July reset: lower rates, uneven market

July marked a clear correction after several months of elevated pricing. The Baltic Air Freight Index (BAI00) fell 8.62% month on month (MoM), showing that the market finally gave back part of the Middle East-driven premium that built through April, May and June. This was not a collapse in demand. It was a pricing reset from an unusually high base. Fuel prices had eased from earlier peaks, capacity had partly recovered, and carriers were better prepared to manage disruption than they were in March and April. At the same time, new EU import rules hit Asia-Europe e-commerce flows, especially from Hong Kong, creating a sharp correction on one of the lanes that had supported rates earlier in the year. The decline was broad-based. Hong Kong outbound (BAI30) fell 10.60%, Shanghai (BAI80) declined 9.00%, London Heathrow (BAI40) dropped 10.28%, and Chicago O’Hare (BAI50) slipped 6.21%. The main exception was Singapore, where the outbound index rose 18.50%, reflecting localized intra-Asia strength rather than a global market rebound. July’s message is clear: rates are moving lower, but the market remains unstable. The pricing peak may have passed, but the disruption cycle has not. Four Key Drivers of Market Dynamics 1. The Middle East premium begins to unwind July showed the first meaningful unwind of the disruption premium created by the Iran conflict. Global capacity had improved from the lows seen earlier in the year and lower fuel prices reduced some of the pressure on airlines and forwarders. However, this was not a return to normal. Renewed fighting in the Gulf continued to create uncertainty and capacity through the region remained below pre-conflict levels. The difference is that the market is now more prepared. Carriers have had months to adjust networks, reroute flows, and rebuild contingency plans. That helped rates fall even as geopolitical risk remained high. July was therefore less about stability and more about the market becoming more efficient at operating inside disruption. 2. EU de minimis changes hit Asia-Europe e-commerce The most important structural change in July was the EU’s removal of its de minimis exemption and the introduction of a temporary €3 duty on low-value parcels. This directly affected e-commerce flows from Asia into Europe, especially from Hong Kong. The impact is visible in the indices. Hong Kong to Europe (BAI31) fell 12.75%, while Shanghai to Europe (BAI81) declined 7.76%. The correction was sharper from Hong Kong because its Europe-bound flows have a heavier e-commerce mix. This marks an important shift. For the past several years, e-commerce was one of the strongest pillars of air cargo growth. In July, regulation became a direct drag on that pillar. The sector will likely adapt over time, but the immediate impact was lower volumes, reduced freighter capacity into Europe, and weaker rates. 3. Trans-Pacific remains structurally supported, but not immune Asia-North America remained the strongest long-term corridor, supported by demand for AI hardware, semiconductors, data center equipment and other high-value cargo. However, even this lane corrected in July after several months of elevated pricing. Hong Kong to North America (BAI32) fell 9.72%, Hong Kong to the USA (BAI34) declined 9.19%, Shanghai to North America (BAI82) dropped 10.11%, and Shanghai to the USA (BAI84) fell 9.44%. These declines do not point to structural weakness. They reflect a pullback from very high June levels as pricing normalized and some capacity returned. The key distinction is that trans-Pacific rates are falling from strength, while Asia-Europe is facing a more direct demand shock from regulatory change. Technology cargo continues to support the trans-Pacific routes, but the lane is no longer immune to broader rate normalization. 4. Market performance is increasingly hub-specific July reinforced that air cargo is no longer moving as one synchronized market. Most major hubs declined, but the scale and direction varied significantly. London Heathrow was one of the weakest performers, with the outbound index (BAI40) down 10.28% and Heathrow to North America (BAI42) down 18.97%. Frankfurt outbound (BAI20) was more resilient, declining only 2.72%, helped by a 7.01% increase to Southeast Asia (BAI23). Chicago (BAI50) also softened, down 6.21%, while Singapore (BAI60) moved sharply in the opposite direction, rising +18.50%. This divergence reflects local capacity positioning, cargo mix and exposure to regulatory shifts. Markets tied heavily to e-commerce into Europe corrected faster, while lanes linked to regional Asia demand or specific high-value flows remained firmer. Regional and Route-Specific Insights Asia-Europe saw the clearest reset. Hong Kong-Europe and Shanghai-Europe both declined sharply as the EU customs change disrupted low-value parcel flows. This is the first major sign that Europe’s regulatory shift is changing air cargo economics on the lane. Asia-North America also moved lower, but the underlying story remains stronger. AI and semiconductor demand continue to support the corridor, even as rates corrected from June highs. Europe-North America weakened, particularly from Heathrow. Additional summer belly capacity and softer trans-Atlantic pricing pressure contributed to the decline. Intra-Asia was the main exception. Singapore’s sharp increase suggests localized tightness and regional demand strength, rather than a broad recovery in Asia pricing. Freighter Market and Supply-Side Trends July showed that freighter capacity is being reallocated quickly as demand patterns shift. Lower e-commerce volumes into Europe have already pressured freighter capacity on Asia-Europe lanes, particularly from Hong Kong and China. At the same time, operators remain cautious. Middle East risk has not disappeared, fuel remains volatile, and trade policy changes are forcing shippers to rethink routing strategies. Even as rates fall, carriers are unlikely to flood weaker lanes with capacity. The broader supply-side picture remains constrained. Widebody availability is still tight, ageing freighters remain critical, and capacity decisions are increasingly focused on high-yield lanes rather than broad network growth. Short-Term Outlook: rates lower, risks still active The July correction suggests the market has moved past the peak of the first half disruption cycle. If fuel prices remain contained and Gulf capacity continues to recover, further gradual easing is possible in August. However, Middle East disruption remains a live risk, new EU import rules are still being absorbed, and U.S. postal and customs changes add another layer of uncertainty. Shippers are also entering the second half of the year expecting demand growth but not smoother execution, which means front-loading, modal shifts and tactical airfreight use could return quickly. July showed that the market is becoming cheaper, but not calmer. Rates are resetting from extreme levels, yet volatility remains built into the operating environment. [This analysis was first published in the Aug. 7 edition of The Baltic Exchange Airfreight Index (BAI) Newsletter.] Cargo Facts Symposium 2026, the premier event for the freighter aircraft and air cargo industries, will take place in Nashville, Tenn., on Oct. 21-23. Find out more and register by Sept. 4 to take advantage of early-bird pricing.

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