhere, perhaps in retaliation.  Much attention has focused on former US President Donald Trump, who stated some time ago that if re-elected he planned a 10% tariff on all goods imported into the US. More recently he’s talked of a 20% tariff – and up to 60% for goods from China. Not to be outdone, the Biden administration has announced plans for stricter rules on e-commerce imports under the so-called ‘de minimis’ exemption.  The exemption – under Section 321 of the US Trade Facilitation and Trade Enforcement Act – currently allows goods with a value of $800 or less to avoid duties and face less customs scrutiny when shipped directly to an individual.  Under its proposals, the Biden administration aims to crack down on what it suspects to be evasion of duty, circumvention of safety standards and smuggling of illicit products under Section 321.  A very significant proportion of US imports, including an estimated 70% of textile and apparel imports from China, may no longer be exempt under the new requirements.  Whatever might be proposed by a re-elected Trump or a new President Kamala Harris, there is also now a bipartisan bill proposed in Congress to curtail Section 321. This would among other things also close the current de minimis loophole for textile and apparel importers; impose new penalties for violations; and impose a $2-per-package fee to allow closer inspection of goods.  As noted previously, big Chinese players in e-commerce like Temu and Shein appear to have already made some moves in anticipation – such as by altering distribution models to move

Air freight rates maintained a firm tone again through the month of August. The Baltic Air Freight Index (BAI00) gained another +5.6% over the four weeks to September 2, taking its rise over 12 months to +17.2%. Overall, rates have remained unusually strong throughout the summer – a season when they typically ease lower as higher passenger traffic adds extra bellyhold capacity. Market participants point to two factors in particular driving this year’s stronger price pattern: disruption to ocean traffic in the Red Sea – which has led to big delays and price hikes in ocean shipping; and the continuing rise of e-commerce, notably out of Asia. The rise of e-commerce has been reflected in the data out of China all year, and the index of outbound routes from Hong Kong (BAI30) was up a further +3.0% MoM taking its gain over 12 months to +25.0%. The outbound Shanghai index (BAI80) gained +7.8% MoM to put it ahead by an even more impressive +39.5% YoY. The rates on some other big lanes out of Asia, such as from India and Vietnam, have risen even more strongly over the past year. Indeed, rates out of Vietnam overall reached levels exceeding those from China. In August, however, rate rises from other regions were no longer lagging. Out of Europe, the index of outbound routes from Frankfurt (BAI20) was up +8.5% MoM to trim its YoY fall to only -10.1%. Outbound London Heathrow (BAI40) gained a chunky +10.4% MoM, cutting its YoY decline to only -7.6%. From the Americas, the index of outbound routes from Chicago (BAI50) gained a more modest +3.9% MoM – to show a YoY decline of -14.6%. Over the month, there was certainly a lot of ‘noise’ in the global macro outlook. Equity markets took a sharp tumble in early August amid rising fears of recession in the US – before recovering rapidly back towards previous highs. As the month came to a close, the S&P 500 index for instance was still up more than +25% YoY. The sharp fall in early August, however, was particularly steep in Japan where the Nikkei 225 index plummeted some -12% in only one day – its worst single day drop for many years. With interest rates finally rising in Japan, the equity market was suddenly gripped by worries local exporters would get hurt by a rising yen. There were also concerns about an end to the so-called ‘carry trade’ – whereby many investors all around the world have borrowed in yen for years virtually interest-free in order to invest in higher-yielding (and riskier) assets. Even though the move to higher rates had been well-signalled by the Bank of Japan, the sudden reality of a higher yen seemed to take many by surprise. Labour market and other data from the US subsequently calmed the jitters – plus expectations of faster and steeper interest rate cuts from the Federal Reserve and other central banks. As August came to a close, even the Nikkei 225 was back up over +18% YoY. Over the same period, there was the emergence of what some dub the ‘Trump trade’. This is based on expectations higher tariffs on imports to the US might in turn hit US exporters, including big tech companies that dominate the Nasdaq index – but benefit domestic companies that feature more in the Russell 2000 index. Needless to say, the relative performance of the Nasdaq and the Russell waxed and waned as odds on a Donald Trump victory in the US Presidential election first