News / Rival air cargo indices set to compete in another year of disruption

04/02/2022

The battle of the air cargo indices is heating up, with Freightos Air Index looking to rival the established TAC Index.

Freightos, which last month acquired 7LFreight, a US rate management company boasting “hundreds of forwarders” among its clients, is looking to expand further after seeing airline bookings on its platform grow “hundreds of percent” since the start of the pandemic.

“Our platform is one of the reasons we were so capable of bringing more airlines to our platform than any competitor; this growth in our forwarder base will help extend that advantage and dovetails well with current airline expansion plans in the United States,” said Zvi Schreiber, founder and CEO.

He said that the company was considering more acquisitions this year.

“We’ve been excited by the growth in digital booking in many shapes and forms, across both Freightos.com and WebCargo. While we are primarily focused on growing our technology and business organically, we always keep an eye out for acquisitions that can accelerate our journey to digitalising international freight.”

One of Freightos’ aims is to ensure its dataset is strong enough to ensure benchmark accuracy in its Freightos Air Index (FAX), which is still in the beta phase.

“Feedback from across the industry has been very positive and we already have high confidence in the FAX Freightos Air Index data. That said, we do not have a definitive launch date yet and FAX is still in beta as we continue to add more lanes and solicit feedback,” said Mr Schrieber.

But in a shot across the bows of the established TAC Index, he said: “We believe some of the other data out there is misleading, giving FAX an important role.

“And we’ve found that actual transactional booked spot rates can differ significantly from contract rates or even reported spot rates.”

There is some way to go, however. The TAC Index, founded in 2016, has provided data for the Baltic Exchange since November 2020, and seen increasing demand for index-linked agreements, indicating confidence from the market.

“More than $500m of Index Linked Agreements (ILAs) have been structured to settle against TAC Index data sets,” explained Peyton Burnett, managing director.

“Demand for ILAs has increased. Both for very long-term air cargo contracts, and shippers starting to request these contract types. Remember, the moment a future price is fixed, you are taking on risk. Index Linked Agreements are the most risk neutral positions you can have. Also, parties don’t trade at the index level, they traded around the index price point as this is a reflection of the service level that the two parties have agreed to.”

Freightos, meanwhile, provides its sea freight data to the Baltic Exchange, the FBX. Indices need to be founded on the “the principles for financial benchmarks as set by the International Organization of Securities Commissions (IOSCO)”, explained a spokesperson for the Baltic Exchange.

“This means that users are assured of the data’s independence and reliability. A recognised benchmark opens the door to the air cargo market for risk management tools, the indices reflect transacted rates from key hubs: London, Frankfurt, Hong Kong, Chicago, Shanghai and Singapore to the main import regions globally.”

Both TAC and FAX expect growth this year, in ILAs and airline ebookings respectively. The volatility of the market, combined with low capacity, has seen air cargo players engage more fully with new booking and contract methods.

And the volatility looks likely to stay. Today the Baltic Exchange noted “many of the same fundamental issues ahead for 2022 that endured during 2021”.

“There are no obvious or concrete resolutions on the near horizon,” wrote Bruce Chan, director global logistics for Stifel.

Noting continued high demand from US consumers, e-commerce volumes, industrial demand and stretched inventories, amid a shortage of capacity and labour, as well as congestion and problems in ocean, Mr Chan said capacity relief would be gradual.

While some passenger markets have begun to reopen, business travel is likely to remain muted “which could mitigate or at least delay the return of international belly volume”.

He concluded: “Cycles don’t last forever. But we think capacity relief is probably more likely to come from gradual demand cooling than from supply. And for those expecting major improvement this year – especially earlier in the year – we wonder how much is optimism versus reality.

“But not everything will look the same in 2022 as it did in 2021. There are a few new issues that we will be watching with great interest as they affect global air freight rates.” He cited the Chinese new year and Beijing Olympics, and the resultant impact on production; the 5G rollout in the US; cyber attacks; and disruptions in Europe “as a result of potential armed conflict between Russia and Ukraine.

“And of course, we will be watching for new developments on the Covid front.”