AIR CARGO prices will remain artificially high at least until 2022, according to market data collated by the Baltic Air Freight Index (BAI).
The emergence across the world of the more transmissive Coronavirus Delta variant has clearly interrupted the hoped-for recovery of the air travel sector and the prospect of a consistent return to growth in long-haul belly-hold passenger aircraft capacity, writes Thelma Etim.
“Does a protracted return of long-haul belly capacity mean that rates will stay high until next year? We think yes,” admits Bruce Chan, vice-president of the transportation and logistics sector at investment banking company Stifel.
In February this year, the index bleakly predicted global intercontinental belly capacity would not ‘normalise’ until 2023. However, express parcels specialist FedEx’s forecast is even more depressing. During the corporation’s fourth-quarter fiscal year 2021 earnings conference call, Brie Carere, executive vice-president and chief marketing and communications officer, stated: “We do believe that commercial [air cargo] capacity will come back episodically…we believe until 2024.”
Chan disagrees with the estimate of the US integrator which, despite the pandemic, saw its e-commerce parcels volumes out of Asia and Europe grow by more than US$1billion year-over-year. “Does that mean shipment prices will stay this high until 2024?” he questions. “Unlikely, in our view. But there are [other] structural factors that may keep rates higher than before, including the global rise of e-commerce [traffic] and the [effect on fractured] supply chains searching for labour, capacity and production diversification. “And several large freight forwarders have now declared that air chartering will be a permanent part of their service offering, not just as peak capacity in-fill,” he notes.
Global airfreight shipment prices remain significantly higher in comparison with pre-pandemic levels, he notes. “Frankfurt-to-North America rates were up 72 per cent versus 2018 and 2019. Hong Kong and Shanghai rates to Europe are up 62 per cent and 64 per cent versus the same period, respectively,” Chan observes. “And Hong Kong and Shanghai rates to North America are up 117 and 110 per cent respectively against the 2018 and 2019 blended average.
“Suffice to say, things will remain universally expensive relative to a ‘normal’ operating environment. This is not rocket-science, but it is a situation that we do not expect to correct until global supply normalises,” he insists.
Elsewhere, Gareth Sinclair, who sits on airfreight pricing specialist TAC Index’s board of advisors, says the airfreight industry is continuing to experience strong load factors as demand continues in a constrained capacity market. “There are growing concerns that capacity will continue to be limited for some time, as passenger operations [slowly] start to pick up, therefore reducing available belly hold capacity as well as opportunities for cargo-only passenger aircraft services.”
Early June data collected by another analyst, Clive Data Services, suggests that demand was relatively flat in June over May and that the level of demand continues to fluctuate by trade lane. “Dynamic load factors from Europe to New York and Chicago continue to be more than 80 per cent, driving stronger shipment prices compared to trade in the opposite direction where demand is not so strong,” Sinclair observes.
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