increased and then reduced – after Kamala Harris was chosen to replace Joe Biden as the Democratic Party candidate. Companies that export a lot to the US – particularly from China, though also to some extent from Europe – are certainly concerned about prospects for higher tariffs and/or other new barriers to trade. As noted previously, however, it seems strange markets are so worried about Trump – given that the Democrats, under Biden, have proved pretty much as hawkish on trade issues. Under Biden, the US has not removed but added to tariffs introduced by Trump. It has also passed the misleadingly titled Inflation Reduction Act (IRA), designed in part to incentivise developments to address the climate transition, but which some critics view as the most protectionist piece of legislation in US history. Prospects for higher tariffs and other barriers to trade with the US – and also with the EU – are not coming at a great time for China. After an initial rebound last year when Covid restrictions were eased, the Chinese economy has since got mired in a construction and property sector crisis – with consumers responding by cutting spending and increasing (already high) savings levels. The resulting decline in growth and economic activity has arguably exacerbated other knock-on effects, including a rise in youth unemployment. Hitherto, one bright spot for China has been the e-commerce sector –driven both domestically and internationally by the increasing popularity of cheaper non-branded goods. While volumes of other goods are probably little changed this year, it has been the rise in e-commerce that has lifted activity and average rates in air freight overall. In late August, however, even the seemingly unstoppable rise of e-commerce was coming into doubt – as leading player Temu delivered a set of results that surprised and disappointed the market with lower than expected levels of growth. The share price of Temu parent company, PDD Holdings, fell sharply after the results were announced – alongside some words of caution about the outlook from CEO Chen Lei. Perhaps, as with the sudden fall in the Nikkei, this sudden drop in PDD shares may come to be seen as an over-reaction by the market. After all, Temu revenues were still up some +86% from the previous year, and with a profit margin actually ahead of expectations – not dissimilar to the performance of AI giant Nvidia, which also disappointed market expectations despite huge growth. The rate of growth at

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.

Global air freight rates maintained a firm tone again throughout the month of June according the latest data from TAC Index, the leading price reporting agency (PRA) for air freight. The overall Baltic Air Freight Index (BAI00) calculated by TAC ended the four weeks to 1 July down only a tad by -1.2%, leaving it ahead +10.4% over 12 months. The latest data confirms the market has remained surprisingly strong through what is normally a low season in the year – as extra bellyhold capacity comes on stream when passenger traffic increases in the summer. Sources said the relative strength of the market reflects continuing robust activity in e-commerce driven by big China-based exporters such as Temu and Shein. And also continued disruption to ocean shipping – which has been made much more expensive by ships diverting away from the Red Sea and around the Cape of Good Hope. A huge rise in ocean shipping rates has made air cargo look relatively less expensive. These trends are confirmed by TAC’s data on air freight rates out of China, with the index of outbound routes from Hong Kong (BAI30) gaining a further +2.3% in June to put it ahead +21.1% YoY. Outbound Shanghai (BAI80) was slightly lower by -2.7% MoM, but still ahead by a remarkable +42.1% YoY. Rates are also significantly higher YoY out of some other big markets in Asia, notably from India and Vietnam according to TAC data – particularly on lanes to Europe. Out of Europe, by contrast, the market remains somewhat weaker. The index of outbound routes from Frankfurt (BAI20) was lower again by -3.4% MoM, leaving it at -18.3% YoY. Outbound London Heathrow (BAI40) did enjoy a rise in the final week of June to push it ahead by +6.4% MoM, but is still down by -27.2% YoY. From the Americas, the market also ended the month on a weaker note – with a big drop in the final week leaving the often volatile index of outbound routes from Chicago (BAI50) down -15.9% MoM and -32.0% YoY. Nevertheless, the overall tone of the market clearly remains very firm for the time of year – with some reports even proclaiming peak season had come early. Such reports seem somewhat premature – given that traditional peak season is still months away. That said, sources report a lot of block space agreement (BSA) capacity has already been signed up for Thanksgiving and Christmas – which could presage a big spike in spot rates later in