Episode #33: The July BAF Cliff and Amazon’s Prime Day Curveball

Welcome back to Container Bytes! I’m Julia Frohwein, joined by our resident freight guru Judah Levine to unpack another high-velocity week in global shipping. While rumors of a negotiated end to the war have ships in the Persian Gulf optimistically drifting toward the Strait of Hormuz, experts warn that infrastructure damage means a fuel price hangover could last well into next year.

In this episode, we tackle the sudden, early arrival of Peak Season. Asia-North Europe rates have climbed back to their wartime high of $2,900/container, while Asia-Med rates exploded by 20% last week to $4,400. Shippers are aggressively front-loading cargo for two massive reasons: lingering Red Sea diversions and a desperate race to beat the July BAF (Bunker Adjustment Factor) hikes.

Over in the Transpacific, a surprise leak reveals that Amazon is moving Prime Day up to June. This single e-commerce curveball has triggered an early peak season avalanche, sending West Coast rates to $2,800/FEU and East Coast rates to $4,300/FEU, with carriers already salivating over $2,000 June GRIs.

Finally, we look at the jet fuel crisis that didn't happen. Despite the IEA’s warning six weeks ago that Europe would run dry, a mix of alternative production and radical flight cuts has stabilized the skies.

Chapters: 

• 00:00:00 — Hormuz Optimism: The literal bottleneck traffic jam. 
• 00:01:30 — The Refined Oil Hangover: Why fuel costs aren't dropping anytime soon. 
• 00:02:15 — The July BAF Cliff: The contracted shipper's ticking clock. 
• 00:03:00 — Med Rates Explode: A 20% spike signals early peak season. 
• 00:04:15 — The Prime Day Factor: Amazon moves the needle to June. 
• 00:05:45 — The Air Crisis That Wasn't: Defying the IEA's fuel starvation warning. 
• 00:07:00 — AI Hardware & E-commerce: The new pillars of resilient air cargo demand.

This podcast is a little experiment from Freightos—and may not be around forever—so if you dig quick bites of freight wisdom, let us know. 

For more detailed weekly freight updates delivered straight to your inbox, check out our weekly freight email. Want the freshest freight data on demand? Hit up terminal.freightos.com.

Transcript

SPEAKER_00 0:00

Hello and welcome to today's episode of Container Bites. I am Julia Frauine here, as always, with our residential freight expert, Judah Levine, to kick off another bite-sized session of the latest in freight. Judah, how are you doing today?

SPEAKER_01 0:13

Good.

SPEAKER_00 0:15

Yeah, doing all right. All right, let's get to it. So it looks like the US and Iran are getting closer to the end of the war, which could reopen the Strait of Hermuz. As we've seen, the biggest impact for the container market has been the price of bunker fuel. So if it reopens, how quickly do you think we can expect pressure on freight rates to ease?

SPEAKER_01 0:34

So certainly it's a big uh question mark how close we are to uh you know a negotiated end to the war. It seems you know negotiations are underway and continuing to take place, but it's really unclear when this is going to happen. Um that being said, there are you do see vessels who are kind of been stuck in the Persian Gulf moving towards the Street of Hormuz in anticipation. Now we've seen this before when the ceasefire initially took place back in uh April, that you saw vessels you know moving to get ready to leave, and then it became clear that the street really wasn't opening and they went back. So it's not to say that you know it's it's here now, but it is kind of a sign of optimism by some of these ships that have been stuck there this whole time. Yeah, as you said, the price of fuel has been the big impact for the container market. And when the street reopens, we'll certainly see the price of oil decrease from where it is now. But a lot of experts say it's really gonna take time until prices normalize. So the price of oil will stay elevated compared to where it was before the war for, you know, for probably months, because uh it's gonna take time for production to ramp back up. It's gonna take time for you know oil to get to where it needs to go. And also, there's been infrastructure damage during the war, which will reduce the output for a while. And this is gonna be even more true for refined oil products like bunker fuel and also jet fuel. That is just, you know, first the crude has to make its way into the market and then it needs to be refined. So it could take even longer. Some experts say it would take into next year until we see prices kind of go back to that pre-war baseline, but they'll certainly come down from where they are, you know, uh now. And they've already come down from some of the peaks we saw earlier in the in the war period.

SPEAKER_00 2:09

So in the meantime, it looks like peak season is starting for the east-west lanes. What has that meant for container rates?

