Air Freight Rates Top the Last Two Peak Seasons as Jet Fuel More Than Doubles

The Analysis

Istanbul to Frankfurt, Frankfurt to Chicago, Shanghai to Anchorage and on to Los Angeles — I read freight the way other people read road maps, and the week to 19 October drew a picture I did not expect to see this late in the season. The global Baltic Air Freight Index added 4.7% in a single week and finished 26.4% above the same week last year. TAC's own data put that level above the peaks of the last two peak seasons, the two that everybody in this trade remembers as the ceiling. When a market climbs past its own remembered ceiling in the middle of October, the interesting question is not how much higher it goes. It is which lane is doing the pushing, because they never all push at the same time.

Ask three forwarders on a Monday morning what happened and you get three answers, and all three are right. One says fuel: IATA's Jet Fuel Price Monitor had jet fuel 113.7% more expensive on 16 October than a year earlier, and TAC described that as a hard floor under rates. One says the wars, because rates already started this year from an elevated base thanks to the conflicts in the Middle East and Ukraine. One says it is simply peak season arriving early. Fine. But the answer I need is narrower than any of them: which node on which lane is about to bite me, what does it cost to step around it, and is this road worth driving at all.

That is the only way I know how to read this business. Every corridor has a story, and a pothole. The index is a good thermometer and a terrible map, and the map is where the money is, so let me take the thermometer reading apart first and then draw the map underneath it.

Start with the hard numbers, because nothing below means anything if the base is wrong. In the week to 19 October the global Baltic Air Freight Index rose 4.7%. Against a year earlier it stood 26.4% higher, and TAC put that above the last two peak seasons. On 16 October IATA's Jet Fuel Price Monitor showed jet fuel up 113.7% year on year, a figure TAC described as putting a hard floor under rates. On the lanes themselves, China to the United States led the gains. Europe outbound moved the other way inside the same week: Frankfurt fell 6.6% but was still 33.7% up year on year, and Heathrow slipped 2.3% while remaining 35.2% above where it was a year earlier. All of that sat on top of a starting point that was already high, because the conflicts in the Middle East and Ukraine had lifted rates before this year's peak even began.

Why now, and not in July. There are two clocks, and they run at different speeds. The slow one was set by the conflicts. Airspace that is closed or expensive over the Middle East and over Ukraine does not cost you a surcharge; it costs the airline aircraft hours, fuel and crew duty, and that cost went into the base long before anybody was talking about peak season. That is why the year started high. The fast one is fuel, and a jet fuel bill that has gone up 113.7% in twelve months does not send a letter first.

It arrives in the surcharge line of your next quotation. Put the two together and you have this market: a base that never came back down, plus a second push from underneath. Then add a third, unglamorous factor that never makes a headline. The seasonal timetable change. When carriers reset their schedules they also reset belly capacity, and belly capacity is the cheapest space in the sky. A single weekend of timetable changes can add or remove thousands of tonnes of it, and it moves without anybody publishing a word about freight rates.

Who pays, and how much, is decided less by what you ship than by where you ship it. The report says China to the United States led the gains, and that is where the pain concentrates. A Shenzhen electronics shipper with a launch date, a Yiwu seller feeding a US fulfilment warehouse, a Suzhou auto parts exporter whose customer will stop a line — all of them are buying transpacific space on volumes they cannot postpone, because a product launch and a Black Friday shelf do not move for anybody.

Compare that with Europe outbound. Frankfurt gave back 6.6% in a week and Heathrow 2.3%, yet both remain more than thirty per cent above last year. A shipper booking out of Frankfurt is looking at a market that is expensive by any historical standard but is no longer tightening week by week. Same index, two completely different negotiating positions, and the gap between them is not a rounding error. It is the gap between fighting for space and being courted for it.

Put it on a map, because the average is exactly where people get hurt. The China-US lane is not one road, it is three, and each has its own pothole: the direct transpacific freighter, the routing through Anchorage that every cargo pilot knows as a fuel and crew stop, and the sea-air hybrid that lands on the US west coast or in the Gulf and finishes by truck. When the direct rate goes vertical, cargo does not vanish, it walks to the next cheapest node, and it walks there in a way that changes your transit time before it changes your invoice.

