Air cargo prices reach new highs even as traffic growth stalls

Worldwide air cargo tonnage in week 13 (23-29 March) was unchanged from the previous week, data from WorldACD show, as volumes out of four regions slipped, while the other two recorded low single-digit increases, an indication that the return of capacity – albeit still down from levels before the Middle East conflict – has absorbed current demand. On the other hand, average global full-market air cargo rates continued to rise to a new high this year at $2.98, but the momentum slowed for the second week in a row, from +10% in week 11 to +5% last week, on a week-on-week basis. Since the outbreak of the Iran war in late February, the price of jet fuel has more than doubled, reaching an all-time high in March. Inevitably, the higher jet fuel price led to upward pricing momentum.

Airlines based in the Gulf region continued to rebuild their capacity but still face constraints from the conflict, especially on their passenger schedules. Compared with the previous two weeks (2Wo2W), capacity from the Middle East and South Asia (MESA) region was up +31% for the fortnight from 16 to 29 March, but still -33% below the level in the corresponding fortnight a year ago. All other regions registered capacity growth on a 2Wo2W basis as well as year on year (YoY), led by a +15% 2Wo2W surge for origin Africa, which can be attributed to the resumption of Gulf airline services to the continent.

Demand does not keep up with capacity growth
Asia Pacific (+2%) and Europe (+1%) were the only origin regions to register week-on-week growth in chargeable weight, whereas MESA, Africa and North America all show -4% decline and Central & South America (CSA) tonnage slipped -1%. Compared to the same period last year, global volumes were down -6% with CSA (+7%) the only region showing growth, while MESA and Africa led the decline, with tonnages down -25% and -21% respectively, based on the more than 500,000 weekly transactions covered by WorldACD’s data.

After two weeks of increases, traffic from MESA to Europe dropped -11% week on week (WoW), to end up -20% year on year, partially affected by the Eid-al-Fitr holiday that continued into the beginning of last week. Chargeable weight from Dubai to Europe was down -3%, WoW, arriving at -31%, YoY, and from India to Europe by -1%, WoW, standing at -13%, YoY. Tonnages also lost ground from MESA to the US on a week-on-week basis, especially ex-Dubai (-44%, WoW) and ex-Bangladesh (-40%), while India showed growth of +6%, WoW, ending up +7% higher than a year ago.

Despite the slowdown in demand, spot rates kept rising out of MESA to Europe, climbing +5%, WoW, led by a +28% surge from Dubai. Only Bangladesh (-6%) and Sri Lanka (-1%) showed declining rates to Europe. Year on year pricing was up +84%, with rates out of Dubai three times higher to $5.44, and out of Colombo two times higher to $4.77.

MESA origin pricing to the US climbed +9%, WoW, to end up +73% higher than a year ago. Dubai led the charge with a +28% WoW surge to $10.33, while the other origins in the region registered single-digit rate hikes. Year on Year, rates were up +152% out of Dubai, while the other origins show double-digit increases up to +70% for spot rates from India to the US at $7.77.

Asia Pacific pricing on the rise
Spot rates from Asia Pacific to the US climbed +9%, WoW, to end up +8% higher than a year ago, to $5.91, with spot prices rising across all origins. Both China and South Korea saw +13% weekly rate increases, while prices rose +12% from Hong Kong and +10% from Singapore.

From Asia Pacific to Europe, spot pricing rose +4%, WoW, for a +28% gain year on year. It jumped +41%, WoW, out of Indonesia for a +115% surge over last year, while all other origins saw single-digit weekly rate hikes led by +9% increases out of Taiwan and Singapore. After Indonesia, Singapore showed the highest increase YoY (+95%), while Hong Kong went up by only +6%. Rates barely changed on a week-on-week basis from Japan (+1%), Vietnam (+2%) and China, Hong Kong and Thailand (+4%).

Traffic volumes from Asia Pacific were relatively flat week on week, showing no growth to the US and a +1% increase to Europe, which reinforces the argument for a fuel-price driven rate momentum. Notable outliers are Indonesia (down -45% to the US and -27% to Europe, WoW) and Malaysia (-11% to the US, -14% to Europe), where activity was also partially impacted by the Eid al-Fitr holiday.

Airlines in the northern hemisphere switch to their summer schedule by the start of April, which should begin to impact capacity and pricing in a number of markets in week 14. However, the ongoing conflict in the Middle East will likely have a much larger impact on demand and pricing.