TAC adds new air freight pricing routes

TAC Index Limited announced that four new routes for air freight pricing will be added to its weekly publication. These routes will include Shanghai to the U.S, Shanghai to Los Angeles, Hong Kong to Singapore, and China/Hong Kong to the U.S. These origin destination pairs are now in high enough utilization by air freight carriers to be relevant on the publicized index, TAC said.

The nature of these OD pairs function as market baskets of routes, for example, Shanghai to U.S. refers to cargo flights flying from Shanghai to all airports in the U.S.

TAC is a Hong Kong-based publisher of air cargo pricing indices.

“These additional routes published today are part of a larger roll-out of air cargo lanes that TAC is publishing as an increasingly larger percentage of the freight forwarding community participates with us in our efforts to bring transparency to the world market for air cargo pricing,” TAC Managing Director John Peyton Burnett said in the announcement.

Additional routes will be added in 2019.

Burnett told FreightWaves that some of TAC’s largest clients include airlines, airports, shippers and banks. Airline customers include Atlas Air (AAWW: NASDAQ), International Airlines Group (IAG: LSE), and United Airlines (UAL: NASDAQ). Other partners include Freight Investor Services and Halliburton (HAL: NYSE). Burnett spoke of private airports being more desirable to work with as they were more commercially minded compared to government entities.

Burnett mentioned the volatility the air freight market faces, citing the price of fuel, capacity and general macroeconomic factors.

“Pricing for air cargo has been in a downward trend for many years and that’s all fine,” he said. “When the pricing trends upwards, and there is a constriction of supply at the moment, then the basic model for air pricing begins to break down.”

Burnett went on to explain that capacity for the market has been in short supply, causing a spike in rates in Q4 2018.

Even as TAC adds U.S. routes to the publication, Burnett said that China to Europe is still a major focus of the TAC Index. Ongoing disputes between the U.S. and its major trade partners has motivated European Union countries to look towards China; the two economies trade a daily average of over one billion Euros worth of goods. In the container market, rates between the U.S. and China are up 100% since last year, partially due to tariffs while rates between Europe and China have only increased 11%.

Overall, the air freight market is growing rapidly. The International Air Transport Authority (IATA) reported that global air freight demand, measured by freight-tonne kilometers, grew 9% in 2017, the fastest for the industry since 2010 and three times larger than the growth of capacity in the market. The fastest growing regional market was Africa at 24.8%, bolstered by a 64% increase in trade with Asia. Airlines in the Asia-Pacific region held the largest share of the market at 37% of all air freight volume.

When asked about the future of TAC, Burnett stated that TAC Index is working to create tracker contracts to enable customers to access capacity at a fair price. This will help educate the market for shippers and decrease their risk. These contracts are anticipated to be offered as early as Q1 2019. Risk management tools and a value-added service are also expected to be offered by the company next year.