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Air freight rates have finally begun to "cool" as the market entered the seasonal first quarter airfreight through, according to the latest Baltic Exchange analysis.
It said air freight rates from China to the US and Europe have dropped since December's record holiday season where prices out of China to the US peaked on December 13 at US$15.13 per kg, the highest rate ever recorded according to the TAC Index, but have since fallen nearly 30% to US$10.68.
For China-Europe, rates have also hit their 2021 peak on December 27, reaching US$8.82 per kg, and have since dropped by 17%, to US$7.34/kg.
In December, Hong Kong to North America and Shanghai Pudong to North America were also both roughly 70% higher than last year’s already tight holiday season. And during the month, both lanes experienced their highest absolute levels since the inception of the BAI Index.
On the European front, Hong Kong to Europe climbed approximately 40% year-on-year and Shanghai to Europe rose 60% year-on-year, exhibiting much more pronounced peaks than they did even last year.
The report noted that as expected, peak season demand "exacerbated supply constraints" in an already congested market, leading to prices that averaged 2.5x to 4x those typically experienced at this time of year prior to the pandemic.
"Rates have finally begun to cool as we enter the seasonal first-quarter airfreight trough, with 2021 seeing a much higher and more pronounced peak than in any of the three years prior," said Bruce Chan, senior analyst for global logistics at Stifel, for the BAI Index.
"Unfortunately, we expect little change in the situation for the new year. Ocean freight and port terminal congestion show few signs of amelioration and US road and rail infrastructure are contending with their own issues," he added.
Chan noted that as a result, "airfreight is still the only option to address supply chain delays and shortages that must be addressed."
"While rates may be 2x-4x higher, on average, than pre-pandemic levels, ocean freight rates may be nearly 10x higher, depending on the lane. So, mathematically, the spread is narrower," Chan added.
"While air cargo pricing should cool sequentially in line with normal, seasonal patterns, we expect them to come at high double-digit premiums to even last year’s elevated rates on a year-over-year basis," he continued.
Omicron further dragging supply chain woes
The Stifel analyst went on to note that the Omicron variant of Covid-19 also didn't help ease the existing supply chain issues.
On the supply side, it restricted travel and belly capacity.
"It has also reduced ramp and freighter capacity as well," Chan added, and on the demand side, Omicron is "still stoking demand for PPE shipments, at-home test kits and continues to allay the goods-to-service rotation."
"We are experiencing the longest and strongest airfreight bull run in recent memory. With little relief coming to broader supply chain congestion, with broad demand expected to remain strong," Chan added.
"With capacity still under pressure, we don’t expect much relief any time soon. We think that shippers must continue to plan and budget aggressively, as our timeline for a moderating market continues to get pushed out."
