Air freight rates soar in November

Air freight rates on major east-west routes reached a year-high in November, according to UK-based freight market analyst Drewry. If that’s not reason enough to uncork the champagne during holiday celebrations this month, early indicators also suggest that high rates and strong demand have continued into December.

In its monthly East-West Airfreight Price Index, Drewry showed rates up 6.2 points in November, the steepest increase in 2016. The Index now stands at 103.2 (based on a value of 100 for May 2012)

Drewry points out that rates are well-ahead of November 2015 when the index was at 99.3. November 2016 is the first month air freight rates rose above May 2012, when Drewry launched the Index.

However, as we always do in these sorts of discussions, we point out that freight rates are a top-line item, and that to evaluate a rise or fall in rates one has to know what has happened with related costs. For example, if fuel surcharges decrease in line with falling fuel price, then a decline in rates may have no impact on the bottom line. According to the U.S. Energy Information Administration’s Jet Fuel Spot Price log, average fuel prices were actually down US$0.10 per gallon between October and November 2016 to $1.36 per gallon as freight rates increased.  Year-over-year, fuel prices were nearly flat in November 2016 compared to the same month in 2016, (up $0.03 in November 2016).

Also, as we said in our examination of November data from major carriers and airlines (you can read it here), we believe that worldwide air freight traffic was likely up between 7% and 8% y-o-y in the month. Combine the substantial rate increase with the increased volume, and it seems safe to say that November will be remembered as a very good month.

Looking forward, Simon Heaney, Drewry’s senior manager, supply chain research said “Anecdotally, while it sounds as if rates have come down slightly in December, carriers are saying rates are surprisingly high for the last week before Christmas – and even more surprisingly – that January is looking strong.”