Air cargo outlook darkens in unsettled market
A slowdown in global air freight markets is accelerating as rising fuel prices and weakening trade drive a decline in demand that began at the end of last year and has continued through April.
According to the latest data from the International Air Transport Association (IATA), air cargo demand fell almost 5 percent in April year over year, and analyst WorldACD has reported a 5 percent drop in yields from January through April.
It is difficult to find anything positive in the outlook for 2019. IATA said available freight capacity on aircraft has outpaced demand for the last 12 months. Even though the timing of Chinese New Year and Easter contributed to the volatility of the global trade volume, the trend is now clearly downwards, the association noted. Contributing to declining export orders is Brexit-related trade uncertainty in Europe and trade tensions between the US and China.
This is expected to have a significant financial impact on global air carriers, and IATA in a revised forecast has slashed more than $5 billion off its profit expectations for 2019. IATA represents 80 percent of the world’s airlines.
“Weakening of global trade is likely to continue as the US-China trade war intensifies. This primarily impacts the cargo business, but passenger traffic could also be impacted as tensions rise,” said Alexandre de Juniac, IATA’s director general and CEO.
“Airlines will still turn a profit this year, but there is no easy money to be made.”
In its analysis, WorldACD noted that April 2019 was the first month in which all regions were confronted with the growing impact of adverse market movements that started last September. The analyst said for both incoming and outgoing air cargo, each region returned declining year-over-year volume figures in the first quarter of 2019, “underscoring the clear slowdown in global business.”
Tariff front-loading could cause artificial air peak
Edoardo Podesta, managing director, air and sea logistics, Asia Pacific, at Dachser Far East, said it remained to be seen whether the latest US tariffs on Chinese goods would generate renewed interest for air freight and create an artificial peak in the summer.
“If this is going to happen, I expect it to be a strong one because we are now talking of a lot of cargo [that is subject to tariffs], which has real impact on consumers,” he told JOC.com.
After postponing the increase to continue negotiations, the US in the first half of May raised tariffs from 10 percent to 25 percent on $200 billion in Chinese imports, known as List 3, effective May 10, sparking a rapid response from Beijing, which imposed higher tariffs on $60 billion of its US imports. