Air freight rates rise for first time this year amid Red Sea disruption

Cargo rates increased 6.4% in the week to January 29, price reporting firm TAC Index says

13 August 2019, Saxony, Schkeuditz: Air freight is being prepared for transport at Leipzig-Halle Airport. Leipzig/Halle Airport continues to grow. Photo: Sebastian Willnow/dpa-Zentralbild/dpa (Photo by Sebastian Willnow/picture alliance via Getty Images)
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Global air freight charges have risen for the first time since December 11, as attacks on commercial vessels in the Red Sea force companies to fly goods as a means of curbing security risks.

The Baltic Exchange Air Freight Index, which shows weekly transactional rates for general cargo as provided by freight forwarders, increased 6.4 per cent in the week ending January 29 to $1,972, according to price calculating agency TAC Index. The rise comes after successive declines, since a peak in the middle of last month.

Air cargo rates outbound from Shanghai rose 8.8 per cent week-on-week, while rates from Hong Kong increased 5.9 per cent and Singapore was up 4.1 per cent during the period, the data showed.

German logistics giant DHL is advising its customers to review their inventory management strategies and make adjustments if necessary as shippers divert away from the Red Sea, adding that it can offer customers various transport alternatives, such as air freight or rail.

"Some companies are already shifting to other modes of transportation, with air freight being the first choice. If the situation in the Red Sea continues to escalate, more companies may choose to go via air," a company representative told The National.

"Depending on the specific trade lanes, we are observing an increase in air freight rates due to the situation in the Red Sea and in anticipation of the Chinese New Year."

Attacks on merchant ships in the Red Sea by Yemen's Houthi rebels, who say they are acting in solidarity with Palestinians in the Israel-Gaza war, are forcing companies to divert to longer routes – mainly via the Cape of Good Hope at the southern tip of Africa.

The Suez Canal is the shortest shipping corridor connecting Asia and Europe, so the Red Sea attacks are causing disruptions due to longer diversions, higher shipping costs, scrambled shipping schedules and increased fuel burn.

Companies are increasingly taking their business to the skies to protect supply chains and keep their products on shelves, amid the Red Sea shipping crisis that has lasted more than two months, analysts say.

Air cargo accounts for more than 35 per cent of global trade by value, but less than one per cent of world trade by volume, according to the International Air Transport Association (Iata). It is more expensive than than sea freight.

The airlines lobby body expects a peak in air cargo demand in January, based on discussions with shippers and operators, an Iata representative told The National.

Using the week of November 4, 2023 as a benchmark, Iata's latest available data shows that in the week of December 9, global air cargo demand on average rose one per cent and yields increased five per cent.

Asia Pacific's air cargo demand increased 2 per cent and yields rose 6 per cent during the period, Iata's analysis of the Red Sea disruption shows.

Demand for air cargo from China to the rest of the world increased one per cent, while yields rose 11 per cent. Demand for air freight between Europe and the world was flat, while yields climbed 3 per cent.

Air cargo demand between the Middle East and the world was flat, while yields increased four per cent, Iata data showed.

The data is from Iata CargoIS, a platform that covers more than 80,000 city-to-city unique trade lanes, reflecting the business of 30,000 freight forwarders and more than 200 airlines and general sales agents.

“The recent disruption to maritime routes in the Red Sea has seen some shippers pivot to air cargo. The increased demand saw a spike in air cargo yields on related trade lanes. A similar spike is expected in January as disruptions intensified,” Willie Walsh, director of Iata, said.

“While not all cargo is suitable for air transport, it is a vital option for some of the most urgent shipments in extraordinary circumstances. And that is critical to the continuity of the global economy.”

'Mini peak season'

Perishable goods, pharmaceuticals and high value products like mobile phones are typically transported by air but other products such as apparel may now shift from ocean shipping to air cargo, Neil Wilson, editor at TAC Index, said.

"There does seem to be more demand for sea-air solutions, which may mean more goods from China to Europe going by sea to the Middle East and then on from, say Dubai or Doha, by air," he told The National.

"There is also some sea-air movement to the US west coast to, say LA, and then onwards by air."

There is also higher air cargo volumes and rates in the weeks leading up to Chinese lunar new year that begins on February 10, creating a "mini peak season", Mr Wilson said.

The aviation industry has "clearly felt" the repercussions of the Red Sea crisis, with notable implications for several airlines, Christopher Jackson, aviation lawyer at global law firm Reed Smith, said.

"As the industry begins to shift towards air freight as a more reliable option during times of uncertainty, the heightened demand will likely drive up costs," he told The National.

“Following a spike in demand for air cargo during and after the Covid-19 pandemic, there has been an increase in the number of freighter aircraft in operation. This enhanced capacity suggests that the industry may be better prepared to handle the current challenges posed by the Red Sea crisis compared to disruptions prior to 2020.”

Global air cargo rates have been normalising since early 2022 from the record peaks during the pandemic. The Baltic Air Freight Index was down 24 per cent year-on-year on January 29.

Air freight rates have remained relatively stable during the off-peak season after Christmas that coincided with the shipping crisis, but in recent weeks, more companies have opted to transport their goods by entirely or partly by air to avoid delays.

"Retailers are also facing time pressure, as in early February factories in mainland China generally close for two weeks to a month for the lunar new year holiday, so companies typically try to export as much as possible beforehand," Keaton Fitzpatrick, industry analyst at Fitch Solutions unit BMI, told The National.

"However, with vessels rerouted, fewer ships will be back in China in time to load cargo before the holiday. That means likely delays to products meant to arrive on western shelves in April or May.

"Meanwhile, some logistics firms are already reporting a container shortage at ports in China."

Updated: January 31, 2024, 12:52 PM