News / Air rates merry-go-round looking intense – 'how low will it go?'

Airfreight rates continue to plummet, but new product launches and improved faith in the US economy have left analysts divided on what the year-end will bring.

Xeneta’s Clive Data Services recorded July spot rates declining at a hastening pace of 40% “or more”, year on year, the fourth consecutive month of decline, with Tac’s Baltic Air Freight Index putting the drop at 46.2%.

Chief airfreight officer at Xeneta Niall van de Wouw said: “July rarely provides any surprises in terms of unexpected performance levels in the global air cargo market. But what will be concerning airlines and forwarders is the constant month-on-month decline in average rates, and the quickening pace of this fall since the turn of the year.

“Going into the usually critical winter rates negotiation period, it’s clear shippers will have the upper hand.”

Mr van de Wouw said forwarders would be questioning their decision to choose multi-year contracts during the peak of the pandemic, noting that many were now “bleeding cash”.

With shippers having already relaunched contract negotiations to push down rates with their logistics providers, eyeing longer, 12-month, deals to reduce costs, he said carriers were undoubtedly aware that they will begin to experience similar issues from forwarders.

“The rates merry-go-round will be intense this winter; the key question for all stakeholders monitoring the global air cargo market demand is ‘how low will it go?’,” he added.

If late-July numbers are anything to go by, shippers may wish to act fast, with Clive and Tac indicating that rates may have bottomed-out in the second week, the latter noting a month-on-month increase of 1.2%.

Citing market sources, Tac said that, despite no signs of a “bounce back”, there was increasing optimism for “some sort of uptick… based not least on major product launches”.

However, one forwarder told The Loadstar the impact of product launches on capacity had become increasingly overplayed, with the pandemic having altered the “need for speed” when it came to getting certain goods to market.

“This stuff about product launches leaving things busy is bollocks, yes it will mean certain lanes are busy, but not the entire sector,” said the forwarder.

“Then there’s pandemic-induced tolerance for longer lead times on product launches. Before Covid, retailers would expect the new iPhone delivered within two weeks, and by air; now they’re willing to wait six weeks for it to come by sea. Added to that is the consumer response to new product launches, where before you’d see mile-long queues for that new iPhone – you’re not seeing that now.”

Even so, various industry sources believe something of a peak may still emerge, albeit delayed, as they point to the US as potentially looking on course to avoid recession and offering a bright spot for the market.