the year. Despite the strength of overall demand in the market, there has also been some news of a further tightening of capacity – with FedEx confirming in late June the permanent retirement of some 22 older Boeing 757-200 freighter aircraft from its fleet. In part, this reflects some changes in the structure of the market, including FedEx losing its position as primary cargo provider for the US Postal Service – with that role switching to UPS from September. Some sources suggest it also reflects a reduction in premium rate ‘express’ business – in a market now driven more by e-commerce players moving large volumes of lower value items. Looking ahead, some players are also speculating that e-commerce players could drive demand up for more short-haul narrowbody freighters – if they ship more items initially by ocean to air cargo distribution centres in locations like Mexico and Canada nearer to end-destination markets in North America and Europe. As noted last month, the macroeconomic outlook has also started to look somewhat more optimistic – with the US economy slowing down but at a very gentle rate, and the Federal Reserve looking to engineer an ‘immaculate soft landing’; Europe starting to revive after the shock of the Ukraine war; and Japan enjoying robust growth after years of stagnation. With the economic outlook not too bad, markets have started to fret instead about the political outlook – given the many elections around the world occurring this year, alongside ongoing conflicts in Ukraine and the Middle East. Markets seem relatively sanguine about the prospect of a Labour government in the UK. But traders and investors were rather more spooked by the unexpected snap election in France called by President Macron – which seems likely to result at best in an awkward period of ‘cohabitation’ with a National Assembly no longer aligned with the President. Likewise, there was a surprise when Narendra Modi did not achieve the big majority expected in India, though the result there has not knocked markets so much off course as initial reactions suggested. The big elephant in the room continues to be the US election in November – with increasing concerns about President Biden’s fitness for the task and prospects of a return to power for ex-President Trump. That leaves some fretting about all sorts of potential consequences from the future of democracy in the US to the stability and coherence of the NATO alliance and the wider western rules-based world order. Given Trump’s stance as a populist and previous record in power, one significant worry has been the prospect of more and higher tariffs – aimed at China in particular – and effects on global trade and economic growth. The economies of the US and China – the two biggest in the world – seem so hugely and intricately entwined that further impediments to trade may seem unlikely acts of self-harm for either side to make. That said, as we noted before some months ago, Biden and the Democrats have also proved pretty hawkish in practice on trade issues – not only not reducing or removing tariffs introduced by Trump, but continuing to add to them. Whatever the result in November, it may not be so great for trade and growth.

Air freight rates enjoyed another solid month in May, with the overall Baltic Air Freight Index (BAI00) calculated by TAC Data edging up +0.9% in the four weeks to 3 June, leaving it ahead by +6.4% over 12 months. The continuing strength of the market is slightly surprising for what is normally a low season of the year – when extra passenger bellyhold capacity is coming on stream over the summer holidays. Market sources cited various reasons for this year’s trend, including continued growth of e-commerce out of China, plus disruption to ocean shipping in the Red Sea and elsewhere pushing more business into air cargo. The index of outbound routes from Hong Kong (BAI30) – still the busiest airport in the world for cargo – was slightly lower by -0.9% over the month, but well ahead by +15.0% YoY. The outbound index from Shanghai (BAI80) gained +3.3% MoM to leave it up a chunky +41.4% YoY. Rates on other lanes out of Asia such as from India and Vietnam also ended the month rising again – particularly on routes to Europe. Out of Europe, by contrast, rates remained somewhat in the doldrums. The index of outbound routes from Frankfurt (BAI20) did have a strong final week of May, boosted by higher rates to Asia, to finish +2.3% MoM – but still down by some -26.0% YoY. Outbound London Heathrow (BAI40) dropped another -12.2% MoM to leave it languishing at -39.8% YoY. From the US, the market was stronger – with outbound Chicago (BAI50) gaining +6.5% MoM to leave it lower by only -17.7% YoY. Industry news at month-end was dominated by a reported US Customs and Border Protection (CPB) crackdown on compliance with rules for its Entry Type 86 programme for small packages entering the country – which allows duty free shipment for items worth $800 or less. The CPB announced in late May it had suspended ‘multiple customs brokers’ for suspected breaches of the rules. CPB said its aim was to tackle the import of illicit substances like fentanyl and other narcotics, counterfeits and other intellectual property rights violations, and goods made with forced labour. Some reports suggested the CPB action had caused considerable disruption for customs brokers and shippers, including delays and cancellations. Sources told TAC, however, that those reports were somewhat overblown – as most big customs brokers already had effective compliance systems in place and were not disrupted. That was supported by evidence cited on Air Cargo News that there had been no noticeable reduction on air freighter activity in late May between North East Asia and North America. Some see the reported crackdown into the US as potentially bad news for the e-commerce business model and leading players such as Temu and Shein. Others, however, point out that those players have already planned ahead – to prepare for tighter rules in the US – and also by expanding successfully into other markets around the world. Indeed, the other significant talking point in late May was the strength of rates from Asia into Europe – which some sources suggested was not yet fully reflected in the data so far on average rates achieved. Looking ahead, sources were also suggesting current patterns could presage a very strong peak season – which traditionally reaches its zenith during the runup to the Thanksgiving holiday in the US and on until Christmas and New Year in Europe. Apparently, a lot of available capacity for block space agreements (BSAs) has already been signed up for the peak season period. If so, that may mean spot rates could really spike later in the year. The current strength of the market will already be boosting the outlook for profitability among airline carriers – with cargo rates holding so steady while jet fuel prices were falling another -7.7% in the month to 31 May, according to Platt’s data. The strength of the market into Europe also chimes with macroeconomic patterns. Since the Covid pandemic, growth in the world economy has been led primarily by the US – which enjoyed a robust recovery led by its top tech companies. The US economy does now seem to be slowing down – but very gradually into what some anticipate will be the softest of soft landings. Europe, by contrast, has had to wrestle with the impact of the war in Ukraine – which led first to a massive increase in gas and electricity prices, and then inflation more generally. With European consumers reacting by cutting back on spending and saving more, that had the effect of strangling growth – both in the Eurozone and the UK. Now, however, with inflation increasingly back under control, there seems room for quicker and steeper interest rate cuts in Europe – particularly in the Eurozone – than in the US. As pointed out before, given their higher saving levels, European consumers also have plenty of firepower to increase spending. All of which is starting to raise expectations that economic growth in Europe will finally start to crank up – with the UK following a similar pattern despite core inflation there remaining a little more sticky. The strength of air cargo markets into Europe are perhaps starting to reflect that stronger market – as well as some diversion of ocean shipping traffic due to disruption in the Red Sea.

After a series of six successive weekly gains starting in February and running through March, it was a quieter spell for global air freight markets during April. The overall Baltic Air Freight Index (BAI00) calculated by TAC Data was exactly flat at +0.0% over the four weeks to 29 April, leaving it modestly lower by -7.7% over 12 months. After a further rise in the first week of May, however, the YoY comparison was getting close to flat overall at only -2.2%. There were also as usual some significant regional variations. Rates out of China continued to edge up, driven by the e-commerce sector. The index of outbound routes from Hong Kong (BAI30) – still by some distance the biggest airport in the world for cargo according to the latest Airports Council International (ACI) report – gained a further +2.0% in April to put it ahead by +10.7% YoY, and a little more again in the first week of May. Outbound Shanghai index (BAI80) gained a further +5.3% in April to leave it up by some +15.9% YoY, and even stronger a week later at nearly +30% YoY as in this latest index chart: After the further gains in the week to 7 May, the YoY figures overall for China to Europe and the US were looking considerably higher than last year – as in this latest TAC Freight chart: Sources say it is unusual for prices to remain so strong during what is normally the low season – which may indicate a stronger than usual peak season later in the