Asia-Europe Air Freight Spot Rates Hold Firm Despite Capacity Rebuild

The Analysis

The week ending 19 June produced three numbers, and only one of them was a price. Average spot from the Middle East to Europe held near 3.76 dollars a kilo. It fell one per cent week on week. Capacity on that corridor rose thirteen per cent.

Read them together and nothing settles. A thirteen per cent increase in supply moved the price by one per cent. That is not a market clearing. It is a market where the number on the invoice is being set by something other than the count of pallet positions, and until you know what that something is, you cannot plan against it.

I have watched enough of these weeks to be suspicious of a rally that will not break. When capacity comes back and the rate stands still, the rate has stopped telling you about demand. It has started telling you what the quote is made of.

The one per cent is under four cents on 3.76. On a weekly series that is noise; it sits inside the error you get from which lanes reported and how the average was weighted. The thirteen per cent is not noise. So the honest reading is a large supply change meeting a price that did not respond, and the reported firmness is the event, not the small decline.

An air quote on that corridor is a stack, not a number. Base rate, fuel, security, risk surcharge. Only the base has a direct relationship with capacity. Fuel follows jet fuel, which has been high and is not a capacity variable. The risk surcharge follows an exposure assessment, and an assessment runs on its own clock: the people who write it are asked whether a route is safe this month, not whether a freighter is free this week. Capacity can return thirteen per cent while the surcharge sits exactly where it was, because nothing inside it is a function of how many kilos the corridor can lift. That is the piece the coverage leaves out. Rates held not because demand was strong but because part of the quote was never a market price to begin with.

Then there is the shape of what came back. The rebuild was freighter capacity on a corridor. What has been missing throughout is belly. Passenger networks into Europe are still short of where they were, and belly is the cheapest capacity on any lane because the flight was going anyway. A main deck position and a belly position are not interchangeable to a shipper: different cutoff, different build, different destination mix, and a freighter usually lands at one hub where everything must be broken down and trucked onward. You can add thirteen per cent of main deck and leave the thing your cargo actually needs, a widebody belly into a secondary European airport three times a week, exactly as scarce as before. The rebuild answered a question nobody in your booking was asking.

Put a number on the response. Thirteen per cent more capacity, one per cent lower price, an elasticity near 0.08. In a market where supply is the binding constraint that figure should be several times larger. At 0.08, the constraint is elsewhere: a cost floor, a risk premium, and handling. That is useful, because it tells you what would actually move the rate. Another thirteen per cent of capacity probably would not. A fall in fuel, or an assessment being withdrawn, would. Neither can be forecast from a capacity number, which is why the capacity number keeps being read wrongly.

The headline also says Asia to Europe while the number underneath it is Middle East to Europe. Those are different lanes and the gap is not pedantic. If your cargo originates in Shanghai or Shenzhen or Ho Chi Minh City, the corridor that got thirteen per cent back is not your origin. It is somebody else's origin serving the same destination market. Any relief reaches you as a second order effect through displaced capacity, not as direct supply on your lane. People read a regional average and assume it describes their booking. Usually it describes someone else's.

Exposure sorts by instrument, not by size. A shipper at one to two tonnes a week on spot is fully exposed with no way to fix it; timing is the only lever they hold. A shipper with a monthly volume commitment and a forwarder holding blocked space is partly insulated, but the next repricing carries the whole stack including the surcharge, so the surprise lands at renewal rather than at booking. An annual BSA holder is not exposed this quarter and should not feel clever about it, because they meet the same stack at renewal, and by then the capacity picture may have turned the other way. The exporters who feel this first are the ones whose product is cheap enough to price per kilo and urgent enough to fly anyway, because they have neither an alternative nor leverage.

The clocks run against you in a specific way. This is a weekly series, so the price signal arrives every seven days. Your contract reprices monthly or quarterly. In that two to six week gap the money goes: you see stability, you conclude there is no urgency, and at renewal you learn that the stable number contained a surcharge that was never on the table. Spot shippers feel it within days, and they feel it as a refusal rather than a rate, which is worse because you cannot budget for a refusal.

Here is the arithmetic I would run, with the assumptions marked as mine. Say you move three thousand kilos a week on the corridor and your all-in is 3.76, so 11,280 dollars a week. Suppose you assumed, reasonably, that a thirteen per cent capacity rebuild would take eight per cent off the rate by quarter end, and you budgeted on 3.46. That budget is 10,380 dollars a week. The gap is 900 dollars a week, and about 11,700 dollars across a thirteen week quarter. That is not a rounding difference; that is a salary. And the assumption that failed had nothing to do with demand. It was the belief that capacity and price move together.

Consider the other branch. Had the corridor stayed closed, capacity would still be short and the rate would have gone up, not down. So the thirteen per cent did do work: it stopped a rise. The correct counterfactual is not that capacity failed to matter. It is that capacity prevented an increase rather than producing a decrease. That changes your decision. You are not waiting for a fall that is overdue. You are standing on a floor that was just reinforced, and the floor is not going to give way this quarter.

The trap is reading a one per cent weekly move as the beginning of a trend and deferring three weeks to catch the decline. By then the quarter has turned, the surcharge is still in the quote, and you have spent the window in which you could have committed volume at a number you already knew. The other trap is comparing a spot quote with a contract quote without stripping the surcharge out of both. If you cannot see the components, you are not comparing prices. You are comparing two totals that happen to look similar.

The job for today is unglamorous. Pull the last three invoices on the lane, ask for the quote split into base, fuel, security and risk, and mark which line moved and which line did not. That tells you whether you are buying capacity or buying an assessment. This week, that is the only number worth arguing about.

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— By Ömer Kaya