The Anchorage variant is the one I watch in winter. A technical stop is a real event in the life of a shipment: the aircraft lands, the clock pauses, ground handling takes over, and if Alaskan weather turns, the clock pauses for a great deal longer than the schedule promised. On the Europe side the node to watch is not an airport at all, it is the truck network feeding Frankfurt, and my read of the week-on-week softening is that capacity committed elsewhere has drifted back onto the Atlantic.

I should be honest about the evidence, because I have one week, Frankfurt minus 6.6%, and one week is a data point rather than a direction. But a lane that stops tightening shows it at the edges first: on weekend flights, on off-peak departures, and on the freighter that used to leave half empty.

So what does it cost to step around the node, since that is the only question that ever really matters on a tight lane. Three answers, and they are not the same size. Stepping to a different Chinese gateway is the cheap one: moving a booking from Shanghai to Hong Kong or Guangzhou costs you a truck leg and a day, and it works when the constraint is local congestion rather than the whole lane being full. Stepping to a different mode costs you the calendar: the rail and truck routes through Central Asia run in weeks, not days, and the truck-and-rail option out of Xinjiang is attractive right up to the moment you put a launch date against it.

Stepping to a different node inside the same lane is the one people misjudge, because a routing that avoids a congested airport usually adds a ground handling event, and every ground handling event is a place where a shipment can sit. I have seen a routing change save four per cent on the rate and cost six days on the transit, and the shipper booked it again the following month because the rate was what he was measured on. Know which of the three you are choosing before you choose it.

How fast does any of this reach your P&L. There are three lags, and mixing them up is how people get surprised. The fuel surcharge is the fast one. Most contracts reset it weekly or monthly against a published index, so a move of the size IATA reported on 16 October is inside your next quotation or the one after — one to four weeks, depending on the formula you signed. Base rates move slower, whenever your contract moves, and for a lot of shippers the repricing moment lands somewhere in the next six to ten weeks, either at the schedule change or at the year end.

The slowest lag is the one nobody budgets for. When a lane tightens, the first thing to go is not the price, it is the bookable window. A shipment that used to clear on a two-day booking lead starts needing five, and the cost of that shows up as emergency airfreight you never planned to buy, because the sea or rail option missed its cut-off. Watch the index weekly if you want to know what this week costs. Watch the surcharge clause in your own contract if you want to know what January costs.

Here is what I have not seen anyone say, and it is the reason I wanted to write this rather than forward the number and move on. Set the fuel figure against the index figure and something odd falls out. Assume fuel is roughly a quarter of the cost of running a freighter operation. That is my assumption, not a published figure, and you should test it against your own carrier rather than take it from me. If fuel is a quarter of cost and the fuel bill is up 113.7% year on year, then fuel alone should have pushed rates up by around 28 points.

The index is up 26.4%. On that arithmetic, everything that is not fuel went slightly down. Carriers have absorbed part of the fuel shock and given some of it back in the base rate. That is not how a market screaming for capacity behaves. That is a market where carriers are buying volume, and it changes what you should be arguing about. If your fuel surcharge is a formula you have never read, you are negotiating the one line that is quietly falling while the line carrying the increase passes through untouched. Ask for the formula before you ask for another fifty cents.

The averages hide one more thing, from a different angle. The global index is an average across lanes, and in a week when China to the United States leads the gains while Europe outbound softens, the average lands in the middle and accurately describes nobody. A transpacific shipper reading the global index will understate his own exposure and under-book his own budget. A Europe outbound shipper reading the same number will overstate his, and will leave money on the table by not asking for a reduction in the very week his own lane is falling. The index is a thermometer. It says the patient has a fever. It does not say which limb is broken, and the limb is the thing you have to treat.

Where could I be wrong, and what would flip it. Begin with the fuel arithmetic, because it cuts both ways. If carriers really have been absorbing part of the shock, then the downside when fuel normalises is larger than the headline suggests: you would get the surcharge relief and the base rate would have nowhere left to go but down. A market that rose 26.4% on the back of a 113.7% fuel move can hand back twenty points without any drama in demand at all.

My read flips entirely if fuel keeps climbing, because at some point the surcharge becomes the rate and the base-rate negotiation becomes theatre, and the only lever left is density, since you pay on chargeable weight and a tighter box beats a cheaper kilo every single time. It also flips if the transpacific demand picture breaks, and that lane is being led precisely by the two categories that can disappear overnight: cross-border e-commerce volume and launch-driven electronics. Both are discretionary in a way that industrial cargo is not, and the shipper who signs a twelve-month commitment at the top of that lane will be the one explaining it to a finance director in January. And I am wrong about Europe if the softening was one week's noise. Frankfurt's 6.6% fall is one week. Give it two more weeks before you believe it, and do not build a sourcing plan on a single data point.

