Against the backdrop of the ongoing Middle East conflict, rising fuel prices owing to the closure of the Strait of Hormuz, and logistical disruption in the Gulf, air freight rates jumped significantly in March.
Following the start of US and Israeli military action in Iran at the end of February, the ensuing regional turmoil led to widespread airspace closures and flight cancellations throughout the Gulf.
In addition, the effective closure of the Strait of Hormuz, a key transit corridor for about 20% of global oil supply, drove the price of Brent crude from about $72/barrel before the outbreak of the war to about $118/barrel at the end of March. Jet fuel prices recorded even greater increases. On April 8 (latest data), prices for Jet fuel, kerosene-based, FOB US Gulf Coast stood at $4.19/gallon, down slightly from the March peak of $4.45/gallon, but still up by 126% quarter-over-quarter and 117% year-over-year (YOY).
As a result of the turmoil, air freight rates increased significantly over March, and as of April 8 (latest data), the Air Freight Baltic Index stood at 2,519, up by 25.2% month-over-month and 15.8% YOY.
Major operator DHL reported that global air cargo capacity fell by 22% on March 1 due to Gulf airspace closures, noting that Asia-Middle East capacity was down by 50%. It added that rerouting and backlogs were disrupting scheduling. US-Middle East air freight also continues to be volatile, according to the company, as network disruptions persist. Market sources report a gradual recovery in capacity and expect air freight rates to ease, but note that the pace remains slow.
Air freight is critical for Gulf food security, according to Air Cargo Week, who add that the region “remains heavily reliant on imported food, with a significant share of perishable and premium goods transported by air. Fresh produce, dairy, seafood, and specialized items depend on short transit times and controlled handling, making airfreight indispensable.”
In March, Reuters reported that shipments of fresh produce were left in limbo, loaded onto planes, owing to the impact of the turmoil on air cargo capacity and rates. Supply chain advisory company Drewry suggests that further pressure on air freight rates could stem from mode shifts of strategic commodities such as fertilizer.
Written by Craig Elliott
