THE launch of an airfreight 'forward price curve' could mitigate exposure to price volatility in air freight, reports London's Loadstar
THE launch of an airfreight 'forward price curve' could mitigate exposure to price volatility in air freight, reports London's Loadstar. The index could help forwarders manage the risk of rapid price changes in the US$70 billion market, according to Freight Investor Services (FIS), which spent 12 months working with index provider TAC Index to develop a robust methodology for air freight.
The first weekly 'forward curve' covers a basket of routes from Asia to Europe, while next month the company will launch a second for Asia to US trade lanes.
By using air cargo futures, freight forwarders will be able to manage their exposure and obtain better pricing. While some in the industry have been wary of a futures market, FIS remains confident.
'FIS has been working with a number of buyers and sellers in this market and there is a strong feeling that an over-the-counter (OTC) futures market is workable in the short term,' said head of strategy Michael Gaylard.
There are several unknowns in airfreight pricing this year. Last year's capacity-restricted second half saw rates surge. This year has been more tempered so far, with data providers such as the International Air Transport Association (IATA) warning that the good times won't be quite as good for airlines.
However, capacity looks set to be constrained and e-commerce could send volumes sky high again. As a result, rates are particularly difficult to predict at the moment, making the 'curve' a useful tool.
'As we head into the second half of the year, there are three forces at play: cuts in air freight capacity; the effect of rising seasonal demand on prices; and the impact of trade tariffs,' said FIS air cargo development chief Nicola Hughes.
'We understand that the market will take time and education to develop but faced with increased volatility for all users there is real demand for an accurate and usable forward curve.'
