Air freight rates slowly edging upwards ahead of peak season

Air freight rates on major east-west routes fluctuate from month-to-month, and for the year 2017, appear to have bottomed out in February. Except for a blip between April and May, rates have gradually been on the rise ahead of peak season.

In its monthly East-West Airfreight Price Index, Drewry reported rates up 1.6 points between June and July. The Index now stands at 87.2 (based on a value of 100 for May 2012).  In dollar terms, average rates in $/kg now stand at $2.64. On a year-over-year basis, rates are $0.04, or 1.3 points higher than they were at the end of July 2016.

We point out that freight rates are a top-line item, and in isolation, reveal very little about margins. To evaluate a rise or fall in rates one should know what has happened with related costs, namely labor and fuel. According to the U.S. Energy Information Administration’s Jet Fuel Spot Price log, average fuel prices rose nearly 8% month-to-month between June and July 2017, to US$1.42 per gallon. Year-over-year, fuel prices were up 10% from July 2016. Although higher than last year, fuel prices have dropped after rising to $1.54/gallon in February 2017. There is no convenient “Index” for labor costs, but recent contract negotiations suggest labor costs have risen steadily.

Apart from rising costs which are outpacing the growth of air freight rates, the good news is that air freight demand growth has continued to accelerate. For the first six months of 2017, total market traffic measured in FTKs were 10.4% higher year-over-year compared to 2016. For the remainder of the year, forwarders and carriers alike are optimistic that strong demand for air cargo will continue.

Entering peak season, capacity is expected to tighten, and rates are expected to further increase. “In anticipation of a strong peak season, several forwarders have upped their capacity allocations out of Asia and have lined up charter capacity. Drewry expects the airfreight rates to further grow in August,” said Shakin Praveen, Research Analyst, Drewry.

Those interested in learning more about where air freight is headed in 4Q17, and into 2018, are invited to join us at Cargo Facts Symposium in Miami at the Ritz-Carlton South Beach 2-4 October.  To register, or for more information, go to CargoFactsSymposium.com.