Global air freight rates have experienced a notable surge, breaking a seven-week declining trend. This surge is attributed to a combination of factors, primarily the escalating crisis in the Red Sea and the imminent arrival of Asia’s Lunar New Year.
The Baltic Air Freight Index, a key indicator of weekly transactional rates for general cargo across multiple routes, recorded a substantial 6.4% increase in the week leading up to Monday, according to price reporting agency TAC Index. This reversal follows a downward trajectory since a seasonal peak in mid-December.
Attacks by Yemen’s Iran-aligned Houthi group on vessels in the Red Sea, motivated by solidarity with Palestinians in Gaza, have disrupted the usual shipping routes. As a consequence, companies are compelled to opt for longer routes, significantly extending delivery times. This disruption to ocean shipping in the Red Sea has been a catalyst for the spike in air freight rates.
TAC Index notes, “The increase is in line with expectations that rates may spike following disruption to ocean shipping in the Red Sea, though sources also point out that rates often rise in the run-up to Chinese New Year.”
Lunar New Year and Factory Closures in China
Adding to the surge is the approaching Lunar New Year in Asia, particularly in China, where many factories shut down for an 8-day holiday beginning on February 10. Companies are rushing to dispatch stock to customers before the holiday kicks in, further intensifying the demand for air freight.
Air freight rates out of Shanghai rose 8.8% week on week on Monday, with significant increases to Europe. Rates out of Hong Kong gained 5.9%, and rates out of Southeast Asia jumped 10%.
Impact on Global Trade and Air Freight Trends
The Red Sea, a critical passage leading to the Suez Canal, lies on the pivotal east-west trade route from Asia’s manufacturing hubs to Europe and then onwards to the east coast of the Americas. In response to the disruptions, freight companies are securing more air cargo space, and some customers are opting for air freight to circumvent delays.
Niki Frank, CEO of DHL Global Forwarding Asia Pacific, explains, “An expected traditional peak before the Lunar New Year is meeting longer sea transit times, higher sea rates, and a shortage of vessels as a result of the Red Sea disruption. This, in turn, is prompting some customers to move to air freight.”
Long-Term Air Freight Trends
While the recent surge is noteworthy, it’s important to consider the broader context. Global air freight rates have been on a downward trend since early 2022, following the all-time highs during the pandemic. As of Monday, the Baltic Air Freight Index was down approximately 24% year on year.
Air freight, constituting less than 1% of global trade by volume, is more expensive than sea freight, according to the International Air Transport Association (IATA).
Source: Reuters
