Global News Forwarders warn of Asia-Europe air rate surge amid Red Sea crisis

Air freight rates out of Asia are expected to surge in the coming weeks as European shippers seek an alternative to avoid growing ocean equipment shortages and schedule disruptions brought on by the Red Sea shipping crisis, forwarders say.

Most ocean carriers have rerouted their ships around the southern tip of Africa to avoid the ongoing attacks by Houthi militants on commercial shipping in the Red Sea, adding 10 days to Asia-North Europe voyages and two weeks on Asia-Mediterranean. Carriers and forwarders are already reporting signs of space and equipment constraints on the trade lanes.

“The window for bookings ahead of Chinese New Year is closing and over the next couple of weeks airlines have told us to expect air cargo rates to increase out of China,” Thomas Elmelund, director of air freight at DSV, told the Journal of Commerce Friday.

“It is not a burning platform yet,” Elmelund said. “Right now, an additional 10 days is still manageable by ocean freight. The real task will be when we see the ripple effects, and we are already starting to see shortages of 40-foot high-cube containers and as soon as those issues increase, we will see higher demand for air freight."

Trine Nielsen, head of ocean for Europe, Middle East and Africa at Flexport, shared the view that air cargo rates would spike in the next two or three weeks.

“If you can’t get your containers out of Asia in the next couple of weeks, the only option might be air,” she said. Rising air volume, rates Peter Penseel, chief operations officer for air freight at CEVA, said he was already seeing rising air cargo volume and increasing rates because of the Red Sea disruption to ocean shipping.

“This momentum will continue in the run up to, and even after, Chinese New Year,” Penseel told the Journal of Commerce this week.

He noted that the main drivers behind rising air freight demand were equipment shortages at origin ports due to longer ocean rotations around the Cape of Good Hope, as well as congestion in handling delayed vessels that would be felt initially at European ports and then later in Asia upon their return.

“We have customers with sales targets that must be met within the first quarter, so those requirements are creating an increased interest and demand for direct air freight capacity,” Penseel said. “With the increasing pressure on capacity, we expect a corresponding increase in air freight rates in the coming weeks.”

A widescale push into air freight will be reflected in the spot market, although the disruption to ocean traffic in the Red Sea has yet to have any dramatic effect on air cargo rates, according to the latest data from price reporting agency TAC Index. However, the Baltic Air Index (BAI) that uses TAC data shows outbound rates from Shanghai to North Europe edged up while China outbound rates to other destinations declined, indicating increasing demand for air freight on the Asia-Europe trade.

The Shanghai-North Europe rate of $3.41 per kilogram increased by just under 2% compared with last week while Shanghai-North America rates fell 14% to $4.13/kg, according to the BAI. Shippers switch to sea-air services Forwarders are also reporting a significant increase in demand for Asia-Europe sea-air services via Dubai as an alternative to disrupted ocean transits.

Elmelund said DSV’s ocean transport services from Asia to Dubai and air freight onward to Europe has seen a 200% increase in tonnage since December.

“In Dubai it is possible to convert ocean freight to air in 24 hours and there is a lot of capacity out of Dubai airport with all the large carriers flying in,” he said.

“There is also a good mix between rates and cost in a sea-air solution,” Elmelund added. “A shipper will save 40% in rates compared to direct air freight and 60% in transit time compared to ocean. There is also an emission reduction of almost 35% compared to air freight, which is a value add for a lot of companies.”

Nielsen said for shippers running a time-sensitive supply chain, the sea-air option through Dubai was currently a suitable alternative to ocean.

“No Christmas deliveries were impacted by the Red Sea issues but there are a lot of January sales going on and a consumer-driven business will want to ensure it does not have a stockout in the January sales,” she told the Journal of Commerce. "We have seen a normalization of inventory through 2023 so there are not many of our customers that have high inventory levels.”

A spokesperson for Hapag-Lloyd said all its ships were full on the Asia-Middle East trade lane, but that was mainly due to Saudi Arabian ports that could not be served via the Red Sea.