FIS Air Freight Report February 17, 2020

**INDEX NOTICE** | due to severe reductions in airfreight volume from Asia due to nCoV quarantine, transaction data available for index market rates is limited.

Note, Index prices reflect the previous 7 days of trading.

Trading Update

Reflecting the overwhelming volume of single-lane front-haul charter and spot traffic, Frankfurt to Shanghai is up an enormous 193% from normal freight capacity price (up to $2.78/kg, roughly reflecting a mix of full charter and urgent spot prices).

In terms of core trade lanes, export capacity from China slumps a further 27 cents from China to Europe (down to $2.33), whilst China to USA is held up with no real immediate gain (up 5 cents to $2.94). Much of the US support originates from a sharp increase in Shanghai to US rates, up 25 cents ($2.80).

Forward curve prices reflect a constantly changeable freight landscape, the China to Europe front month dropping off 10 cents however March up 5 cents. China to USA comes to life, with the front month gaining 9 cents creating a trailing increase in March of 1 cent.

Market Comment

A dramatic boom in charter traffic has been categorically reflected in the explosion of charter front-haul from Europe to China, with the index rate jumping 193% in one week. It will certainly be interesting to see how sustained this jump is as inbound charter traffic drops off. A few categorical conclusions can be made, A) the Index is effectively reflecting the open market rate for what is actually fixing in the airfreight world and B) A buy position in the AFFA market to protect against rising rates would have covered up to 80% of the additional cost incurred with charter operations along the Europe to China route.

The potential is substantial for use of indexed routes to hedge against adverse supply chain price conditions.

Given we can assume a large proportion of this traffic will be relief shipments, the costs will flow through to the shipper with someone down the line shouldering the bill. All the while trans-pacific charter rates were hovering from anywhere between $500,000 to $800,000 one-way last week. Bolstering this information, publicly posted volume data from airfreight volume data company CLIVE recorded a flip of load factor, with the haul into Hong Kong overtaking the load factor ex. Hong Kong.

Freight businesses will be wary of how this price trend might flip again in the coming weeks, as the index starts to reflect forward cargo flows ex.China which have already commenced. Tech, automotive and garment industries (amongst others) will look to fight for capacity as it comes back on-line prior to spring. From a data perspective the ex.China routes remain in flux as Chinese industry begin production for inventory restocking. In the meantime we are in stasis as air and container freight capacity slowly resumes, and perishables rot in ports.

In the long-term, diversification of supply chains away from China have come to the fore once again. Shippers will have to question how much value can be derived from a move away from one-country sourcing, and how much immediate infrastructure is in place to facilitate any move away from China (if this does indeed happen).

Q1 contracts trade to hedge through any nCoV related turbulence, whereas longer term back-to-back contract hedges continue to build pace on the back of forward uncertainty.

Basket	USD/KG	CHANGE	CHANGE %	MTD	VOL %
CHINA - EUR	2.33	-0.27	-10.38%	2.48	43.82%
CHINA - USA	2.94	0.05	1.73%	2.95	19.67%
Blended	USD/KG	CHANGE	CHANGE %	MTD	VOL %
PVG/EUR	2.24	-0.45	-16.73%	2.43	82.52%
HKG/EUR	2.42	-0.09	-3.59%	2.54	26.38%
PVG/US	2.80	0.25	9.80%	2.78	58.94%
HKG/US	3.08	-0.15	-4.64%	3.11	33.89%
Global	USD/KG	CHANGE	CHANGE %	MTD	VOL %
Air Index	2.14	-0.01	0.47%	1.40	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	2.67	-0.06	-0.72%	2.74	30.70%
AGR 3	HKG to SIN & BKK & PVG	1.18	0.03	2.61%	0.71	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	2.30	2.80	2.55	-0.10
Mar-20	2.60	2.70	2.65	0.05
Q1 20	2.55	2.65	2.60	-0.03
Apr-20	2.45	2.65	2.55	0.00
Q2 20	2.59	2.72	2.60	0.00
Cal-20	2.71	3.11	2.91	0.00

FIS AFFA, CHINA - USA | USD/KG
	BID	ASK	VALUE	CHANGE
Feb-20	2.90	3.10	3.00	0.09
Mar-20	3.00	3.10	3.05	0.01
Q1 20	2.97	3.09	3.03	0.05
Apr-20	2.85	3.05	2.95	0.00
Q2 20	2.92	3.12	3.02	0.00
Cal-20	2.95	3.15	3.05	0.00