year. Elsewhere out of Asia, there were also further gains on rates from both India and Vietnam to Europe and to the US. After sharp rises in recent months, they are now both a long way up YoY. Out of Europe, however, the market remained weaker. The index of outbound routes from Frankfurt (BAI20) shed a further -7.2% in April to leave it lower by some -37.8% YoY, and rebounded only a little in early May. Outbound London Heathrow (BAI40) was off a similar looking -6.5% in April to leave it languishing at -43.4% YoY, though did have a modest rebound in the week to May 7. Rates out of the US were softer too, with outbound Chicago (BAI50) dropping a lot in the final week of April to leave it lower by some -43.8% YoY – though it did also bounce back quite strongly in the first week of May. Overall rates out of North America ended April on a weaker note – though between North and South America were rising again, led by routes from Miami. Despite the conflicts in Ukraine and Gaza, the global macro picture did not change a great deal – and turbulence in the Middle East did not seem to unduly affect a cautiously positive outlook. Oil prices were up a little, but not much – with crude oil falling back under $90 per barrel. Although the crude price was up +3.8% in the year to 3 May, according to Platt’s data the crack spread continued to tighten – leaving jet fuel prices still below where they were a year before by some -8.9%. Having previously anticipated interest rates to fall quite a lot this year, markets have now gone back to expecting rates to fall more slowly – or stay ‘higher for longer’ – but do not appear too perturbed. Part of the reason is that China is caught in what some see as a ‘balance sheet recession’ – with domestic consumers saving more and paying down debt. Which means China going back again to its previous role as an exporter of deflation. According to some measures, Japan’s rate of GDP growth in 2023 even exceeded that of China – for the first time in many years. In air freight markets, e-commerce continues to be the biggest driver – with sources suggesting e-commerce players already locking in capacity for peak season, and a lot of block space agreement (BSA) capacity already sold. According to a Cargo Facts Consulting presentation to its Asia conference in Singapore last month, e-commerce currently represents about 20% of air cargo traffic – though some others estimate a lot higher at 40% or more on certain lanes. CFC estimated e-commerce as a $5.8 trillion market in 2023, with that rising towards $6.3 trillion this year – and to over $8 trillion by 2027, which would represent an increase of over 38% in five years. The market is currently being driven by the dramatic growth of two players in particular – Shein, an online retailer known for affordable fashion; and Temu, not a retailer but an online marketplace offering a wide range of products. According to another presentation in Singapore by Tom Hoang, regional director for market analysis at Boeing, by December 2023 the four biggest e-commerce players were accounting for somewhere around 10,800 tonnes of air cargo – equivalent to an astonishing 108 widebody 777Fs –every single day. Currently, Temu and Shein take advantage of a US tax exemption for imported goods of under $800 to minimise logistics costs. Apparently, about 85% of all shipments currently entering the US fall in that category. Some argue, however, that their business model is threatened by a proposed US bill to eliminate the import tariff exemption. In response, Temu has already established warehouses in Mexico – so already seems to be planning ahead of any potential restrictions. China’s overall exports to the US fell about 14% in 2023 – to below those from Mexico for the first time in more than 20 years. So perhaps a chunk of trade is going via Mexico already. Looking ahead, CFC forecasts the air cargo market to grow at an average of 3.4% a year over the next two decades – and that this will result in significant new demand for air cargo freighters. According to Hoang at Boeing, the market remains very reliant on freighters – especially on TransPacific routes, where passenger traffic

It was a strong month for global air freight markets in March. The overall Baltic Air Freight Index (BAI00), calculated by TAC Data, notched up five successive weekly gains, ending the month up +12.2% over the four weeks to 1 April, and cutting its year-on-year decline to only -16.5%. Sources cited various reasons for this renewed strength in the market – from the continuing rise of e-commerce to upcoming product launches, plus ongoing disruption to ocean shipping in the Red Sea and elsewhere. E-commerce was certainly a big theme at last month’s IATA World Cargo Symposium, which attracted record numbers to Hong Kong, with various players predicting the current growth trend still has a long way to run. The renewed rise in rates, however, also looks