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Air freight rates remain high, and overall air freight rates will not drop significantly in the next 6 months

Accurate forecasts by shippers are essential to effectively manage their transportation needs and costs, because air freight prices seem to remain high this year.

The Baltic Air Cargo Index increased 100% year-on-year last week, and the data for the past few weeks is the highest level since the lack of capacity in the second quarter.

According to data from Clive Data Services, 2020 is a high point for airlines. From December 21st to January 3rd, cargo volume increased by 8% year-on-year, and the dynamic loading rate in mid-December reached a record 73%. , And as of January 3, the loading rate has reached an unprecedented level of 65% at this time of the year, which is 13 percentage points higher than the same period last year.

Compared with November, December’s capacity increased by 2%, but still 21% lower than the same period last year. Compared with November’s flat level, December’s performance was unexpectedly strong. In the second half of the month, freight volumes did not fall as much as normally expected.

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However, freight forwarders in Asia have noticed weakness in markets outside of China, partly due to the blockade, although e-commerce remains strong.

A Southeast Asian freight forwarder said: “As far as air cargo is concerned, the spot freight rate has dropped after the New Year, but this is not a significant drop. We may expect the freight rate to drop in a few weeks, but in normal years, due to China Because of the Lunar New Year, there should be a wave of interest rate hikes from the middle of this month to the beginning of February."

However, he added: “At least for the next six months, air freight rates may not drop significantly in general. After all, a large number of passengers will still be absent for a while.
Bruce Chan, vice president of global logistics at Stifel, said that there are other reasons to anticipate this year's freight rates.

"On the demand side, replenishment activities have been the main driving force for the global cargo recovery in all modes, including aviation. In the international consumer market, especially in the retail economy, the ratio of inventory to sales is still close to the lowest level in history."

He said: "In our view, the shipping capacity situation is not helpful. The consolidation of shipping capacity, lack of available containers, and congestion in the inland supply chain have led to price increases and severe delays, forcing more demand into the air. , And put further pressure on air transport."

"Faced with such turbulence and uncertainty, shippers may be more inclined to use air freight as a buffer for inventory."

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Bruce Chan added that the shortage of capacity will continue to put pressure on freight rates. Part of the reason is the booming e-commerce market. Stifel believes that the new crown virus has intensified the e-commerce market, which is expected to grow two to three years earlier, breaking the traditional seasonal trend.

Then there are personal protective equipment and vaccines.

Stifel believes: "Due to the nature of production expenditures and dosage form factors, the overall impact of vaccine distribution on air transport capacity may not be as severe as some people expected. We believe that the bottleneck is more likely to come from container availability, storage, handling and road distribution. "

"But there is no doubt that the final result will have an impact, especially when vaccine shipments are prioritized over general cargo. This impact may continue until 2021 and 2022."

As the vaccine begins to take effect, passenger demand is expected to pick up in the second half of the year. However, as Stifel pointed out, this may drive short-distance transportation, and the long-distance transportation market is not expected to recover early.