Rates jump as capacity and traffic are hit by Iran war repercussions
Data of the first full week of the US-Israeli war on Iran confirm indications from the first two days of the conflict that air cargo traffic has been severely affected – well beyond the Middle East. The temporary loss of capacity from air space and airport shutdowns in the region sent airfreight prices rising and prompted routing and capacity shifts. Doubts about an early end of the hostilities point to further pricing hikes from fuel and war risk surcharges and headwinds for governments trying to hold down inflation that could further undermine consumer confidence.
Global airfreight traffic in the week ending 8 March (week 10) contracted -4% from the previous week, -12% lower than a year ago, according to the latest weekly figures and analysis from WorldACD Market Data. With the exception of North America (+3%) and Asia Pacific (+5%), all regions suffered week-on-week drops in chargeable weight, particularly for origin Middle East and South Asia (MESA), which showed a decline of -36%, followed by -23% from Africa, -7% from Europe and -2% from Central and South America.
Severe impact in the Middle East
Tonnage with MESA origin dropped -36% from week 9, quite close to the capacity decrease of -42%. The Gulf area was hit hardest, with overall outbound volume falling -62% week on week (WoW) at -70% capacity, and inbound chargeable weight down -47%. Commercial flight operations in Dubai were suspended on 7 March after a drone strike but subsequently restored, albeit at a reduced scope. Volumes out of Dubai to the US and Europe slumped -82% and -38%, WoW, respectively. Carriers and forwarders have alleviated the situation by using alternative gateways in the region like Saudi Arabia and adding charter capacity, combined with increased trucking activities.
Chargeable weight from the Gulf area to Asia Pacific dropped -59%, WoW, at a capacity decrease of -67%, while volumes in the opposite direction fell -47%, WoW. The conflict also took a heavy toll on South Asia flows. Volumes out of India, Bangladesh and Sri Lanka to Europe fell -24%, -42% and -45% WoW, respectively, while tonnages to the US market dropped -13%, -32% and -50%, respectively.
Flows between Asia and Europe reroute
While capacity to and from the Gulf area, Levant and South Asia combined almost halved compared to the previous week, capacity increased significantly on direct routes to Europe from Asia Pacific (+20%) and South Asia (+13%) as well as in the other direction by +26% and +18%, respectively, in majority driven by more direct freighter flights. Tonnage from Asia Pacific to Europe rose +4%, WoW, led by increases of +17% from Vietnam and +14% from China, supported by a post-Lunar New Year (LNY) recovery. With the exception of Taiwan (+4%), the other Asia Pacific origins showed lower volumes to Europe.
Chargeable weight from Asia Pacific to North America jumped +13%, WoW, powered by increases of +31% from China/HK, +25% from Vietnam and +7% from Singapore. Year-on-year comparisons (down -4% overall, -15% from China and -22% from Hong Kong) are complicated by the later ramp-up from the LNY holiday and front-loading of US importers a year ago. It remains to be seen if the US Supreme Court’s ruling on US tariffs could spark a short-term front-loading surge out of China and Vietnam, but most observers expect at most a mild increase.
Whereas flows between Asia and Europe partially reroute, this is not yet to the same extent observed between Africa and Europe, on which trade lane Gulf-based airlines play a key role. Consequently, the -23% drop in tonnage from Africa is for almost half explained by the impacted flow Africa to Europe (-18%, WoW), primarily driven by East Africa (-23%, WoW).
Rates on the rise
The temporary loss of a large chunk of capacity (primarily the Gulf-based airlines) inevitably pushed up airfreight rates, with the average global rate rising +6% WoW to $2.40, +3% higher than a year ago. Worldwide spot rates jumped +10%, WoW, up +13%, YoY, while the average global contract rate rose +3%, WoW, but was down -2%, YoY.
Central & South America (-7%) was the only origin region showing a weekly decline in pricing. Rates from North America, Africa, Europe and Asia Pacific increased in single digits week on week, whereas pricing from MESA jumped +28%, WoW, to gain +20%, YoY. More specifically, rates from MESA to Europe soared +57% WoW, with increases of +93% out of Sri Lanka and +77% from the UAE, while pricing from India jumped +50% and Bangladesh +41%. Year on year rates in this sector climbed between +21% (from Bangladesh) and +89% (from the UAE). Rates from MESA to the US went up +22%, WoW, for a gain of +17%, YoY. The largest week-on-week increase was out of the UAE (+59%), followed by India (+24%).
As with chargeable weight, the hugely reduced role of the Middle East as a transit point also affected pricing out of Asia Pacific to Europe. Spot rates jumped +10%, WoW, after a -1% slip the previous week. With the exception of Hong Kong (-1%), all major Asian origin points saw pricing rise week on week, with the strongest gains seen from Vietnam (+42%), Indonesia (+36%) and Singapore (+31%). Spot rates from Asia Pacific to the US inched up +1%, WoW, which was -6% lower year on year. The most prominent gains were registered in Hong Kong (+16%, WoW) and Singapore (+15%), likely with some tailwind from South Asia exports re-routed across the Pacific. Malaysia (-5%) and Korea (-2%) were the only origin points in the region where transpacific pricing retreated, while other gateways saw single-digit price increases.
Barring a quick end of the US-Israeli war on Iran, pricing is set to climb further, regardless of the anticipated further recovery of Middle Eastern airline operations. A number of airlines have already announced fare increases in their passenger operations as a result of the sharp escalation in the price of jet fuel (+58%, WoW), and a jump in war risk insurance premiums is bound to add upward momentum to pricing.
