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Air freight charter prices soar towards record highs

Freighter charter rates are increasing week on week and are already nearing their pre-summer levels, when COVID-19 cases in Europe were at their height, with a second wave potentially adding to the peak-season capacity crunch, senior charter broker warns.

Air freight charter prices are rising week on week towards this spring’s record levels, and capacity is almost fully booked already for November, leaving air freight shippers and freight forwarders facing an increasingly space-tight peak season this winter, with associated high capacity costs, a senior air freight charter broker has warned.

Air Partner’s director of freight and VP for Asia Pacific, Mike Hill, told Lloyd’s Loading List that air freight is likely to see record peak-season price levels this year, with rates “sure to increase dramatically until the end of December, and possibly even beyond”.

In an interview with Lloyd’s Loading List, he said air freight charter rates are currently increasing week on week and are already nearing this year’s pre-summer levels, when COVID-19 cases in Europe and demand for PPE equipment were at their height, with a second wave potentially adding further to the peak-season capacity crunch.

“This is the time for freight forwarders to work closely with their shippers and air charter providers to ensure that their required capacity is secured as early as possible,” Hill advised.

But he said widebody freighter availability for November “is almost all gone and we are already currently booking aircraft for our clients as far advanced as the second half of December. At the current speed of increase, I can see pricing returning to US$1 million per flight on the Far East to Europe sector, possibly within a few weeks.”

To underline the squeeze on space overall, he pointed to estimates showing that around 43% of the global commercial air fleet is currently parked, resulting in a loss of around 100,000 tonnes of belly hold capacity from the market.

“It has been good to see numerous freighter conversion and factory freighters being launched in the last months, but there are, of course, still nowhere near enough airframes for the Q4 demand,” he noted.

$1m+ transpac charters

Hill’s observations are consistent with anecdotal reports from other sources. Lloyd’s Loading List reported last week that all Asia-origin air cargo was now in full peak season and rates have spiked to between US$8-US$9 per kg from Asia to the US. A freight market update last week by US forwarder Flexport noted that “while capacity is extremely tight, carriers are reserving space for last-minute spot buying. We anticipate that the market will remain at these levels through at least the end of November but likely even well into December given the late expected surge of e-commerce volumes.”

Flexport reported that full one-way charters from China/North Asia to the US are being sold at between $1.3-1.5 million US$ “with a few limited opportunities left for the November/December time period”.

Outlook

Commenting on how the air cargo charter market is likely to play out during the remainder of 2020 year and into next year, Hill said: “We’ve already seen a recent increase in requirements and tenders published for additional supplies of masks and gloves into 2021 as part of the ongoing effort to combat the pandemic. Additionally, e-commerce has grown exponentially and is also one of the few verticals positively affected in the short term by COVID, as more and more people have been forced to turn to online shopping and deliveries.

“Alongside the fact that we are now also entering the busiest shopping season for many, with online sales drives like Black Friday, Cyber Monday and Singles Day and the launch of the Playstation 5, we are likely to see an air freight peak at record levels this year, with rates sure to increase dramatically until the end of December and possibly even beyond, when one considers the continuing PPE demand, rapid testing kits and possibly, one day, the vaccines.”

Second wave

And he said the significant second wave of COVID-19 now affecting many countries in Europe with near-lockdowns in place, has raised the prospect of a fresh surge in ex-China-Europe charters this autumn carrying PPE volumes at levels approaching those seen in March/April when the pandemic was at its initial peak.

Hill highlighted a scenario where increased requirements for PPE and hygiene supplies would be “competing for space at a time when there is seasonal uptick in the shipment of consumer goods” and warned of “demand far outstripping supply very soon across the air cargo market.”

“It is certainly a possibility, based on what we saw earlier in the year during the first wave of coronavirus in Europe. Enabling vital supplies of PPE and other hygiene supplies was a key focus of our freight charter division in the first half of 2020, especially for our Asia-Pacific office in Singapore. There was high demand on both trade lanes between Far East/Europe and Far East/USA for PPE cargo charter flights on both traditional cargo freighters and passenger freighters.”

He continued: “During the last few months we had seen a comparatively lower number of cases in Europe than previously, which allowed healthcare services and governmental organisations to build up stockpiles of PPE products. However most recently, we now see the expected second peak reaching very high numbers of cases, some higher than the infected numbers we saw earlier in the year. This has caused a spike in demand for air freight capacity which was already stretched due to the traditional peak season in the run up to Christmas.”

P2Fs “integral”

Hill noted that that P2Fs (passenger to freighter aircraft) have been “integral” this year to ensuring that PPE commodities can continue to move around the world, to compensate for the decimation in belly cargo capacity. 

“Although the use of passenger freighters is more price-challenging when it comes to denser, general cargo, the added capacity has been very useful and will continue to play an important role until early next year at least.”

“Many passenger freighters were returned to passenger service during late summer as it seemed the light was at the end of the tunnel with regard to quarantine-free travel and the PPE requirement diminished. Now however, as many parts of Europe go into lockdown again, I would hope airline operators will see the sense of short-term freight gains and return the passenger freighter capacity back to the market, where it is sorely required.”

Lloyd’s Loading List reported late last month that there had been strong rises in air freight prices on major lanes out of China and other parts of east Asia in mid-October, as surges in demand meet continuing constrained capacity. And the rises in air freight spot market prices are particularly crucial currently, because most capacity out of key Asian freight hubs is now being sold at spot market prices, freight sources confirm, with the market’s usual long-term capacity and pricing arrangements largely dispensed with this peak season due to the exceptional circumstances this year that have led to the majority of passenger belly freight capacity being cancelled due the Covid-19 crisis.

Source: Lloyds Loadinbg List



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