Trading Update

The compounding effect of coronavirus quarantine measures and post CNY slack volumes smash air freight rates in the first week of February. China to Europe down 26 cents (9.35%) and China to US down 7 cents (2.27%), and now already below 2019 price levels. Shanghai to Europe retracts significantly from last weeks last-minute gains, down 38 cents (13.87%).

The only gain comes from Hong to US, as shipments run through the HKG SAR into the US prior to the travel ban imposed by the US administration. The overall average air index ends up down 3 cents.

Both China to Europe and US curves show front month declines, down 7 and 2 cents respectively, with declines trailing through into the rest of Q1. Cal 20 prices are revised down further, with Europe down 3 cents and US down 10 cents. A flicker of positive price action in Q2, Europe up 1 cent and US April up 1 cent.

Market Comment

Hopefully this report falls short of becoming a coronavirus special, air freight joins the rest of our China-linked markets on a severe decline. Although air freight’s fortunes are compounded by the increase and subsequent decline in freight volumes as we cross-over Chinese New Year, volumes will continue to be held back as China shuts down major sections of industry and infrastructure. By way of an interesting cross-analysis, Iron Ore (largely seen as a barometer for Chinese economic growth) hit its down limits and the Dalian Commodity Exchange cancelled its second session as commodities were hit hard on the post-CNY open. Container freight rates are generally down, with the FBX 04 back haul between the US and China dropping a cataclysmic 67%.

What will be telling for our market will be how volumes react as we progress through quarantine measures, patience for holding back the Chinese economy due to the virus will wear very thin, very quickly - as industry pundits have claimed that the current situation will hit the Chinese economy relatively harder than the SARS epidemic. It’ll be interesting to see what the result of any volume build-up and subsequent time-critical spike in price there will be post-quarantine, as always no one really knows when this will be.

Although carriers can take solace in the the reduction in Chinese oil demand driving a drop-off in jet kerosene price and underlying Brent crude price, this reduction is more than offset by the loss in both passenger and freight revenues linked to widespread schedule suspensions in and out of China. We mentioned this in our blast at the time, however all-cargo freighters already appear to be gaining more prominence to cover whatever freight volumes there are ex.China (our thoughts go out to the flight crews!).

And although this is a serious black swan event across most markets, air and container freight can add this one on to the now length list of seemingly random and disastrous Geo-political and economic events over the past 3 years.

Basket USD/KG CHANGE CHANGE % MTD VOL %
CHINA - EUR 2.52 -0.26 -9.35% 2.52 40.48%
CHINA - USA 3.01 -0.07 -2.27% 3.01 19.17%
Blended USD/KG CHANGE CHANGE % MTD VOL %
PVG/EUR 2.36 -0.38 -13.87% 2.36 63.61%
HKG/EUR 2.69 -0.14 -4.95% 2.69 26.41%
PVG/US 2.99 -0.18 -5.68% 2.99 34.48%
HKG/US 3.03 0.03 1.00% 3.03 27.61%
Global USD/KG CHANGE CHANGE % MTD VOL %
Air Index 2.16 -0.03 -0.53% 2.16 49.63%
Airfreight Route (AR) Description USD/KG CHANGE CHANGE % MTD VOL %
AGR 1 HKG to LAX & ORD & JFK 2.99 -0.08 -2.60% 2.99 35.28%
AGR 2 HKG to LHR & FRA & AMS 2.74 -0.02 -0.72% 2.74 30.48%
AGR 3 HKG to SIN & BKK & PVG 1.18 0.03 2.61% 1.18 26.33%
AGR 4 PVG to AMS & FRA & LHR 2.87 0.00 0.00% 2.87 73.53%

Forward Curve - Indicative Update

FIS AFFA, CHINA - EUROPE | USD/KG
BID ASK VALUE CHANGE
Feb-20 2.55 2.65 2.60 -0.07
Mar-20 2.53 2.59 2.56 -0.05
Q1 20 2.53 2.65 2.59 -0.06
Apr-20 2.45 2.65 2.55 0.00
Q2 20 2.59 2.72 2.60 0.01
Cal-20 2.71 3.11 2.91 -0.03
FIS AFFA, CHINA - USA | USD/KG
BID ASK VALUE CHANGE
Feb-20 2.90 3.10 2.98 -0.02
Mar-20 3.16 3.24 3.00 0.00
Q1 20 2.93 3.05 2.99 -0.06
Apr-20 2.85 3.05 2.95 0.01
Q2 20 2.92 3.12 3.02 -0.05
Cal-20 2.90 3.30 3.10 -0.10