Air freight rates are skyrocketing due to the war

Spot rates in air cargo are showing a sharp increase due to the war in the Gulf region. In the first full week of March, price increases of 40 to even 90 per cent were measured in the spot market. With this, spot rates in air freight are responding directly to geopolitical tensions and capacity disruptions.

According to Dutch air freight analyst WorldACD, the average price increase worldwide is around 10 per cent compared to the last week of February. Compared to the same period a year earlier, shippers on the spot market are now paying around 13 per cent more.

Spot rates in air freight vary widely by region

The development of spot rates in air freight varies greatly by region. While rates from Central and South America decreased slightly, increases in North America, Europe, Africa and Asia were limited to about 10 per cent.

The Middle East is the big outlier. Spot rates in air freight from this region rose by an average of 28 per cent. For shipments to Europe, this even went up to almost 60 per cent.

The United Arab Emirates in particular stands out. From the air cargo hub Dubai, rates rose by a whopping 77 per cent. Other countries also showed substantial increases, such as India (+50 per cent), Sri Lanka (+93 per cent) and Bangladesh (+41 per cent).

Spot rates in air cargo rise due to loss of capacity

The main cause of rising spot rates in air cargo is the loss of cargo capacity in the Middle East. Major air cargo carriers such as Emirates SkyCargo and Qatar Airways have adjusted or reduced their operations.

In addition, rerouting of routes plays an important role. Air cargo has to be routed around conflict areas more often, leading to longer flight times and higher fuel costs. Rising paraffin prices further amplify this effect.

According to WorldACD, the Middle East seems to be losing its role as a major hub for air cargo in a short period of time. Instead, the market is shifting towards direct charter flights between Europe and the Far East. This market is even seeing volume growth.

Spot rates in air freight rising faster than contract rates

Interestingly, contract rates are rising less rapidly than spot rates in air freight. Over the same period, contract rates increased by about 3 per cent, significantly less than the peaks in the spot market.

The combination of contract and spot rates currently results in an average air freight rate of around $2.40 per kilo. That is an increase of about 6 per cent from the end of February.

Developments in the coming weeks will determine further trends. If geopolitical tensions persist and capacity remains constrained, spot rates in air freight could rise further.

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