Air freight rates will not normalise despite recent retreat

In July, prices out of Asia took a tumble. Rates from Hong Kong to major US gateways fell around 30% from June, while rates from Shanghai to Los Angeles and New York sank 6% and 12% respectively. Rates from Hong Kong to Frankfurt and London and from Shanghai to Amsterdam and Frankfurt saw double-digit declines, as did prices from Hong Kong and Shanghai to Sao Paulo. US airfreight pricing sank overall, due to drops in the transpacific market in both directions, although the transatlantic trade fared better.

Traffic continued to recover in June and July, fuelled by the restart of economic activity and easing of lockdown measures in several key economies. Nevertheless, pricing continued its retreat from the peak levels in April and early May, as demand for PPE declined and shippers diverted cargo to less expensive modes of transport.

Statistics from the International Air Transport Association (IATA) for June show a modest rise in traffic, with the global cargo ton-kilometre (CTK) tally ending up 17.6% lower than a year earlier, up from a 20.1% decline recorded in May. Likewise, international CTKs were down 19.9% year on year, an improvement over the 21.4% shortfall in May.

Predictably the recovery in traffic and more pronounced shortage in lift resulted in elevated load factors across all regions, with the global tally rising 11.5% in June. IATA noted that air transport lost market share in world trade to ocean and rail transport, a pattern that was partly masked earlier by the rush to move PPE and medical shipments.

According to IATA, this shift is a typical pattern in downturns, which should reverse itself as global demand recovers and airfreight is needed to rapidly refill inventories.

The retreat of airfreight prices and the strengthening of demand for ocean transport is reflected in the Drewry East-West Airfreight Price Multiplier Index, which shows airfreight at a value of 26.9 for June, down from 29.1 in May. It dropped further in July to a reading of 20.4, as ocean rates strengthened.

The recent rise in the COVID-19 infection rate in the US hit consumer confidence in July, according to the Conference Board, reinforcing predictions that the recovery from the pandemic will likely be a long road back. The National Retail Federation expects the most modest peak season since 2016, with relatively strong traffic in August and September followed by a decline in volumes.

Airline load factors remain very high. Drewry does not see a return to normal, historical air freight rates. In the context of hesitant belly capacity growth, we foresee continuing elevated rates in the coming months and product launches like PS4 could even produce spikes.