Key insights:

1. Houthi missile strikes on Saudi airports are disrupting air cargo operations at affected hubs. Saudi promises of retaliation could further escalate the conflict and increase the risk of renewed attacks on Red Sea traffic even as container carriers increase transits.

2. Asia-Europe container rates have eased since July as peak season demand has cooled and Red Sea transits freed up capacity as well. But Asia-Mediterranean prices climbed 7% to $3,800/FEU last week, possibly reflecting carrier attempts to increase rates as 2027 contract negotiations get underway on these lanes.

3. Carriers are already entering negotiations with rates 70% higher than last year. And some shippers are hesitant to negotiate at current levels, expecting rates may ease as fleet growth and a Red Sea return in the coming year increase capacity.

4. Transpacific container rates have been at peak levels since July, but West Coast prices dipped 2% last week potentially the start of a post-Golden Week slide as volumes are projected to dip in November and December.

5. The Freightos Air Index global benchmark air cargo rate remains 33% above year-ago levels, driven by elevated fuel costs and strong volumes including from AI hardware demand. But China - Europe prices dipped to $3.58/kg last week, down 9% year and year, suggesting that the drop in e-commerce volumes since the end of EU de minimis in July is dragging down rates for this lane.

Ocean rates - Freightos Baltic Index:

• Asia-US West Coast prices (FBX01 Weekly) decreased 2% to $8,149/FEU.

• Asia-US East Coast prices (FBX03 Weekly) stayed level at $9,606/FEU.

• Asia-N. Europe prices (FBX11 Weekly) stayed level at $3,260/FEU.

• Asia-Mediterranean prices (FBX13 Weekly) increased 7% to $3,804/FEU.

Air rates - Freightos Air index:

• China - N. America weekly prices increased 3% to $5.77/kg.

• China - N. Europe weekly prices decreased 7% to $3.58/kg.

• N. Europe - N. America weekly prices increased 2% to $2.18/kg.

Analysis

Multiple Houthi missile attacks on Saudi Arabia’s Riyadh airport since late last week mark another serious escalation of the Saudi - Houthi conflict. Saudi Arabia has promised retaliation for the deadly strikes which have shut down airport operations in Riyadh. Interceptions at the airport in Dammam and attacks on other airports have led to disruptions and cancellations at other hubs as well.

The Houthis sought to close the Bab el-Mandeb Strait to Saudi-linked traffic in July, attacking several vessels into August after nearly nine months of quiet. The current escalation may increase the likelihood of renewed Red Sea strikes. Container carriers have nonetheless gradually increased Asia - Europe Red Sea transits since June, which is one factor – with a post-peak season slide in demand the bigger factor – to uninterrupted spot rate decreases on these lanes since July.

Shippers and carriers on these trades are now entering tendering season for 2027’s annual ocean contracts. This time last year carriers reduced capacity and pushed through a series of Q4 GRIs to raise the benchmark around which long term negotiations were based. Some carriers have already announced October rate increases and Asia - Mediterranean prices increased 7% to $3,800/FEU last week. But even with the rate decreases since July, prices are still quite elevated at more than $3,000/FEU on both lanes and are about 70% higher than they were last year, working in carriers’ favor even without additional increases.

But current rate levels are partially being supported by lingering congestion in N. Europe – though a strike at German ports that could have made things worse was recently averted – and in the Far East. Fleet growth through newbuild deliveries next year and the possibility that Red Sea transits will continue to increase effective capacity in 2027 also have some shippers expecting rate levels may ease next year, and hesitant to lock in annual rates at current levels.

On the transpacific, sustained peak season demand, together with Far East congestion, has kept container rates at about peak levels since July, though Far East - US West Coast rates dipped 2% to $8,150/FEU and could signal the start of a downward trend with Golden Week behind us.

The latest National Retail Federation US ocean import volume report projects November arrivals to drop 11% month on month, suggesting that peak season is finally coming to an end and that we may see rates ease until demand pressure from the pre-Lunar New Year rush kicks in late this year or starting in January. Despite the extended peak season, NRF projections would put year totals – which would approach the record set in 2021 – just 1.4% higher than 2025 and up 1.2% from 2024.

The attacks in Saudi Arabia are disrupting air cargo flows in and out of the country for affected airports, with some foreign carriers suspending services. But as Saudi Arabia – unlike some of the other Gulf states – is not a major transhipment hub for the international air cargo market, the closures may not be felt more broadly.

There are more indications of air cargo freighter capacity shifting away from Asia - Europe trades as e-commerce volumes slump, and toward lanes with stronger growth like AI-fueled transpacific. Elevated fuel costs and overall strong global volume growth have the Freightos Air Index global benchmark rate up 33% year on year and 29% higher than levels before the Strait of Hormuz closure.

South East Asia - N. America rates are 40% higher than last year and pre-war, reflecting the data center volume growth as a component of the global rate. China - Europe prices meanwhile dipped to $3.58/kg last week, down 9% compared to a year ago and up just 4% compared to before the war, suggesting that even with capacity shifts, the drop in e-commerce volumes may be dragging down rates for this lane.