Airfreight rates out of Hong Kong are on the rise, with volumes increasing towards the start to the summer peak season, and new carrier fuel surcharges commencing on 1 May.

A soft start to the year for global air cargo saw first-quarter volumes at Hong Kong International Airport (HKIA) dropping 5.4% to 1.1 million tonnes. The drop was even greater when comparing January and February with 2018 – a 14.4% decrease. 

“The first two months of the year were affected by high inventory in the US and the cargo rush before the end of 2018,” explained Sunny Ho, executive director of the Hong Kong Shippers’ Council (HKSC).

The cargo frontloading was brought on by the US-China trade war, with shippers bringing shipments forward to beat looming tariff deadlines.

“Tension slacked when the 25% import tax was delayed by 3 months,” added Ho. “The outlook now depends on whether the trade war is resolved, and the economic performance of major economies, especially mainland China and Europe.”

The US tariff increase on US$200 billion worth of Chinese goods, from 10% to 25%, came into effect on 10 May.

In the meantime, data from TAC Index shows airfreight rates from Hong Kong to North America increased to US$3.60 per kg in April, up from US$3.38 in March. The comparative rate in April last year was higher, however, averaging $3.65 per kg. Figures from HKIA show exports increased 11% in March, and capacity is expected to tighten as peak season gets underway.

Airlines will have the opportunity to push rates up further due to an increase in the Cargo Fuel Surcharge (CFS) Index set by the Hong Kong Civil Aviation Department (CAD). On 1 May, the highest allowable surcharge increased to HK$2.00 (US$0.25) per kg, up from HK$1.50 (US$0.19) per kg in April. There are reports of a further increase being levied on 1 June as demand grows during the peak and shippers look to beat any further tariffs between the US and China.

The surcharge has been steadily increasing since CAD implemented the Index in March 2017. When the current system ends in 2020, carriers will be permitted to set fuel surcharges “at a level based on their own circumstances or choose not to levy such surcharge,” according to CAD.

In its 2018 results, Cathay Pacific cited fuel surcharges as one factor driving a 14.7% increase in cargo and mail yield to HK$2.03 per kg.

HKSC’s Ho argued that carriers should make their revenue through freight charges that are negotiated under open market principles.

“Surcharges should be allowed only when there are unforeseen events that substantially impact the industry, warranting a short-term independent charge item,” he claimed.

“All surcharges should be temporary in nature, and these include all kind of fuel surcharges. Carriers can always rely on financial instruments like forward arrangements to safeguard their positions from fluctuation.

“There is no reason for their client shippers to underwrite all their costs – many other industries rely heavily on fuel, and there is no such mechanism that guarantees their cost.”