Percentages do not hurt anybody, invoices do, so let me put it into a bill. Assume you are a Shenzhen shipper moving 40 airfreight shipments a month at an average chargeable weight of 500 kilos each, so 20,000 kilos a month. Assume the base rate you signed a year ago was 3.00 dollars per kilo, and assume the index move reached you in full, which flatters you, but it keeps the arithmetic clean. At 26.4% you are now paying about 3.79 dollars a kilo. Your monthly bill goes from 60,000 dollars to roughly 75,800 dollars, an increase of about 15,800 dollars a month, which is close to 190,000 dollars a year.

Now take the invoice apart. If fuel was a quarter of your rate a year ago, that is 0.75 dollars a kilo of surcharge. A 113.7% increase on that component is about 0.85 dollars a kilo, or 17,000 dollars a month across 20,000 kilos. That is more than the 15,800 dollars the entire invoice went up. Both cannot be true unless the base rate came down. That is the whole point, and it is worth saying plainly: the argument you are having with your forwarder is happening on the wrong line of the invoice.

To be fair to the carrier, they have their own arithmetic and their own number for the fuel share. Ask them for it. In a week like this, a forwarder who can explain the surcharge formula is worth more to you than one who knocks two per cent off the base rate.

One more thing, and it belongs to the space side of the market rather than the price side, because the two are not the same market. If you move enough volume to hold a block space agreement, this is the season when that piece of paper either earns its keep or shows its seams. A block space agreement fixes a rate and a volume, and in a rising market it protects you from the spot spike. What it does not protect you from is the surcharge, because most block space agreements pass fuel through exactly as spot does.

So the shipper sitting on a comfortable contracted rate can still be getting an unpleasant surprise every month, and the surprise is almost always the same line of the invoice. If you are on spot instead, the calculus is different: spot gives you the freedom to chase whichever lane is softening, and right now that lane is Europe outbound. Both positions are defensible. What is not defensible is signing either one without knowing which line of the invoice is indexed and how often it resets.

What I would do this week, sitting on your side of the desk. Pull the surcharge formula out of the contract and read it, and if it does not name an index and a reset frequency, make that the next thing you negotiate. For China to the United States, stop waiting for the dip and book on a longer lead, because the lane is tightening and the bookable window goes before the price does. For Europe outbound, do the opposite and ask this week, because a lane that fell 6.6% in seven days while sitting 33.7% above last year is a lane where the carrier would rather sell space than hold it. Spend an hour on chargeable weight as well. If fuel has become the largest single driver of your rate, then volumetric weight is where you are leaking, because you are paying for fuel on air you are not using.

The alternatives, with their potholes attached. Moving industrial cargo off air and onto the rail and truck routes through Central Asia saves real money and fails completely for anything with a launch date or a shelf date, because the transit is measured in weeks and the inventory carry is measured in weeks too. Sea-air through the US west coast or the Gulf is the classic middle path and is worth pricing now, but price it with the transit days written into the quotation, because hybrid products are the first thing to slip when a node gets busy.

Changing gateway is the option people forget. Chicago instead of Los Angeles, or a European gateway feeding an Atlantic routing instead of a direct US run, can take you off the tightest node without changing mode at all, and the truck leg at the far end is often cheaper than the premium you are paying at the near end. The trap underneath all three is one I have watched people fall into for years: they compare rates and forget to compare cut-offs. A cheaper lane whose booking window closes two days earlier will cost you more in expediting fees in a single quarter than the rate difference saves in a year. And there is one more pothole, the one that catches people who have done everything else right. Never underestimate a border post. A new routing means new ground handlers, and ground handling is where a clean plan meets a forklift driver who has never seen your commodity before.

Is the road still worth driving. It is, but not blind. The index will keep telling you the market is hot, and it will keep being right about the average while being wrong about you. Your invoice will tell you something more useful, if you read the right line on it. Every corridor has a story and a pothole, and right now this one's pothole is called the fuel surcharge.

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— By Ömer Kaya