Smaller-than-expected December decline in air freight rates.

After reaching a year-high in November 2016, air freight rates on major east-west routes fell for the first time since May 2016 in December, according to UK-based freight market analyst Drewry. Rates often taper down following peak season as capacity eases up, but this month’s drop-off was smaller than usual.

In its monthly East-West Airfreight Price Index, Drewry showed rates down 6.4 points in December as rates receded to just about where they were in October 16 (97.0). Note that this downward slide was less pronounced than the 8.9-point slide between November and December 2015. The Index now stands at 96.8 (based on a value of 100 for May 2012). Year-over-year, rates are still well-ahead of December 2015, when the index was at 90.4.

We point out that freight rates are a top-line item, and that to evaluate a rise or fall in rates one should 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 rose nearly 10% month-to-month between November and December 2016, to US$1.49 per gallon. Year-over-year, fuel prices were up 38% in December 2016, though they were still 21% lower than December 2014 and 98% lower than December 2013.

Looking forward, Simon Heaney, Drewry’s senior manager, supply chain research said he expects rates to continue to decline in January, but “once again, smaller than usual.”

Drewry also tracks ocean container freight rates, and noted that unlike air freight, rates on most East-West and North-South sea routes were up by an average of 3% in December ahead of the Chinese New Year. Although rates are expected to slide again, as they normally do after Chinese New Year, the consensus among Drewry analysts is that ocean spot rates will be much higher in 2017, perhaps between 20%-40% higher as the market stabilizes and as Europe returns to growth. Higher ocean rates do not necessarily drive demand for air freight, but narrowing the differential cannot hurt.

Those interested in learning more about where air freight is headed in 2017, should join us at Cargo Facts Asia in Shanghai, 25 – 26 April.  To register, or for more information, go to CargoFactsAsia.com.