Rates down again in May as outlook weakens

Airfreight rates on major east-west trade lanes were down again last month (see dashboard at end of article) as commentators warn that pressure on pricing will remain for the rest of the year.

The latest figures from the Baltic Exchange Airfreight Index (BAI) show that average rates – based on contract and spot process paid by forwarders – on services from Hong Kong to North America were down 2.5% in May compared with April at $5.07 per kg.

Compared with a year ago, rates on the route are down 47.7% year on year.

Meanwhile, average rates from Hong Kong to Europe in May declined by 5.5% compared with April to $3.77 per kg. Compared with a year ago, rates on the route are down 40.6%.

Rates on both lanes remain above the levels recorded in pre-Covid 2019 when services to North America achieved $3.71 per kg and to Europe $2.65 per kg.

Pricing in May compared with April tends to be fairly flat as bellyhold space ramps up for the summer holiday season while cargo demand weakens for the summer period.

In 2019, for example, rates from Hong Kong to Europe were flat in April compared with May and from Hong Kong to North America there was a 3% increase.

In 2018, rates between Hong Kong and Europe increased 2% between the two months and from Hong Kong to North America there was a 6% increase.

And in 2017, there was a small $0.02 per kg increase between Hong Kong and Europe and a $0.02 per kg decrease from Hong Kong to North America.

This year, however, industry observers have warned that prices may continue to come under pressure as the year progresses.

Andrius Antanaitis, director of business development for Europe at GSSA Strike Aviation, said the current market conditions are partly due to the seasonality of the air cargo sector.

“It is usual that every summer, the number of flights and transportation capacity increases, along with the competition in the air cargo market,” he said.

“However, this year the market has stalled due to broader economic reasons, and this situation may continue for some time.”

He added: “This year, we are noticing a combination of several factors: more flights, increased cargo capacity on planes, and, at the same time, a decrease in cargo volume due to high inflation and consumption. Such circumstances put more pressure on GSSA service prices and business profitability.”

Bruce Chan, director and senior research analyst covering global logistics and future mobility at investment bank Stifel, recently warned that oversupply could become a problem that isn’t easily addressed following summer demand.

He said: “Summer travel season and generally robust passenger activity, especially on trans-Atlantic lanes, has led to healthy supply of lower deck space.

“Airlines may have even over-built for demand, in our view, and it will take time for capacity to moderate after the summer surge wanes.”

He added: “The market is likely to be most over-supplied with belly space this summer, so cargo rates will likely trough in the next few months, but we think slack capacity will stick around into 2024.”