SPEAKER_01 2:15

Yeah, so for Asia to Europe, we're starting with Asia to North Europe. GRIs in May kind of gradually pushed rates up, about $300 per FEU. Now they're about $2,900 per container for Asia and North Europe. So that's back to kind of the wartime high that we saw at the end of March. And it's almost at the level we saw in the lead up to lunar needers. So we're certainly seeing rates kind of elevated compared to their baseline. Asia-Mediterranean rates spiked 20% last week, they're up to $4,400, which is higher than they've been since the start of the war. So there's certainly signs that uh demand is also playing a role right now since we've continued to have high fuel costs, but rates having to kind of gradually continue to go up on these lanes. So one reason for peak season starting, if this is a little earlier than we would have seen during more typical times, is that shippers on these lanes are still accounting for longer lead times because of the Red Sea. So they still have to sail all the way around the south of Africa. It takes more time. They want to make sure they get goods in time for um, you know, for these peak consumer events. Um, and the other issue is the cost of uh fuel. So for the spot market, carriers have introduced these emergency fuel surcharges right away. And they probably applied some of these surcharges to shippers with long-term contracts as well. But for the most part, on for long-term contracts, fuel is paid in bath adjustments, so bunker adjustment factors. And that's on a quarterly basis. So whatever happened in this quarter, rates are going to be adjusted the following quarter, and you're kind of be paying for what happened in the previous quarter. So if fuel prices went up this quarter, in the following quarter, you're gonna start paying for what the carriers are paying this year, that quarter. And so that happens in July for contracted shippers. So there's some speculation that some of the early demand increase is shippers trying to kind of front load ahead of those higher fuel costs, which are gonna happen in July. Um, so we've seen rates increase, and we see carriers are are announcing a lot of different rate increases for June, ranging from $600 per container up to above to $1,000 per container in the form of GRIs and peak season surcharges. So they're definitely gonna try and continue to push rates up, and demand is probably gonna continue to increase as well as we get deeper into peak season for these lanes.

SPEAKER_00 4:19

Okay. And how about on the Trans-Pacific routes?

SPEAKER_01 4:21

Yeah, so on the Trans-Pacific, we also saw it may GRIs stick, which we saw rates increase initially, and I wasn't, you know, totally confident they were gonna stay, but we've seen them continue uh to increase. Um, rates have increased by 10% on both lanes last week. So it seems like peak season is starting early here as well. The BAF factor, right? The the fuel uh costs on this quarterly basis might be an impact, uh, a factor here as well. And the other speculation is that Amazon actually moved up prime day. So generally it's in July, and at the end of April is that they're moving it to June. So that might be a factor here as well. That, you know, interesting that this one announcement can't kind of change when volumes move, but that um, you know, e-commerce sellers are bringing in inventory a little bit earlier than they normally do in order to be ready for that. So we see rates increases, and likewise we see a lot of plans for additional rate increases as high as $2,000 per container, also for June 1st and into mid-June in the form of GRIs and peak season surcharges. So it looks like peak season get underway here as well. We'll see how strong demand is and we'll see how high rates will actually go.

SPEAKER_00 5:24

Okay, interesting. Um, just back to fuel costs for another minute. So elevated prices have been even more disruptive to air cargo. Um there was more concern there that supply would actually run out. So, what's the latest with air cargo trends?

SPEAKER_01 5:36

Yeah, so uh about six weeks ago, the head of an international energy agency made a statement that regions like Europe were probably going to run out of fuel within six weeks. So that was six weeks ago. And now we see that really there are major concerns about actual supply running out, although we know that rates for fuel are still elevated. And that statement was probably true if kind of the supply chain for jet fuel had stayed the way it was and had meant to rely on the same sources it was uh relying on then. But we see this hasn't been the case for a couple of reasons. One is kind of adjustment of where jet fuel is coming from, so increases of production in alternative places, but we've all seen a reduction in demand because a lot of carriers have been canceling borderline profitable and then unprofitable uh flights when the price of fuel went up. So, for those two reasons, we've seen jet fuel prices go down. They're about 25% lower than they were at their peak, which was in March. And so we see some carriers reducing their fuel surcharges as well. And that's meant kind of lower rates and more sustainable uh supply chain for jet fuel in terms of not actually running out of supply, although, again, rates are still much higher than they were before the start of the year. So these trends together in terms of jet fuel rates, as well as some continued capacity recovery, especially from the Middle East carriers, that's meant that we still have rates kind of well elevated from where they were before the war, but for the most part, they're past their peak, which were reached in mid-April to early May, depending on the length. So Fredos uh air index rates for China Europe eased a little bit last week, South Asia to Europe as well. Southeast Asia Europe increased about 10% last, but they're still about 10% lower than their peak in May. China to North America, though, rates have been increasing the last couple of weeks. There was a 12% increase last week above $6 per kilo. Um that might also be driven by the prime day factor. Prime day is getting closer. So, you know, electronics importers or things like that, they might be increasing volumes right now as well. But there's still kind of been resilient demands. In addition to e-commerce, also uh AI hardware is becoming more and more of a factor for Air, which will be sustained um source of volumes as we move forward.

SPEAKER_00 7:45

Okay, got it. All right, thank you, Judah, for another interesting session. That's all we have time for. If you enjoyed the session, please hit the subscribe button and you'll get notified about all our future episodes. Thank you for listening and goodbye.

SPEAKER_01 7:58

Bye.