WEEKLY NEWS


WAR RISK ECONOMICS RESHAPE AIR CARGO PRICING


AIR CARG O WEEK


10 BY Tanmay TIWARY


AIR cargo pricing is under pressure after the Iran conflict sparked disruption to Middle Eastern airspace, forcing airlines to reroute flights, burn more fuel, and introduce additional surcharges across key global trade lanes. The conflict has led to widespread airspace restrictions in parts of the Gulf, a region central to major east-


west cargo flows. As airlines divert flights to avoid high-risk zones, operating costs are rising—and those increases are now being passed directly to freight customers. “Air cargo pricing is clearly becoming more layered than before,” said Ravi Singh, chief research officer at


Master Capital Services. “Earlier, rates were mainly driven by fuel costs and demand-supply dynamics. Now, airlines are increasingly breaking out costs into separate components like fuel surcharges, war-risk premiums, and insurance charges.”


Surcharges move to the forefront Airlines are increasingly separating war-related costs from base rates, reflecting a shift in how pricing is structured and communicated to customers. “Airlines are no longer absorbing these expenses, they are passing them directly to customers,” Singh said,


noting that this is making pricing “less predictable, and contracts more flexible.” Industry updates from the International Air Transport Association highlight that geopolitical disruptions,


including conflict-driven airspace restrictions, can sharply raise operating costs through fuel volatility, longer routings, and insurance adjustments. While war-risk premiums have become more visible, they are not yet the primary driver of rate increases.


Rerouting and fuel costs dominate Avoiding conflict zones has forced airlines to take longer flight paths, particularly on routes linking Asia, Europe, and North America—corridors that traditionally rely on Middle Eastern airspace. “Most of the increase in air cargo rates is still coming from fuel costs and rerouting, rather than war-risk


premiums alone,” Singh said. “When airlines avoid certain regions, flights become longer, which increases fuel consumption and operating costs.” Longer flight times also reduce aircraft utilisation, effectively tightening available capacity and pushing


rates higher. G. Chokkalingam, founder and head of research at Equinomics Research, emphasised fuel dynamics as the


dominant factor. “The jump in fuel costs and rerouting are the dominant factors behind the hike in cargo rates,” he said. “Oil is up over 40 percent from the start of the war. So a proportionate rise in ATF and also rerouting would obviously have a significant impact on recent rate hikes.”


Spot rates move faster than contracts The introduction of surcharges is creating a widening gap between spot market pricing and long-term contract rates. “Yes, there is a clear gap forming between spot and contract rates,” Singh said. “Spot rates are reacting


ACW 13APRIL 2026


quickly to current conditions, moving up as soon as disruptions hit supply or increase costs.” Contract rates, typically negotiated in advance, adjust more slowly. However, airlines are increasingly


applying surcharges on top of existing agreements. “So, while spot rates reflect real-time market stress, contract rates are catching up at a slower pace,” Singh


said. “If disruptions continue, this gap is likely to narrow over time as contracts get repriced.” Data from airfreight analytics firm Xeneta shows that disruption-driven markets tend to widen the spread between spot and contract rates, particularly when capacity tightens unexpectedly.


Demand holds, but risks are emerging Despite rising costs, demand for air cargo remains relatively resilient in the near term, especially for high-value and time-sensitive goods. “In the short term, demand for air cargo usually holds up well, especially for goods that need fast delivery,


like electronics, medicines, or perishables,” Singh said. However, sustained pricing pressure could begin to affect volumes. “Businesses dealing with lower-margin


goods are the first to feel the pressure. At that point, they may delay shipments or shift to cheaper options like sea freight,” he said, adding that the shift would depend on how long elevated costs persist.


Key corridors under strain The impact of the conflict is most visible on trade lanes linked to the Middle East, where rerouting has become necessary. “The biggest impact is being seen on routes linked to the Middle East, particularly corridors like Asia-Europe,


India-Europe, and South Asia to the US,” Singh said. “With airlines avoiding certain airspaces, flights are being rerouted, leading to longer travel times and higher fuel costs.” Longer routes reduce aircraft availability, tightening capacity, while disruptions in ocean freight are pushing some cargo toward air transport, further supporting demand.


A more dynamic pricing environment Analysts note that the combination of fuel volatility, geopolitical risk, and operational disruption is pushing air cargo toward more dynamic pricing models. “These charges are not the biggest cost driver yet, but they are changing how pricing works,” Singh said. “We


are moving toward a system where rates adjust more frequently, depending on global events.” For now, air cargo continues to function as a critical channel for time-sensitive shipments despite rising


costs. But the balance between cost recovery and demand retention is increasingly delicate. If fuel prices remain elevated and rerouting persists, the industry may face growing resistance from


shippers, particularly in lower-margin segments. Higher pricing could eventually weigh on volumes if these pressures continue.


www.aircargoweek.com


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