FIS Air Freight Report June 22, 2020

More of the same downward trend hits the index, as both basket routes shed substantial numbers, China to Europe down $1.06 and China to USA down $0.57. Mostly, the Europe price is dragged down by further large corrections from Shanghai, Shanghai to Europe is down $1.68 or 23.90% week-on-week. This trails through into big losses on all other composite routes.

AGR 1 is lifted up 11 cents by price support into Chicago, going against the rest of the market.

On the forward curve, trading interest in Q3 and Q4 has corrected pricing, lifting Q4 prices up (mid prices are $3.55 CN-EU, $3.65 CN-US). Volume is being loaded up for 2021 in preparation for a highly unknown year, offering hedgers the security of a fixed price, with the flexibility of a cash-contract. Currently, Calendar year (CAL) 2021 sits at $3.30 and $3.21 mid-value, however expect this to rationalise down to around the $2.80 mark.

Market Comment 

BSAs and long term contract renewals are still pending as the market continues its sharp slide into normal pricing levels - meanwhile, container freight picks up the slack. A number of airlines (including Cathay Pacific) have gone public about pulling the plug on passenger-freighters, as achievable prices converge on operating costs. This isn't surprising considering the inefficiency of these aircraft in moving cargoes, and the time it takes to load thousands of boxes through cabin doors and onto seats.

This is also why we've been seeing an increase in airline-wide redundancies, as the baseline of passenger traffic is established. The sustainability of the air freight price and underlying cargo volume is also in doubt, airlines (particularly passenger airlines) do not appear to project a view of medium-term air freight demand support. IAG Cargo is shedding staff, AFKLMP launch a charter-filling app - neither of which offers a sense that the market is overflowing with cargo. 

Far from being pessimistic, the move for us at FIS is to execute on widespread and hedged index-linked contracts, in order to establish the price security all in the market need, and provide access to opportunities most in the market want.

Basket	USD/KG	CHANGE	CHANGE %	MTD	VOL %
CHINA - EUR	4.75	-1.06	-18.24%	5.97	94.68%
CHINA - USA	5.18	-0.57	-9.91%	6.02	87.86%
Blended	USD/KG	CHANGE	CHANGE %	MTD	VOL %
PVG/EUR	5.35	-1.68	-23.90%	7.01	119.35%
HKG/EUR	4.16	-0.44	-9.57%	4.93	78.16%
PVG/US	5.03	-0.72	-12.52%	6.12	112.89%
HKG/US	5.33	-0.42	-7.30%	5.91	93.10%
Global	USD/KG	CHANGE	CHANGE %	MTD	VOL %
Air Index	3.69	-0.36	-5.36%	2.27	49.63%

Forward Curve - Indicative Update

FIS AFFA, CHINA - EUROPE | USD/KG
	BID	ASK	MID	CHANGE
Jun-20	4.00	5.90	4.95	-0.30
Jul-20	3.00	4.80	3.90	0.00
Aug-20	2.80	4.50	3.65	-0.05
Q3 20	2.40	3.90	3.15	-0.05
Q4 20	3.20	3.90	3.55	0.10
Cal-20	2.60	3.70	3.15	-0.05
Cal-21	2.70	3.90	3.30	0.00

FIS AFFA, CHINA - USA | USD/KG
	BID	ASK	MID	CHANGE
Jun-20	4.00	6.02	5.01	-0.49
Jul-20	2.90	4.40	3.65	-0.05
Aug-20	2.80	4.00	3.40	0.00
Q3 20	2.50	4.00	3.25	0.15
Q4 20	3.20	4.10	3.65	0.10
Cal-20	3.10	3.90	3.50	0.02
Cal-21	2.81	3.60	3.21	0.00