WorldACD: Global Air Cargo Rates Stay Elevated as Gulf Capacity Rebuilds

The Analysis

I want to start with the road rather than the chart, because this week the two are telling different stories. Istanbul to Dubai, Dubai onwards to Frankfurt, Karachi up into Europe, Mumbai out to the Gulf and across to North America: on those corridors the week of 15 to 21 June printed a worldwide average air cargo rate of 3.24 dollars a kilo, up one percent on the week, and a worldwide spot rate of 3.75 dollars, also up one percent. Six days before the middle of that week, on 17 June, the United States and Iran signed a peace memorandum. Most of the market read that signature as a discount waiting to happen. The rate went the other way.

What did move is the space, and it moved a long way in a fortnight. WorldACD puts the Middle East and South Asia capacity deficit at minus 19 percent against pre-war levels, against the minus 30 percent it had been carrying, and it puts the Gulf to North America gap at minus 13 percent, against minus 33 percent. I have flown cargo out of this corridor more years than I care to count, and I will say plainly that this is the most encouraging thing in the report. It is also the reason half the market has decided that rates are about to fall, and I do not think that follows.

Three things are named as holding the level up: persistent bellyhold shortages, elevated jet fuel costs and risk surcharges. Add the year-on-year line, spot rates sitting 47 percent above the same week last year, and you get a corridor that is healing and a price that is not. Both of those can be true at the same time. What follows is about the gap between them: which capacity comes back first, which of the three supports lets go first, what waiting costs you, and what to book in the next two weeks.

Start with the arithmetic nobody does on a Monday morning. Minus 30 to minus 19 on Middle East and South Asia reads like eleven points. Put it against the pre-war baseline instead of against itself and it turns into a different number: capacity went from 70 percent of normal to 81 percent, which is about sixteen percent more space than you had a fortnight ago, not eleven. On the Gulf to North America lane the same sum is roughly twice as strong. There, 67 percent of normal became 87 percent, and 87 over 67 is about 1.30, meaning roughly thirty percent more space on that corridor than at the worst of it. The region healed by about a sixth; the long haul out of the Gulf healed by about a third. That divergence is not noise, and if I were the one signing the invoice it is the first thing I would want explained.

Belly and freighter do not come back the same way, and which one your freight rides on decides most of what happens to you over the next eight weeks. Belly capacity rides on a passenger timetable. An airline files a season ahead and does not add a widebody into Dubai because your shipment happens to be ready on Thursday; it adds the aircraft when the passenger booking curve justifies it, and the lag between those two things is measured in weeks and sometimes in a whole season. Freighter capacity behaves like a truck with wings. It goes where the charter pays, it can be repositioned in a day and a half, and it returns as soon as the insurance number makes the lane worth flying again.

That difference is why the long intercontinental corridor, which leans on freighters, healed at roughly twice the speed of the region as a whole, which leans harder on belly. It also tells you where the remaining squeeze sits: the report names persistent bellyhold shortages as one of the three supports, and belly is exactly the part of this network that cannot be bought back quickly.

Now the price, and the three clocks it runs on. Fuel is global. It moves with the crude market and not with a memorandum signed in June, and it reaches you as a fuel surcharge that most carriers revise on a published schedule. Risk surcharge is the one that gets misread most often. It is not a toll for overflying somewhere unpleasant; it is the cost of the insurance the operator is carrying this month. Insurance is repriced periodically, and an operator has no commercial reason to hand the saving back on the day the reason for it disappears, so the surcharge normally leaves the invoice later than the cause left the map. Bellyhold is the slowest of the three, because restoring it means restoring passenger fleet density. Three supports, three clocks, and only one of them is even partly about the corridor.

Here is the number I would put in front of your finance director, and it is the one nobody has written about this week. A one percent weekly move on a worldwide average of 3.24 dollars is about three cents a kilo; on the spot rate of 3.75 it is a little under four cents. The year-on-year gap of 47 percent is worth roughly a dollar twenty a kilo. Set those two side by side and you see the shape of the argument: the market is fighting over three cents while a dollar twenty sits on the table untouched. The weekly print is not the decision. It is weather. The year-on-year level is the decision, and the level is being held up by fuel, belly and insurance rather than by the Gulf.

