News / Airfreight rates: have we hit the bottom yet – if not, when?

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Following the rollercoaster of a massive surge during the Covid-19 era and subsequent ‘Big Dipper’ style fall over the past year, June was a quiet month for air freight markets.

The market ended the month on a slightly weaker note, with a fall of 2.4% in the overall Baltic Air Freight Index (BAI00) in the week to 3 July. Over the previous four weeks, the decline had been 4.8%, taking the year-on-year change to -49.4%.

Regionally, the strength of demand in e-commerce business, especially out of southern China, continued to shine through, keeping the Hong Kong (BAI30) index relatively stronger – it was down by only by 2.8% in the month, taking its YoY decline to 41.1%.

Outbound Shanghai (BAI80) was down 3.1%, month on month, though the YoY decline was looking more precipitous, at 56.7%.

Out of Europe, rates softened much more ;last month – with the outbound Frankfurt (BAI20) index 12.5% lower MoM, to take its YoY change to -53%, and London (BAI40) was down 11.9% MoM, taking its YoY fall to 52.1%.

Out of North America, rates were more robust – with outbound Chicago (BAI50) actually up 1.8% MoM. reducing the YoY fall to 45.7%.

The big question for all in the industry continues to be whether the long-running decline in rates is reaching bottom – and if not, when that will happen.

The global macro outlook continues to send mixed signals. Geopolitical concerns remain elevated, as demonstrated again by recent power play events in Russia.

On the other hand, inflation has been falling in the US and Europe – though core inflation is looking more sticky in some places like the UK.

Unemployment in the developed world remains very low. And the accumulated savings of the Covid era – followed by the energy crisis sparked by the Ukraine conflict, which led Europeans to save even more – seems to have left consumers with plenty of firepower to keep spending.

All of which means it looks like interest rates may need to be raised further, at least in economies like the UK, and kept higher for longer to quell inflation.

Superficially, global equity markets seem to have taken all this in their stride, with the MSCI World Index up about 8% for the first half of the year.

Looking more closely, however, that rise seems to have been concentrated almost entirely in a select group of mega tech stocks – with the latest craze for artificial intelligence (AI) driving up the share price of Nvidia so it joins an elite group that some have now dubbed Magnam (Microsoft, Apple, Google, Nvidia, Amazon and Meta).

Without that group, global equities would have been roughly flat for the first half of 2023. And their incredible rise has left a concentration in market capitalisation among those few stocks by some measures near the highest levels ever, representing close to 25% of the S&P500 index. So a more mixed picture than first appears.

According to Platt’s data, the long-running fall in jet fuel prices also seems to have petered out. Jet fuel prices firmed up about 4.4% in the month to 30 June, cutting the fall over the past 12 months to 31%. That alone will be adding renewed pressure on carriers to resist any further cuts in cargo rates.

Another factor some are starting to debate is whether the rundown of inventories may have started to have run its course. That may be wishful thinking, only time will tell. But it has been a quieter market so far this summer.

This article was written by Neil Wilson, editor, TAC Index.