Freightos Tackles TAC With New Air Freight Index
Online Marketplace Freightos, a global freight booking platform, has added a benchmark price index for air freight alongside its daily composite of 40ft container shipping rates known as the Index Freightos Baltic.
The weekly product, based on real-time air freight transaction data, has been a direct challenge for the Hong Kong-based TAC Index, the primary channel for tracking aggregate price movements in the industry for several years.
The extreme volatility of air freight rates and the tight supply of planes this year, as many companies scramble to find an airlift due to severe shipping delays, have fueled interest in airlift tools. faster and more transparent decision-making, for sellers and buyers, according to transportation professionals.
Freightos pointed out that spot prices for air freight from Frankfurt, Germany to Shanghai rose 2.2 times in the past three months to $ 3.53 per kilo, as an example of the need for an index based on transactional air freight prices. This price change is small compared to those on major trade routes from Asia, where rates have climbed five or six times above pre-COVID levels to between $ 10 and $ 20 per kilogram, according to the reports. specific city pairs.
Since late 2020, shipping rates based on a global basket of routes have 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 FAX data comes from the high volume of automated transactions enabled by the WebCargo unit, a digital pricing, reservation and sales platform that connects airlines to freight forwarders. More than 30% of the world’s bookable air cargo capacity is now available on WebCargo, he said.
The Freightos unit separately links freight forwarders to shippers with goods to be moved. The Freighos Baltic Index (FBX) aggregates short-term spot rates and related surcharges for secure container slots in the Freightos online marketplace, which has been in existence since April 2018. The index is a weighted average of its indices of underlying regional routes.
The air index, which is in beta, provides price details on different trade routes, two weight classes (100-300 kilograms and 300-1,000 kilograms as they involve the largest number of transactions) and airports origin / destination. The FAX will be published on Sunday with data from the previous week.
Freightos will expand the dataset over time and eventually plans to release the index on a daily basis.
“We did the same with FBX in the ocean. We released it every week for a year or two and once we got more confidence in the data, we moved on to daily data, â€Schriber said.
Freightos offers the service free of charge in order 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 every week using transactional data from the master air waybill – the document issued by the carrier to the freight forwarder upon receipt of a shipment with the terms and conditions of transport. TAC says it filters, cleans, verifies and verifies data before release every Monday.
The Baltic Exchange is a centuries-old London-based group that produces rate indices in other maritime sectors, such as dry bulk, gas and oil transport. Its best-known valuation is the Baltic Dry Index, a daily compound of global shipping rates for various classes of dry bulk shipping derived from ship brokers.
At the end of last year, it entered the air freight market by partnering with TAC Index, which provides baskets of aggregated airport-to-airport data. It generates six outgoing air freight indices and 17 individual destinations, offered under the Baltic Air Freight Index (BAI). TAC, as the pricing editor, keeps the indices up to date. The indices are available on the exchange’s website for 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. While we are a true transactional platform, we therefore see with total authority what is actually paid, â€Schreiber said in an interview in London.
“I can say that we have very high confidence in our data and in some cases it is significantly different,†he added.
Consumers of both products say Freightos’ data, especially on the ocean side, is great and very accessible. It is also much cheaper than the TAC product.
Schreiber said air freight pricing is more dynamic than ocean pricing, where annual fixed price contracts are common, because its high cost makes it the mode of last resort for many products. Freight contracts, whether air, sea or road, are non-binding and supply chain disruptions during the pandemic have demonstrated that when the gap between spot and contract rates becomes too large, a party or the other finds a way out, often in the case of carriers, by adding hefty surcharges. This is why a dynamic pricing model coupled with greater transparency is preferable for carriers and shippers, he argued.
“By using a digitized tool, you know more about how the sports market [works]. It kind of flattens the ups and downs and gives you more real-time price on both sides, â€he said.
Ultimately, developing an air freight futures market would protect against price fluctuations, Schreiber said. Cargo owners would block their shipping frequency and prices would float but be indexed to the index.
“That way you always pay a fair price and the carrier always gets a fair price and neither party has an incentive to opt out,†he said. A shipper would then use financial instruments to hedge against rising prices, and vice versa for a carrier.
“This is how more mature markets work. The price is still floating, but you can still have an indexed long term contract. And if you’re a big customer, maybe the price is a minus 15% index, â€Schreiber said.
A large futures market for air freight could evolve in a few years, he predicted.
FAX cannot be used to trade specialized financial contracts based on the value of the underlying assets as it does not yet comply with international securities rules for the settlement of derivatives. The FBX, however, is trade compliant.
“I think TAC’s lead and the Baltic Exchange relationship will be difficult to reverse for the foreseeable future. But we’ll definitely be looking at what Freightos is doing, seeing how it stacks up, and more importantly, how the market seems to be taking it, â€Bascome Majors, equity research analyst at Susquehanna International Group, said in an email message.
New WebCargo partner
This week LATAM Airlines became the 30th carrier, and the first in Latin America, to share its freight reservations with WebCargo. The multi-party online platform provides 2,500 freight forwarders with access to live rates, up-to-date space availability and the ability to compare offers from multiple carriers. Automatic backend connections are enabled through an application programming interface.
Supply chain instability and rising costs have pushed more freight forwarders to digitize airline transactions over the past 18 months, as instant quotes and fast bookings increase the chances of finalizing a booking before the space is exhausted. Changes to schedules, prices and carrier capacity are immediately visible to customers. WebCargo says the volume of electronic reservations on its site has grown more than 12-fold since last year.
WebCargo’s market share for total bookings – both offline and online – is less than single digits but growing very rapidly and the company estimates that more than half of electronic bookings take place on its sites, Schreiber said.
LATAM Cargo, which is currently making reservations through its own website, will deploy on WebCargo from the first quarter of 2022 in North America, Europe and Latin America. The airline operates 11 Boeing 767 freighter and will grow its fleet to 19 by 2023. The cargo division also has access to an extensive passenger network served by a mix of widebody and smaller single-aisle jets.
Some freight watchers argue that the use of third-party distribution channels undermines sellers.
Passenger airlines and hotels have learned to offer their best prices and benefits to people doing direct transactions on their sites, as middlemen simply reduce returns, which will be felt more once the air freight market is up. returned to normal after the pandemic, said Stan Wraight, president of Strategic Aviation Solutions International.
“The same will happen in freight, as more and more majors learn that we don’t need that extra layer in the food chain and the limited information it provides,†he said.
The Luxembourg company Cargolux avoids electronic marketplaces. This week it launched a set of middleware, or API, products to provide customers with a direct interface between their system and Cargolux’s platform so that they can receive personalized and instant quotes and make automatic and direct bookings. . The first direct connection is with the mega-freight forwarder Kuehne + Nagel.
Click here for more articles on FreightWaves / American Shipper by Eric Kulisch.
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