There is a second thing nobody has said, and it is about the word deficit. Minus 19 percent is an average across a region, and your freight does not move on an average. It moves on a flight number out of a particular airport on a particular afternoon. A region sitting at minus 19 can still be minus 60 on your Tuesday rotation if that rotation hangs on one carrier's belly and that carrier has not restored the frequency it cut. So the question to put to your forwarder is not whether the corridor has recovered. It is whether the space you specifically depend on is back, on the days you need it, at the weight you actually ship. Ask for the flight-level picture rather than the index-level one, and ask for it in writing. A sales desk telling you that capacity is back is not a booking; a flight number and a day is a booking.

One detail in the dates deserves a minute of your time. The week 25 sample runs 15 to 21 June and the memorandum was signed on the 17th. Four days out of seven in the number everybody is arguing about were flown after the signature, and in those four days enough metal came back to move a region-wide deficit by eleven points. That is genuinely fast. It is also why the price did not follow, because a rate is not a spot market in the way that capacity is. Rates clear through contracts, through surcharge formulas and through published tariff revisions, and all three of those run on a cycle. Space can come back in four days. The invoice takes longer than that.

Let me put real numbers on this, and I will flag every figure that is not from the report as my assumption so that you can drop your own in its place. Take a shipper moving 400 kilos a shipment, 20 shipments a month, 8,000 kilos a month, out of a Gulf gateway into Europe. At the week 25 worldwide spot average of 3.75 dollars a kilo, the freight line is 30,000 dollars a month. At 47 percent less, which is roughly where the same week sat a year ago, the rate works out near 2.55 dollars and the line near 20,400 dollars. The difference is about 9,600 dollars a month, nearly 115,000 dollars a year, for the same boxes on the same route. That is what the year-on-year line actually describes, and no run of one percent weekly moves is going to hand it back in July.

So the decision in front of you is not whether to wait for a cheaper rate. It is whether these goods need to fly at all. Take the same 8,000 kilos and suppose that 30 percent of it, 2,400 kilos, is not genuinely urgent. Flying that 2,400 kilos costs about 9,000 dollars a month at 3.75. I am not going to quote you a sea rate or a rail rate; that is not my column, and anybody who quotes one from memory is guessing.

What I will do is price the air side and tell you what the slower option has to beat. Assume those goods are worth 40 dollars a kilo, my assumption, so 2,400 kilos is 96,000 dollars of stock. Assume carrying cost at 10 percent a year, my assumption, and assume the slower mode adds 25 days in transit, also my assumption. The stock you finance for those extra days is 96,000 times 10 percent times 25 over 365, which is about 657 dollars.

Against 9,000 dollars of air freight. The slower leg has to land under roughly 8,300 dollars for those 2,400 kilos, door to door with every surcharge in, before switching stops paying. Get that figure in writing from your forwarder. If it does land there, the binding constraint is not freight at all: it is whether you hold 25 days of cover on those items. Most people look and find they hold nine.

When is it worth paying for certainty? On this corridor I use a plain rule. If your monthly lift on a single lane is above 2,000 kilos and your promised transit is under five days, you are not buying freight, you are buying a guaranteed slot, and with the region at minus 19 percent a guaranteed slot is still the scarce thing. Buy a block of space with a written cancellation window instead of chasing spot week after week. The trigger I use is a price trigger: once your accepted all-in rate on that lane sits more than 10 percent above the worldwide spot average of 3.75, which is about 4.13 dollars a kilo, stop buying spot and go and negotiate a block. Below that line spot is fine and you keep the flexibility.

One more number falls out of the two rates in this report, and for anyone choosing between contract and spot it is the most useful one on the page. The worldwide average of 3.24 and the worldwide spot of 3.75 are 51 cents apart, and 51 cents on 3.75 is about 14 percent. Roughly speaking, that is what being on a contract rather than buying spot is worth in this market this week: it is the discount you collect for committing. If your all-in rate today sits closer to 3.75 than to 3.24, you are buying spot and calling it something else, and a 14 percent gap is more than enough reason to go and have a conversation.

Then there is the transit question, which is a road question and has been one for as long as I have done this. Routing through a Gulf hub buys you frequency and costs you a handling step. A direct flight costs more a kilo and saves you a night. With the long-haul corridor back to roughly 87 percent of pre-war capacity, the frequency argument for the hub is weaker than it was in May, and the direct option deserves a fresh look. Do not settle it with an opinion. Run it as a test: two weeks, same commodity, same weight band, half the volume direct, and measure door-to-door hours plus the count of shipments that made the promised day. If the direct leg beats the hub on made-the-day by more than 10 percentage points, move the share and renegotiate on the back of that result.

