Air Freight Rates Extend Gains Amid Capacity Supply Concerns

Data from the TAC Index shows global air freight rates rose 2% last week as the market faces a potential supply shock on the Transpacific route.

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The global air cargo market continued its upward trajectory last week, according to the latest data from the TAC Index – the leading market price reporting agency. Specifically, the global Baltic Air Freight Index (BAI00) gained another 2% in the week ending November 10. This increase brings the general index to just 3.7% lower than the same period 12 months ago.

While observers initially viewed this as a normal development as the market enters peak season, the supply landscape shifted abruptly following a serious accident involving a UPS freighter in Louisville.

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Supply Shock from the MD-11 Fleet

The accident has led to the grounding of the entire MD-11 freighter fleet operated by majors such as FedEx, Western Global, and UPS itself.

Market sources warn that this move could have a significant impact on capacity in the coming days, particularly on Transpacific routes – where the majority of the MD-11 fleet operates. This sudden shortage of widebody aircraft is forecast to create upward pressure on rates right in the middle of peak season.

Asia: Hong Kong Accelerates, Shanghai Stalls

In the Asian market, rate performance showed a clear divergence:

• Hong Kong (BAI30): The index for routes originating from Hong Kong surged 3.7% week-on-week (WoW), narrowing the year-on-year (YoY) gap to just -1.2%. Spot rates from Hong Kong to both the US and Europe recorded gains.

• Shanghai (BAI80): Conversely, the index originating from Shanghai dipped slightly by 0.2% WoW, leaving it 2.5% lower YoY. Overall rates from China to the US actually fell over the week, although rates to Europe continued to rise.

• Other Markets: Taiwan and Vietnam continued to see rate increases. Meanwhile, the South Korean and Thai markets showed mixed results: rates to Europe were firmer than those to the US (at least prior to the MD-11 incident).

Europe and US: London Rebounds, Chicago Still "Languishing"

• Europe: Rates on the Transatlantic route to the US continued to rise for another consecutive week. Notably, the index originating from London Heathrow (BAI40) staged a spectacular turnaround, jumping 15% WoW after a sharp drop the previous week, bringing the index back to positive growth (+0.1%) YoY. In contrast, the index from Frankfurt (BAI20) fell 6.8% WoW.

• North America: Rate patterns from the US were quite mixed, with increases on routes to Europe and South America, but decreases on routes to China and South Korea. The index originating from Chicago (BAI50), despite edging up 2.4% WoW, is still "languishing" at multi-year record lows, down 26.8% YoY.

Logistics experts advise shippers to closely monitor the capacity situation in the coming days, as the actual impact of the MD-11 fleet shortage begins to filter through the market.

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