Xeneta warns of spiralling airfreight rates due to Middle East crisis
Consultant and data provider Xeneta is expecting airfreight rates to spiral due to the Middle East crisis and has recommended to shippers on affected trade lanes that they delay signing longer term deals until the situation eases.
Xeneta chief airfreight officer Niall van de Wouw said that global airfreight capacity is down by around 16-18% as a result of carriers having to ground operations and cancel flights due to the outbreak of war in the Middle East.
However, he pointed out that the impact on some markets was “much more dramatic” than others.
“The key example is India. Capacity out of that market is dominated by Qatar, Emirates, and Etihad combined, and they are no longer able to serve that market,” he said.
“So that 16-18% means low single-digit impact in certain markets and 50, 60, 70% in other markets.”
He said that even those operations not going through the Middle East could be affected. For example, services operating from India through Istanbul may see prices rise as well because of the wider impact.
“So even if you’re not operationally affected, you will be commercially affected, because airlines that are still able to serve these markets will try to maximise or optimise their benefits,” said van de Wouw.
On expectations for freight rates, he likened the situation to Covid when flights across the world were grounded and the market saw rates “double, triple, quadruple in certain markets”.
“I think that is likely to happen in these markets as well if the situation prolongs. I’m also not a sensationalist, but the number one and two global carriers from an airfreight perspective [Qatar and Emirates], they’ve been crippled.
“They were no longer able to operate their services. That has a dramatic impact. And there’s the uncertainty, because we do not know how long this might take.”
Cargo on the ground with an airline in Middle East at the moment was likely to be stuck, he said, although if a freight forwarder in the region is in possession, there could be some hope they will find a way to move the goods.
Cargo in Asia could also be delayed and charter operations are likely to increase, he added.
“Shippers will have to pay for the freight forwarders to find a way. The industry has been very effective over the last 10 years in dealing with these situations. They will find a way, but it will come at a cost,” explained van de Wouw.
“Load factors from Asia to Europe for many Asian gateways were around 80% before the crisis. That’s our tipping point of a buyer’s and seller’s market.
“Take away 10% of capacity and you’ll have a run at capacity. Charters will be discussed as we speak now, but you have to look at landing rights. And it will come at a much higher rate than we saw prior to the start of the war.”
Van de Wouw added that many shippers will also be in the process of negotiating deals for the year. If this is the case, he recommended that discussions on affected trade lanes be postponed.
“If you’re moving across the Pacific, the impact will be less profound than moving from Asia to Europe or from the Indian subcontinent to Europe. If your lanes are less affected, it’s business as usual with a slight nuance.
“But if you’re on lanes affected by this war, postpone it. You will be vulnerable to the short-term market, but that is what it is.
“Any longer-term rate you agree now could be far too expensive if this is resolved quickly or far too cheap if this takes too long. What’s the value of that?
“Stay close to your freight forwarders, live with the uncertainty, and once there is a bit more clarity, then set the scene for a longer price validity. A paper agreement now is probably not going to survive reality for a long period of time.”
