Air Freight Rates Remain Elevated Despite Gulf Ceasefire Driving Down Jet Fuel Prices

Jet fuel prices have fallen significantly as tensions in the Middle East eased. However, the air cargo market has yet to see a corresponding decline in freight rates. Instead, steady demand, early capacity bookings ahead of the peak shipping season, and changes to European Union import tax regulations have continued to support elevated air freight rates throughout June.

Jet Fuel Prices Eased Ahead of the Agreement

Although the draft Memorandum of Understanding (MoU) between the United States and Iran was unveiled on June 14 and formally signed on June 17, energy markets had already begun pricing in the prospect of an agreement well before its official announcement.

Brent crude oil prices declined from above US$95 per barrel at the beginning of the month to below US$80 per barrel by June 16.

Meanwhile, according to the International Air Transport Association (IATA) Jet Fuel Price Monitor, based on Platts data, jet fuel prices had fallen by approximately 26% as of June 26 compared with the previous month's average.

Despite remaining around 29.5% higher year over year, jet fuel prices have retreated substantially from the peaks recorded in March and April, when refining margins (crack spreads) between crude oil and jet fuel widened significantly.

Air Freight Rates Continue to Hold Firm

In contrast to the decline in fuel prices, air freight rates have shown little sign of easing.

According to TAC Data, the Baltic Air Freight Index (BAI00) rose 5.8% over the four weeks ending June 22 and stood 37.3% higher than the same period last year. Although the index edged down 5.0% in the week ending June 29, it remained 31.3% above its year-earlier level.

Notably, current freight rates remain higher than the peaks recorded during the past three peak shipping seasons and are surpassed only by the extraordinary levels seen during the COVID-19 pandemic, when passenger aircraft bellyhold capacity was severely constrained.

Diverging Trends Across Major Air Cargo Hubs

Hong Kong (BAI30)

The freight index for shipments departing from the world's largest air cargo hub increased 4.5% over the four weeks ending June 22, representing a 41.4% year-on-year gain. By June 29, although the index had eased slightly, it remained 34.1% higher than a year earlier.

On the Hong Kong–Europe route, spot rates softened modestly from HK$44.54/kg at the end of May to HK$42.53/kg on June 30.

Freight rates from Hong Kong to the U.S. East Coast declined from HK$55.54/kg to HK$53.49/kg, while rates to the U.S. West Coast followed a similar trend, ending the month at HK$49.43/kg.

Shanghai (BAI80)

Shanghai's freight index remained largely unchanged throughout the month ending June 29 but still stood 37.0% higher than the same period last year.

Europe

European markets showed increasingly divergent performance.

The Frankfurt (BAI20) index climbed 14.3% during the month and was 27.9% higher year over year. In contrast, the London Heathrow (BAI40) index declined 20.9%, leaving it only 1.8% above its level a year earlier and effectively erasing most of the gains accumulated over previous months.

The Americas

The Chicago (BAI50) index increased 5.5% from the previous month and remained 34.9% higher than the same period last year.

Key Factors Keeping Air Freight Rates Elevated

According to market analysts, lower fuel prices have yet to translate into lower freight rates because many airlines continue to consume fuel purchased under long-term contracts negotiated when prices were significantly higher.

Several additional factors are also supporting the current pricing environment:

●    European Union tax policy: The EU's removal of the de minimis exemption for imported goods valued below €150, effective July 1, prompted many shippers to accelerate shipments into Europe ahead of the regulatory change.

●    Strong cargo demand: Freight volumes on Trans-Pacific routes and intra-American trade lanes have remained robust.

●    Early capacity bookings: Many shippers have secured long-term cargo capacity in advance to ensure space ahead of the peak shipping season.

Market Outlook

Industry analysts believe that if the Gulf ceasefire remains in place and jet fuel prices continue to stabilize at lower levels, cost pressures on airlines will gradually ease in the coming months. However, the impact is unlikely to be immediately reflected in freight rates due to the lagging effect of fuel procurement contracts, while cargo demand remains strong and shippers continue to book capacity well ahead of the year-end peak season.

In the near term, air freight rates are therefore expected to remain elevated. A sustained downward adjustment is likely to occur only when shipping demand begins to moderate and available cargo capacity improves meaningfully.

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

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