Air freight set for worst year in a decade

Date: Friday, September 6, 2019
Source: Lloyd's List

Despite a month-on-month recovery, July was ninth consecutive month of year-on-year volume decline, with 2019 expected to be the first year since 2009 that the global market shrinks, IATA observes

Global air freight has recorded its ninth consecutive month of year-on-year volume decline, according to the latest figures published by the International Air Transport Association (IATA), with 2019 set to be the first year for a decade in which the global air freight market shrinks.

Although the figures for July indicate a slight improvement on the previous month, this may be short-lived, with global Purchasing Managers Index (PMI) figures slipping into negative territory in most major markets, IATA analysis indicates.

“The seasonally adjusted series – which removes the regular seasonal fluctuations in the data – showed month-on-month improvement in July, but it follows a fall of comparable magnitude in June,” IATA noted.

“Indeed, FTKs remain 3.4% lower than their level in July 2018. Hence, this month’s rise cannot be viewed as an indication of trend change.

“With further tariff increases scheduled to come into effect, leading to a more pronounced impact of the US-China trade war in the remainder of the year, 2019 could be the first year since 2009 that the global air freight market shrinks.”

Data for global air freight markets showed that demand, measured in freight tonne kilometres (FTKs), contracted by 3.2% in July 2019, compared to the same period in 2018. This marks the ninth consecutive month of year-on-year decline in freight volumes.

New tariff increases in the ongoing US-China trade dispute together with the temporary disruption to Hong Kong airport operations increase the chances of a weaker data outturn in August.

IATA noted that air cargo “continues to suffer from weak global trade and the intensifying trade dispute between the US and China. Global trade volumes are 1.4% lower than a year ago and trade volumes between the US and China have fallen by 14% year-to-date compared to the same period in 2018.” 

The airline association continued: “The global Purchasing Managers Index (PMI) does not indicate an uptick. Its tracking of new manufacturing export orders has pointed to falling orders since September 2018; and for the first time since February 2009 all major trading nations reported falling orders.”

Freight capacity, measured in available freight tonne kilometres (AFTKs), rose by 2.6% year-on-year in July 2019. Capacity growth has now outstripped demand growth for the 9th consecutive month.

Looking at the wider trade picture, IATA highlighted a persistent weakness in trade and leading indicators, noting: “The current moderation in annual FTK growth rate is consistent with growing signs of a deterioration in world trade and economic indicators. According to the latest (June) data, world trade volumes are currently 1.4% lower than a year ago after a short-lived improvement in recent months.

“This has been the case since the last quarter of 2018, but June is the first time since February 2009 that new export orders are below the 50-mark in all the key countries. This indicates a possible structural slowdown in the underlying trend rather than a temporary weakening.”

In July, Germany recorded its steepest drop in new export orders since 2009, indicating the outlook for German economy remains bleak following the negative GDP growth figure in 2Q19, IATA noted. Similarly, in South Korea new export orders fell at their fastest rate in the last six years, indicating a fragile outlook for one of the world’s key air cargo markets.

Meanwhile, industry-wide capacity, measured by available freight tonne kilometres (AFTKs), increased by a moderate 2.6% year-on-year in July, which was somewhat higher than the average pace of the past three months (1.4%). This marks the 9th consecutive month in which annual capacity posted growth while demand declined. As a result, the freight load factor is currently down a solid 2.7 percentage points compared to its level of a year ago.

IATA highlighted that in the first seven months of 2019, trade volumes between US and China fell by 14% compared to the same period of 2018, highlighting the impact of the intensified trade dispute between the two countries.

“The new export orders component of the global Purchasing Managers’ Index (PMI), which is a reliable leading indicator of FTK movements, has been below 50-mark (the region that shows that export orders are deteriorating) for the last 11 months and eased further in July,” IATA said.

It said Asia Pacific continues to be the weakest region, noting: “Ongoing trade tensions and indications of moderating growth in the Chinese economy continues to impact air freight volumes in Asia Pacific. Even with the strong growth on Asia-Africa routes (which is a small market), international FTKs for the Asia Pacific airlines are 5.7% lower compared to their level of a year ago.

“In addition, the slowing economic growth in China has implications for other economies in the region. For the intra-Asia market, FTKs are down by 7% compared to the previous year. Air cargo volumes to/from Europe, which was more resilient in the previous months, have now fallen by 4.0% in year-on-year terms.

North America and the Middle East regions continued to post weak growth outturns in July. The air cargo market in North America recorded a year-on-year decline of 3.9%. Although a generally sound economic backdrop in the US supports consumer spending and air passenger demand, trade tensions continue to weigh on cargo market outcomes for carriers in this region. FTKs are down by around 5% on routes to/from Asia in June compared to the previous year.

The Middle East airlines showed the second sharpest drop in freight volumes, after Asia-Pacific, on this occasion, with FTKs down 5.5% year-on-year. The impact of escalated geopolitical tensions as well as the broader slowing in global trade activity and airline restructuring in the region have all played a part in the recent softness.

FTKs for Europe fell by 1.9% over the past year, consistent with the signals given by the new export orders data and heightened recession fears in the region. In addition, ongoing trade tensions and Brexit uncertainty continued to impact air cargo volumes in the region.

In Latin America, cargo volumes grew by 0.6% year- on-year in July, despite relatively soft economic growth forecasts for a number of the region’s key economies. While the Brazilian economy recovered in Q2 to avoid recession, concerns regarding the outlook for Argentina and possible spillover effects to elsewhere in the region “means that we remain cautious about the sustainability of this month’s FTK improvement”, IATA said.

Alexandre de Juniac, IATA's Director General and CEO, commented: “Trade tensions are weighing heavily on the entire air cargo industry. Higher tariffs are disrupting not only transpacific supply chains but also worldwide trade lanes.

“While current tensions might yield short-term political gains, they could lead to long-term negative changes for consumers and the global economy. Trade generates prosperity; it is critical that the US and China work quickly to resolve their differences.”

 

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