Air freight rates could take months to recover, analysts say

A RETURN to pre-conflict capacity and rates on trades out of West Asia hubs is still a month or two away, air freight analysts Xeneta say.

A shaky ceasefire agreed earlier this week has promised normal trading conditions, however, the outlook changes with every announcement from the region.

Airspace restrictions across the Persian Gulf have forced airlines to ground aircraft and cut capacity on key freight corridors, increasing rates on routes transiting regional hubs—particularly Southeast Asia to Europe and South Asia to Europe.

Xeneta chief airfreight officer Niall van de Wouw said the moment airlines started increasing flights via Middle East airspace, downward pressure on rates would be created.

“Bringing air capacity back to these corridors should provide welcome relief for shippers, many of whom are facing continuing severe disruption in ocean supply chains which will take far longer to recover from this conflict,” Mr van de Wouw said.

In the week ending 5 April, Xeneta data showed air cargo spot rates up +105% on the South Asia to Europe corridor.

Falling jet fuel prices are also expected to add further downward pressure, however, Mr van de Wouw cautioned rates were unlikely to fall as fast as they rose.

“Even when it is deemed safe to fly, setting up the infrastructure again takes time. Customers need to find you again and trust you again. Insurance companies may still advise against transiting these Middle East hubs despite the ceasefire,” he said.

“Carriers will be in no rush to lower rates given the ceasefire is only temporary and the geopolitical situation remains uncertain.”

Mr van de Wouw said shippers would not “rush into major routing decisions on the basis of a fragile two-week ceasefire”.

“Regardless, a two-week timeline is too short to justify restructuring freight plans—so I do not expect spot rates to go down as fast as they went up,” he said.

Mr Van de Wouw said passenger confidence was a key variable in recovery of airfreight in Middle East corridors.

“Gulf carriers such as Emirates and Qatar Airways operate some of the world's most important air freight networks, but those networks depend on passenger revenue,” he said.

“If tourist confidence in Middle East destinations takes time to recover — even after the ceasefire — airlines may operate routes at below-sustainable passenger load factors and could cut network capacity as a result.”