Is air cargo facing another global slump?
THE air cargo business is facing the prospect of another damaging global slump, latest trends and indicators suggest, writes Nigel Tomkins.
Capacity growth is now outstripping demand amidst a structural slowdown in global trading conditions – as illustrated by the fall in the Purchasing Managers Index (PMI) to its lowest level since 2016 – which is causing factory export order books to turn negative in China, Japan and the USA, according to data collected by airline association IATA.
Statistics released by the association show that current demand, measured in freight tonne kilometres (FTKs), rose by only 2.7 per cent in June 2018, compared to the booming markets of the same period last year.
This latest trend is a continuation of the slowdown in air cargo growth that began earlier in 2018. Growth for the first half of 2018 stands at 4.7 per cent, less than half that of the 2017 period.
In June of this year, freight capacity, measured in available freight tonne kilometres (AFTKs), rose by 4.1 per cent.
Capacity growth has now outstripped demand growth in every month since March of this year. This situation probably explains the current stagnation of airfreight prices, with pressure now building for widespread rates decreases – fuelling the prospect of another slump after the spectacular improvements in 2o17.
IATA says there are three main factors driving the slowdown: the re-stocking cycle, during which businesses rapidly built up inventories to meet demand, ended in early 2018; the marked fall in air cargo volumes from March; and a structural slowdown in global trading conditions.
“The fall in the Purchasing Managers Index (PMI) to its lowest level since 2016 has caused factory export order books to turn negative in China, Japan and the USA,” says a statement.
Another contributory factor was the temporary grounding of the Nippon Cargo Airlines fleet in the second half of June, which exaggerated the slow-down by shaving up to 0.5 percentage points off June growth.
Possible slump: Deterioration in world trade is a real concern
“Air cargo continues to be a difficult business with downside risks mounting. We still expect about four per cent growth over the course of the year, but the deterioration in world trade is a real concern,” says Alexandre de Juniac, IATA’s director general.
“While air cargo is somewhat insulated from the current round of rising tariff barriers, an escalation of trade tension resulting in a ‘re-shoring’ of production and consolidation of global supply chains will change the outlook significantly for the worse. Trade wars never produce winners. Governments must remember that prosperity comes from boosting their trade, not barricading economies,” he warns.
The slowdown in air cargo growth is happening in most regions, with the exception of Africa, which reported a year-on-year increase in freight volumes in June 2018.
But the slow growth in the Asia-Pacific region, which accounts for nearly 37 per cent of the entire air cargo market, has dragged the average global growth rate down. Asia-Pacific airlines saw freight demand increase by a paltry 1.5 per cent in June 2018 compared to the same period last year. At the same time, capacity increased by 5.2 per cent. The international freight performance by the region fell to 1.1 per cent, a 17-month low.
European airlines posted a 3.3 per cent increase in freight volumes in June 2018 even though capacity increased by 5.4 per cent. Growth is being affected by a slowdown in export orders. Historical supply chain bottlenecks, which are often alleviated by airfreight, have also eased.
North American carriers’ freight volumes expanded by 3.8 per cent in June, with capacity increasing by a similar degree.
Middle Eastern carriers’ freight volumes grew 3.8 per cent in June, well below the average five-year rate of 9.5 per cent and the expectation is for volume growth to remain modest in the months to come, says the IATA statement.
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