One caution about the baseline, because it catches people out every year. Both deficits are measured against pre-war levels, which means against a world that no longer exists in several other respects too. Being 13 percent below a pre-war Gulf to North America is not the same as being 13 percent short of what you need this month, and it is not a forecast. It is a distance from a remembered normal. Use it as a direction, not as a quantity you can plan stock against. The quantity you can plan against is the flight-level space your forwarder can actually hold for you next Tuesday, and that is a phone call, not an index.

Waiting has a price as well, and it is worth writing down. If you decide to hold spot for another four weeks in the hope that the corridor recovery reaches the rate, you are paying 3.75 a kilo the whole time you wait. The bad case is that you pay it for four weeks, get nothing for it, and then sign a fourth quarter contract from a weaker chair, because you have no history of committed volume behind you. Committed volume is a negotiating asset. Carriers and consolidators price the reliability of demand, and a shipper who has been booking week to week for two months has demonstrated the opposite. If you think you will want a block later in the year, start behaving now like a customer who wants one.

Here is what I will be looking for in the next two prints, because watching without a threshold is only worrying with extra steps attached. I want the Gulf to North America number to keep improving and to be inside minus 10 within three weekly prints; the run from minus 13 to minus 10 is the last hard part of the recovery, because it depends on carriers restoring frequency rather than simply repositioning aircraft they already owned. I want the region-wide number to move at all; if it sits at minus 19 while the long haul keeps improving, that confirms the belly reading and tells you the regional squeeze is structural for at least another season. And I want the risk surcharge line on my own invoices to be named and dated, because that is the one of the three I can actually do something about.

Which condition would make me change my mind? Three, and I would watch them in this order. If the fuel number comes off materially, the level moves within a surcharge cycle, because fuel is the fastest of the three clocks. If insurers reprice the risk on this corridor, the risk surcharge line drops, and that is the one worth chasing hardest, because once the reason is gone it is pure margin for whoever is still charging it. If passenger fleets restore frequency into the Gulf, belly eases and the slowest support lets go. If all three happen and the rate still does not move, then something other than the three named supports is holding it up, and I would want to know that before signing anything for the fourth quarter. On the other side, if the deficits stall at minus 19 and minus 13 for another three weekly prints, treat the recovery as finished at this level and plan on it.

One more road point, and it is the one that has saved me the most money over the years. Do not put all of this volume through one gateway. With the region at minus 19 and the long haul at minus 13, the two are healing at different speeds, and that divergence is an opportunity if you have options and a risk if you do not. Qualify a second gateway now, while the recovery leaves you some slack, rather than in September when peak season arrives and every alternative you might have used is already full. Qualifying one costs you a test shipment and an afternoon of setup. Not having one costs you the whole lane the day your primary tightens.

Ownership matters here, because this is exactly the sort of week where everybody assumes somebody else is watching it. The logistics manager owns the mode split, and I would want it settled by 3 July: which kilos must fly inside five days, which can wait ten to fourteen, which can go slow. Procurement owns the surcharge lines, and I would want fuel and risk separated on the invoice by 17 July, each with a review date attached rather than a promise. Finance owns the carrying-cost number, because the whole slow-mode case rests on it, and a 10 percent assumption is not a fact. Somebody also has to own the customer promise: if you move 30 percent of the volume onto a slower mode, the delivery date you quoted has to change on the same day, or you have simply moved the problem out of the freight budget and into the complaints folder.

The traps are boring and they cost real money. A blended all-in rate with fuel and risk folded into one figure cannot be audited, so split it. A transit quoted in days hides the step that actually breaks, which is the ground handling at the transfer point, so ask for hours on each leg and add them up yourself. A verbal assurance that capacity has recovered is worth nothing without a flight number, so hold both. Watch the unit of account: some quotes are on chargeable weight and some on gross, and on light bulky cargo the gap between the two is not small. And keep hold of the distinction between the two deficits. Minus 19 percent for the region and minus 13 percent for the Gulf to North America lane are different animals, and quoting one when you mean the other is how a lot of bad July decisions get made.

Think of it as changing a tyre on a road that has just reopened. The road is open, and you can see a long way further down it than you could a fortnight ago, and that is genuinely good news. The surface is not finished and the speed limit has not gone up. Drive the corridor, do not race it. Book what has to fly, test the direct leg, get the surcharges split out, and put a date on the review instead of a hope. The rate will come down when fuel, insurance and belly capacity all let go together, and not a day before that.

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— By Ömer Kaya