Air Freight Prices Drop Sharply but Israeli Consumers Still Face High Costs
International airlines, including Lufthansa and major American carriers, are gradually resuming flights to Israel, significantly increasing air cargo capacity. However, demand has not kept pace, leading to a notable decline in air freight prices, which recently fell from about $4 per kilogram to around $2 or less for imports from nearby destinations. Additionally, the recent drop in the dollar exchange rate benefits importers, creating favorable conditions for price reductions.
Despite these developments, Israeli consumers have yet to see lower prices. For a long time, importers have used supply chain disruptions and the war as justification for raising prices, while the government has failed to effectively address the high cost of living. Sea freight remained largely stable during the war, except for a brief disruption at Bab al-Mandab due to the Houthi crisis, with no unusual demand or cost increases in shipping.
The disconnect between falling shipping costs and persistent consumer prices is partly due to a worrying trend of manufacturing and assembly moving out of Israel. Factors such as supply chain damage during the war, high operating costs, labor shortages, and rising employment expenses have contributed to this shift, which has broad implications for the economy, employment, and living costs.
The current election period presents an opportunity to address these challenges with significant government intervention. Proposed measures include industry support programs, investment incentives, regulatory easing, attracting skilled foreign workers, and targeted subsidies. Experts emphasize the need for a clear policy ensuring that cost reductions along the supply chain translate into lower consumer prices, including opening markets to genuine competition and reducing barriers to parallel imports to break monopolies.
Gal Shaham, Vice President of International Shipping at UPS Israel, stresses that mere tariff cuts are insufficient. The government must enforce conditions linking regulatory benefits to proven price drops for consumers. After years of price hikes, Israelis deserve to benefit from the recent stabilization and freight cost decreases.
