Annual Air Freight Contracts Becoming Increasingly Difficult to Sustain as Market Tightens and Airlines Regain Pricing Power, Warns Xeneta

Annual air freight contracts are becoming increasingly difficult to sustain as market conditions shift decisively in favour of airlines and freight forwarders, according to sources. The tightening market and a growing reliance on spot purchasing were forcing both forwarders and shippers to rethink how they approach long-term pricing agreements fundamentally.

As capacity tightens and airlines gain greater pricing power, shippers lose leverage in negotiations. Companies that negotiated competitive annual contracts when market conditions were softer may now find those agreements increasingly difficult to maintain if they sit below prevailing market rates.

The share of newly agreed shipper and forwarder contracts valid for up to three months rose to 58% in the second quarter of 2026, doubling from 22% in the same quarter a year ago, according to the sources. This reflects a broader shift towards shorter-term commitments by shippers who prefer flexibility over predictability in an environment where rates have been elevated due to the Middle East conflict and its impact on Gulf airline capacity.

Despite easing geopolitical tensions and fuel prices beginning to fall back, global air cargo demand grew 7% in June 2026 — supported by exceptional demand for semiconductors, AI-related hardware, and data centre infrastructure. Spot rates continued to ease from their peak levels, consistent with the gradual normalisation following the ceasefire, the restoration of capacity through Gulf airport hubs, and a fall in jet fuel prices. However, contracted shippers remain cautious about locking into new annual agreements until there are clearer signals that the market has fully normalised.