surprising to many given the tensions in global trade – with continuing trends towards deglobalisation, onshoring / near-shoring plus new tariffs and other trade barriers either threatened or already in place. With both Republicans and Democrats backing more protectionist measures from the US, some suggest the rise in rates may reflect a short to medium term rush – to get more business through the door before global trading conditions worsen. As ever, the big trading lanes out of China were at the heart of the surge in rates last month. The index of outbound routes from Hong Kong (BAI30) was up +18.9% month-on-month, putting it back into positive territory over 12 months at +0.5%. Likewise, outbound Shanghai (BAI80) was up by an even greater +20.9% MoM, though still narrowly lower YoY by -5.1%. A number of lanes out of Asia registered even greater gains in March, with some high double-digit percentage weekly surges in rates first out of India and then out of Vietnam as well – to the US in particular, but also to Europe. Out of Europe, the market continued to be more mixed. The index of outbound routes from London Heathrow (BAI40) did edge up by +2.7% MoM, but was still languishing a long way down by -43.5% YoY. And outbound Frankfurt (BAI20) was slightly lower again by -2.6% MoM, leaving it also long way down by -42.6% YoY. From the Americas, outbound Chicago was also weaker by some -10.7% MoM, leaving it at -32.8% YoY – though overall rates from North America ended the month rising both to China and to South America. The rise in rates overall reflected the continuation of a cautiously optimistic mood in markets, with equities continuing to rise on expectations of interest rate cuts this year starting in the US and spreading across other global economies. As March came towards a close the US Nasdaq Composite index was near a gain of 35% over the past 12 months. Markets continued to be driven by the top handful of US tech stocks – now dubbed by some the Famous Five (Alphabet, Amazon, Meta, Microsoft and Nvidia) – with the latter enjoying a further massive boost to its share price after smashing market expectations on earnings. Also continuing the trend, Apple and Tesla appeared to be dropping out of that elite group – formerly dubbed the Magnificent Seven – with both getting hit by falling sales in China. Meanwhile, markets in China bounced a little from their lows in late February – though the Shanghai Composite was still in negative territory by about 6% over 12 months and the Hang Seng about 17% lower YoY by the beginning of April. That contrasted with markets in Japan, where the Nikkei was showing a gain of over 42% YoY by the end of March, taking it back above highs not seen since the early 1990s. As we noted previously Japan has been boosted by various factors – from the popularity of hybrid vehicles where Japanese companies like Toyota are market leaders to greater awareness of shareholder value in general. Another key ingredient has been the formal end of Japan’s negative interest rate policy (NIRP), which the Bank of Japan has been signalling for a while –now finally starting to take effect, opening up prospects of a whole new era of sustained growth after years of stagnation. In Europe, markets also continued to edge up, led by the German DAX index – up more than 17% over 12 months at the start of April – and the French CAC40 index, up more than 11% YoY. The main laggard has been the UK – with the FTSE100 up only about 4% YoY, but with equity valuations “staggeringly low” and ripe for a rerating according to some commentators. In the past month, the oil market edged up a little – though the crack spread tightened further according to Platt’s data, helping offset any new cost pressures on cargo carriers. Indeed, given the long list of serious geopolitical concerns – from wars in Ukraine and Gaza to US-China tensions and worries about the US election in what some are calling a ‘polycrisis world’ – market volatility has remained remarkably low. So far at least. Some view a re-elected President Trump as potentially more hostile on trade and other issues with China, and likely to impose more and higher tariffs. In practice, however, the current Biden administration has also been pretty hawkish on trade issues anyway – with protectionist measures arguably one of the few things Democrats and Republicans seem to agree about. If they agree so much about tariffs on China, the outcome of the US election may not make much difference – which is not necessarily good news for global trade or economic growth. The volume of global trade has already been declining – albeit at a slow pace – ever since the global financial crisis of 2008, a slow-motion trend towards deglobalisation that seems set to continue. Which may be one reason recent air cargo rates have been rising – as transactions get accelerated ahead of a potentially less open market in years to come.