Red Sea shipping turmoil spurs airfreight prices, adding pressure before Lunar New Year

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Airfreight rates worldwide have experienced an upward shift for the first time in seven weeks, coinciding with the approaching Lunar New Year in Asia and heightened concerns over attacks on Red Sea shipping.

The Baltic Air Freight Index, indicating weekly transactional rates for general cargo across various routes, witnessed a 6.4% increase in the week leading up to Monday, as reported by the price reporting agency TAC Index. This marks a reversal from the declining trend observed since the mid-December seasonal peak.

Attacks by the Iran-aligned Houthi group in Yemen on Red Sea vessels, carried out in solidarity with Palestinians in Gaza, have compelled shippers to opt for longer routes, causing significant delays in delivery times. TAC Index noted that the surge in rates aligns with expectations following disruptions in ocean shipping in the Red Sea. Additionally, the lead-up to the Chinese New Year traditionally sees an increase in rates.

With many factories in China shutting down for the 8-day Lunar New Year holiday starting on February 10, companies are striving to dispatch stock to customers before the festivities. Airfreight rates from Shanghai escalated by 8.8% week on week, particularly to Europe, while rates from Hong Kong increased by 5.9%, and those from Southeast Asia surged by 10%.

The Red Sea, a critical component of the east-west trade route from Asia’s manufacturing centers to Europe and the east coast of the Americas via the Suez Canal, has been significantly affected. In response, freight companies are securing more air cargo space, and some customers are opting for air transport to avoid delays.

Despite the shipping crisis coinciding with a post-Christmas demand lull, airfreight prices had remained relatively stable. Niki Frank, CEO of DHL Global Forwarding Asia Pacific, noted that the anticipated pre-Lunar New Year peak is now met with longer sea transit times, higher sea rates, and a vessel shortage due to the Red Sea disruptions. Consequently, some customers are shifting to airfreight, with an increase in the shipment of goods scheduled for later dates.

It is worth noting that global airfreight rates, which experienced record highs during the pandemic, have been on a downward trajectory since early 2022. The Baltic Air Freight Index, on Monday, was down approximately 24% year on year. Despite its higher cost compared to sea freight, airfreight constitutes less than 1% of global trade volume, according to the International Air Transport Association (IATA).

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