Gulf Conflict: Air Freight Rates Soar Despite Flat Volumes

The latest weekly figures from the WorldACD Market Data database indicate that worldwide air cargo volumes remained relatively stable in Week 12 (March 16-22). Although edging down a slight 1% week-over-week (WoW), this figure has dropped a significant 6% compared to the same period last year due to persistent capacity constraints on routes connecting key markets.

However, spot rates and overall average market rates from all major origin regions worldwide continued their upward climb. This is the inevitable consequence of airlines, forwarders, and shippers scrambling to adjust their strategies to adapt to a highly volatile market, squeezed capacity, cargo congestion, and skyrocketing jet fuel prices.

Spot and Overall Market Rates Simultaneously Break Records

Amidst severe operational and capacity disruptions still facing many of the world's largest cargo airlines, the global average market rate in Week 12 rose an additional 7% WoW, touching $2.84/kg. This upward momentum follows hot increases of 10% the previous week and 8% in Week 10.

A similar picture unfolded with spot rates, as this index increased by a further 6% in Week 12 to $3.38/kg, fueled by an 8% WoW surge from the Middle East & South Asia (MESA) and Asia-Pacific (APAC) markets.

This breakout pushed the global average spot rate 26% higher compared to Week 12 last year, with the MESA region notably witnessing spot rates skyrocket by 70% year-on-year (YoY).

Furthermore, as severe disruptions continue to cripple the operational networks of many major airlines and airports in the Gulf, spot rates from other regions also anchored at exceptionally high levels YoY: Africa (up 41%), Europe (up 23%), North America (up 23%), and Asia-Pacific (up 18%).

Capacity: Gulf Constrained, South Asia Recovers

Following the attacks on Iran starting February 28, outbound capacity from the MESA region plummeted severely during Weeks 8, 9, and 10. Despite showing signs of stabilization and a slight uptick in Week 11 (up 6% WoW) and Week 12 (up 2%), total MESA capacity over these two weeks still fell a staggering 37% compared to the equivalent two weeks last year.

Looking solely at the Gulf region, capacity saw a minor increase in Week 11 (up 6% WoW) and Week 12 (up 3%), but remained roughly 20% below Week 7 levels (the period prior to the attacks on Iran). In contrast, outbound capacity from South Asia has rebounded to nearly pre-conflict levels, driven by capacity injections in Week 11 (up 7% WoW) and Week 12 (up 1%).

The Spot Rate "Fever" in the Middle East & South Asia

Following extreme spot rate hikes from MESA origins over the preceding three weeks (including a massive 22% WoW surge in Week 11), the region's 8% WoW increase in Week 12 is considered relatively modest.

Based on over 500,000 weekly transactions tracked by WorldACD, the strongest momentum from this region was seen on routes to Africa (up 18% WoW to $4.76/kg) and intra-regional routes (up 13%). Calculating from the Gulf alone, spot rates climbed a further 11% WoW, with routes to Africa surging 24% and destinations within the MESA region increasing 12%. Operational constraints are currently forcing most European and North American carriers to suspend flights to and from the Gulf market.

On the MESA to Europe trade, average spot rates increased an additional 7% WoW in Week 12, after having nearly doubled over the previous two weeks. Origins from India ($4.44), Bangladesh ($4.82), and Sri Lanka ($4.85) to Europe all recorded average rates double what they were a month prior (pre-conflict).

Forwarders report that cargo backlogs and capacity bottlenecks are driving rates up amidst persistently robust demand.

Additionally, jet fuel supply shortages are creating further payload restrictions for certain airlines, while demand is projected to continue rising following the conclusion of Ramadan and Eid.

Asia-Pacific: Pressure Shows No Signs of Cooling

Spot rates from Asia-Pacific origins to Europe continued to climb an additional 8% WoW in Week 12, averaging over $5/kg (up 26% YoY). The core reason is surging demand combined with extreme space scarcity on aircraft across most major export markets in the region.

Notably, the global spot rate baseline continued to rise despite a slight recovery in Week 12 capacity (up 3% WoW), driven by the injection of dedicated freighter payloads on multiple vital routes to fill the market void.

However, as airlines prepare to transition into their summer schedules (starting March 29), the capacity puzzle remains highly complex and unpredictable. The cause stems not only from airspace and airport restrictions in Gulf nations but also from soaring fuel costs and localized fuel shortages - particularly in Asia - forcing airlines to introduce further measures to tighten flight schedules and capacity.

Assessing the broader picture, the convergence of robust baseline demand, supply bottlenecks, and escalating costs is almost certain to trigger fresh spot rate hikes in the near term - even if the Gulf conflict does not escalate further, and assuming this crisis lacks an immediate resolution.

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Source: Phaata.com (According to Air Cargo Week)

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