Air freight rates decline in June

Drewry price index for June 2015UK-based shipping consultancy Drewry published its analysis of air freight rates on major east-west trade lanes in June, and the data show the expected continuing rate decline.

Drewry reported its East-West Air Freight Price Index declined by  1.1 points in June to a reading of 88.7, bringing the index down to its lowest level since it was first launched in May 2012. In US dollar terms, it fell below the $2.90 per kg threshold for the first time.

The report continued: “Whereas the eastbound trans-Pacific has taken the brunt of pricing falls in recent months, June’s decline affected all the main East-West trades in broadly equal measure. Weak cargo growth coupled with rising capacity has further weakened the market, the latter fuelled by booming passenger demand which added more unwanted bellyhold space. Drewry expects air freight pricing to remain weak over the next few months, as carriers release additional passenger capacity.”

To Drewry’s analysis, we would add, as we have done in past discussions of falling yield, that the bottom-line impact of falling rates depends on expenses, as well as revenue. A year ago, air freight rates included significant fuel surcharges, but as the price of fuel has declined, so have the surcharges. All other things unchanged, this would cause rates to drop but have no impact on profitability. Of course, other things do change, and many of them do affect profitability, but when viewing yield data it is important to remember that, in theory, surcharges are a pass-through item.

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