Trading Update

Some market positivity in the second week of Q4 as China to Europe and China to US gain a collective 11 cents (2.70% and 1.23% respectively) as airlines peak season rates will kick into action. The biggest aggregate gainer remains Shanghai to Europe, gaining another 8 cents and up 5.76% since the end of September. 

There is very little up-to-date information as to how much this price increase is backed by fundamental volume increases. Month on month volumes appear to increase in line with seasonal volume cycles, however year on year volumes retain a 3.2% decline. 

Forward curve activity reflects an increase in spot price, however the speed of price changes are not on the levels seen in 2017 or 2018. Front month China to Europe prices gain 8 cents, with November 2019 carrying a gain of 4 cents. December 2019 remains unchanged providing further doubt as to the shape of any price increases along the lane. China to US holds its front month value however November peak gains lose 4 cents off of the back of a relatively stagnant spot price.

Market Comment 

Rates begin to light up in the green as we progress into Q4, however fundamental drivers for price increases remain as ambiguous as ever. Forever on the search for live and publishable volume data, we have to be satisfied that rates may well be dragged up by Q4 BSA or standardised peak time pricing across carriers. Additionally, Q4 volume build up will reflect a greater amount of volumetric e-commerce goods, increasing the price per actual kilogram versus the price per chargeable kilogram. 

Much like GRIs in the container shipping world, time will tell whether any sort of price increase will equate into a better profit-per-kilogram for carriers. Higher pricing will subsequently eat into forwarder profit margins as low cargo throughput battles with high competition and rate volatility. All the while industry-wide budgeting continues to be challenged, as the market remained unhedged at the start of the year, largely reliant on diverse business coverage and wide-spread freight networks. Much like putting a bet on every horse in a horse race, the likelihood of a profitable win on one covering the cost of all appears slim to say the least. Meanwhile, retrospectively hedged positions would continue to yield a margin gain of anywhere from approximately 4 to 15%.

The one winning horse for the majority of the existing Asia-centric air freight market is the boom of South East Asia exports and trans-shipments. However the local market remains unprepared to assume the new responsibility of shouldering a large portion of Asian export business. The sustainability of this boom also raises the question of a potential market 'bubble' should sudden de-escalation of the trade war re balance exports back into China.

This scenario seems all the more likely given the recent partial agreement covering agriculturals, finances, currencies and intellectual property between the US and Chinese administrations. Thankfully such a confusing picture is a calamity straight from the derivatives hedging playbook, as removing uncertainty and risk becomes a reality.

Basket USD/KG CHANGE CHANGE % MTD
CHINA - EUR 2.66 0.07 2.70% 2.63
CHINA - USA 3.30 0.04 1.23% 3.28
Blended USD/KG CHANGE CHANGE % MTD
PVG/EUR 2.57 0.08 3.29% 2.54
HKG/EUR 2.75 0.07 2.61% 2.72
PVG/US 3.20 -0.02 -0.62% 3.21
HKG/US 3.40 0.72 2.78% 3.35
Airfreight Route (AR) Description PREVIOUS USD/KG CHANGE
AGR 1 HKG to LAX & ORD & JFK 3.31 3.39 2.42%
AGR 2 HKG to LHR & FRA & AMS 2.59 2.68 3.47%
AGR 3 HKG to SIN & BKK & PVG 1.12 1.11 -0.89%
AGR 4 PVG to AMS & FRA & LHR 2.5 2.58 3.20%
Forward Curve - Indicative 
CHINA - EUROPE | USD/KG
  BID ASK VALUE CHANGE
Oct-19 2.55 2.65 2.60 0.08
Nov-19 2.66 2.74 2.70 0.04
Dec-19 2.67 2.75 2.71 0.00
Q4 19 2.63 2.73 2.68 -0.02
Cal - 19 2.70 2.80 2.75 0.00
Cal - 20 3.35 3.45 3.40 0.00
CHINA - USA | USD/KG
  BID ASK VALUE CHANGE
Oct-19 3.27 3.39 3.35 0.00
Nov-19 3.50 3.60 3.51 -0.04
Dec-19 3.25 3.45 3.35 0.00
Q4 19 3.38 3.50 3.44 -0.04
Cal - 19 3.35 3.45 3.40 0.00
Cal - 20 3.90 4.10 4.00 0.00