Online market Freightos, a global freight booking platform, has added a benchmark pricing index for airfreight alongside its daily composite of 40-foot container shipping rates known as the Freightos Baltic Index.
The weekly product, based on real-time transactional air cargo data, is a direct challenge to the Hong Kong-based TAC Index, the primary conduit for tracking aggregated pricing movement in the industry for several years.
The extreme volatility of air cargo rates and tight supply of aircraft this year, when many companies are scrambling to find airlift because of significant ocean shipping delays, has accelerated interest in faster, more transparent decision-making tools, for sellers and buyers, according to transportation professionals.
Freightos pointed to air cargo spot prices from Frankfurt, Germany, to Shanghai shooting up 2.2 times in the past three months to $3.53 per kilogram as an example of why an index based on transactional air cargo prices is necessary. That price swing is small compared to those on major trade lanes out of Asia, where rates have shot up five or six times above pre-COVID levels to between $10 and $20 per kilo, depending on the specific city pairs.
Since the end of 2020, shipping rates based on a global basket of routes has increased from $5.45 per kilo to $6.59, according to the Freightos Air Index (FAX).
CEO and founder Zvi Schreiber said most of the data for the FAX comes from the high volume of automated transactions enabled by the WebCargo unit, a digital pricing, booking and sales platform that connects airlines to freight forwarders. More than 30% of the bookable air cargo capacity in the world is now available on WebCargo, he said.
The Freightos unit separately connects forwarders to shippers with goods to move. The Freighos Baltic Index (FBX) is calculated from short-term spot tariffs and related surcharges for container slots secured on Freightos’ online market, which has been live since April 2018. The index is a weighted average of its underlying regional route indices.
The air index, which is in beta phase, provides price details across various trade lanes, two weight classes (100 to 300 kilos and 300 to 1,000 kilos because they involve the greatest amount of transactions) and origin/destination airports. The FAX will be published on Sundays with data from the prior week.
Freightos will build up the dataset over time and eventually plans to publish the index daily.
“We did the same thing with FBX in ocean. We published it weekly for a year or two and once we had further confidence in the data we switched to daily,” Schreiber said.
Freightos is offering the service for free as a way to make its name more recognizable. At some point, it will charge for more advanced data.
TAC Index, an independent price reporting agency, also produces datasets weekly using transactional data from the master airway bill — the document issued by the carrier to the forwarder upon receiving a shipment with the terms and conditions for carriage. TAC says it filters, cleans, checks and verifies the data before publication each Monday.
The Baltic Exchange is a centuries-old group based in London that produces rate indices in other maritime sectors, such as dry bulk, gas and oil shipping. Its most widely known assessment is the Baltic Dry Index, a daily composite of global shipping rates for various classes of dry bulk shipping derived from shipbrokers.
Late last year it entered the airfreight market by partnering with TAC Index, which provides baskets of aggregated airport-to-airport data. It generates six outbound airfreight indices and 17 individual destinations, offered under the Baltic Air Freight Index (BAI). TAC, as the pricing publisher, keeps the indices current. The indices are available on the exchange’s website to subscribers.
“As far as we know, not only is there a lag [with airway bill data] but also the rate on the AWB is not necessarily the rate actually paid. Whereas we’re an actual transactional platform, so we see with complete authority what’s actually being paid,” Schreiber said in an interview from London.
“I can say that we have a very high confidence in our data and that in some cases it’s considerably different,” he added.
Consumers of both products say Freightos data, especially on the ocean side, is excellent and very accessible. It also is far cheaper than the TAC product.
Schreiber said airfreight pricing is more dynamic than ocean, where yearly fixed-price contracts are common, because its high cost makes it the mode of last resort for many products. Freight contracts, whether air, ocean or truck, are not binding and supply chain disruptions during the pandemic have demonstrated that when the spread between spot and contract rates gets too great one party or the other finds a way to wiggle out, often, in the case of carriers, by adding hefty surcharges. That is why a dynamic pricing model paired with greater transparency is better for carriers and shippers, he argued.
“By using a digitized tool you know more about how the spot market [works]. It kind of flattens out the highs and the lows and gives you more real-time pricing on both ends,” he said.
Ultimately, development of an airfreight futures market would protect against price fluctuations, Schreiber said. Cargo owners would lock in their shipping frequency and prices would float but be pegged to the index.
“That way you’re always paying a fair price and the carrier is always getting a fair price and neither side has an incentive to get out of it,” he said. A shipper then would use financial instruments to hedge against the price going up, and vice versa for a carrier.
“That’s how more mature markets work. The price is always floating, but you can still have a long-term contract which is index-linked. And if you’re a big customer, maybe the price is index minus 15%,” Schreiber said.
A broad futures market for air cargo could evolve in a couple of years, he predicted.
The FAX can’t be used for trading specialized financial contracts based on the value of underlying assets because it doesn’t comply yet with international securities rules for settling derivative products. The FBX, however, is trading compliant.
“I think TAC’s head start plus the Baltic Exchange relationship will be tough to unseat for the foreseeable future. But we’ll definitely watch what Freightos is doing, see how it compares, and more importantly how the market seems to take it,” said Bascome Majors, equity research analyst at Susquehanna International Group, in an email message.
New WebCargo partner
This week LATAM Airlines became the 30th carrier, and first in Latin America, to share its cargo reservations with WebCargo. The multiparty online platform provides 2,500 freight forwarders access to live rates, updated space availability and the ability to compare offers from multiple carriers. Automatic backend connections are enabled by an application programming interface.
Supply chain instability and rising costs have pushed more forwarders to digitize air transactions in the past 18 months because instant quotes and fast bookings increase the chance of finalizing a reservation before the space is sold out. Changes to carriers schedules, prices and capacity are immediately visible to customers. WebCargo says the volume of electronic bookings on its site has grown by more than 12 times since last year.
WebCargo’s market share for total bookings — offline and online — are in the low single digits but growing very rapidly and the company estimates more than half of the electronic bookings take place on its sites, Schreiber said.
LATAM Cargo, which currently makes reservations through its own website, will roll out on WebCargo beginning in the first quarter of 2022 in North America, Europe and Latin America. The airline operates 11 Boeing 767 freighters and will expand the fleet to 19 by 2023. The cargo division also has access to an extensive passenger network serviced by a mix of widebody and smaller single-aisle jets.
Some cargo observers argue that using third-party distribution channels undermines sellers.
Passenger airlines and hotels have learned to offer their best prices and perks to people making direct transactions on their sites because the intermediaries simply lower yields. In air cargo, that will be felt more once the market returns to normal, said Stan Wraight, president of Strategic Aviation Solutions International.
“The same will happen in cargo as more and more majors learn we do not need this added layer in the food chain, and the limited information they supply,” he said.
Luxembourg-based Cargolux is avoiding the electronic marketplaces. This week it launched a set of middleware products, or APIs, to offer customers a direct interface between their system and Cargolux’s platform so they can receive customized, instant quotes and make automatic, direct bookings. The first direct connection is with mega-forwarder Kuehne + Nagel.