Air freight: wars, volcanoes, earthquakes, snowfall – and goldfish

© Diego Campiglia |

November was an eventful month in air freight markets, with the overall Baltic Air Freight Index (BAI00) rising 17.2% in the four weeks to 4 December, leaving its change over 12 months at -17%.

Market sources who correctly anticipated the recent rise in rates that began in September had been expecting it to continue – and thus, a much more normal ‘peak season’ in 2023 than last year, given the strength of forward bookings. Events during the month appear to have added extra momentum to the trend.

The geopolitical backdrop to the market continued to be highly unsettled – with conflict in Gaza now added alongside war in Ukraine.

There were also some serious seismic and weather events during the month, including earthquakes and volcanoes around the globe from Iceland to Nepal, from the Philippines to the Kamchatka peninsula in Siberia.

From an air cargo market perspective, however, perhaps the most disruptive development was a prolonged period of record snowfall, over several days, in Anchorage, Alaska.

Anchorage is the third-largest airport in the world by volume for air cargo – after Hong Kong and Memphis (the home of FedEx) – and a hugely important hub and transhipment point for transpacific trade.

If severe weather in Anchorage causes any significant delays or cancellations, it can have knock-on effects – especially in peak season when finding extra capacity can be more difficult.

Arguably, those knock-on effects could be seen in the TAC Index data during the month.

Strong levels of e-commerce business out of southern China have been an increasingly dominant feature of the market all year – with rates out of Hong Kong in particular holding up better than the global average.

In November, the index of outbound routes from Hong Kong (BAI30) rose 19.2%, edging its change over 12 months back into positive territory (at +0.5%).

The index of outbound routes from Shanghai (BAI80) gained an even more robust 25.4% over the month, to leave it ahead by 7.3% YoY.

Overall, rates from China to the US are now comfortably back above where they were a year ago – and from China to Europe also rising again, and not far behind. Rates may be a long way below their Covid era peaks, but are now comfortably back above where they were before the pandemic.

Stronger volumes out of Asia were also reflected by higher spot rates on other lanes out of Vietnam, Thailand and India. But across other regions, the rise in rates has been more muted – so far at least.

Out of Europe, the outbound Frankfurt index (BAI20) was only up 1.6% MoM and still at -47.3% YoY. And outbound London (BAI40) was also only +1.6% MoM, but still down a thumping -59.1% YoY.

Rates out of the US were somewhere in between, with outbound Chicago (BAI50)  up 8.3% MoM, but at -42% YoY.

Overall, however, there seems to have been a fundamental shift in the market towards e-commerce. General cargo volumes may have remained soft – but that appears to have opened the door for e-commerce to access capacity that wasn’t historically available.

Another factor has been a trend towards declining capacity – with older freighter equipment starting to come off the market, and little replacement capacity in the pipeline.

In some markets, such as the transatlantic, there has also been an shift from widebody to narrowbody long-range aircraft – further reducing capacity there.

Meanwhile, the macro outlook for the global economy continues to look mixed, with traders wavering on the probabilities of various potential scenarios. One is that interest rates may have peaked and will start to fall next year; another that core inflation will remain sticky – and so rates will need to stay ‘higher for longer’ to conquer it.

So far the signals continue to be mixed, with longer-term bond yields high and rising, which is not usually a good sign – but with the labour market still very strong in developed markets, though starting to weaken; and inflation definitely falling.

That in turn has led to debate about whether there will be a meaningful recession – with serious consequences for economic activity, growth and unemployment. Or whether there will be a recession-free slowdown – or ‘soft landing’, expertly orchestrated by the central banks.

As we noted earlier this year, hopes for a soft landing are also sometimes dubbed the ‘Goldilocks’ scenario – not too hot and not too cold, but just right – where interest rates are raised enough to quell inflation, but not so much as to tip the global economy into serious recession.

In the past month, talk of a Goldilocks scenario has morphed into talk about a ‘Goldfish market’ – so-called to describe traders being like goldfish, said to have only a very short-term memory, as they seem to keep forgetting what happened only a short time before.

Certainly, it seems to be the case that equity markets, after a renewed rise in recent weeks, have been reverting towards where they were earlier in the year.

Once again, the rise has been heavily skewed towards the top few stocks, with the so-called ‘Magnificent Seven’ – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla – now accounting for an incredible 28% of the whole market capitalisation of the S&P500.

Traders are divided as to whether those stocks are good value at current prices, with some trading at very high price-to-earnings (P/E) ratios. Only time will tell if that reflects a renewed tech ‘bubble’, driven by the AI theme, that will ultimately burst – or whether the soft landing scenario wins out. Air cargo carriers will be hoping for the latter.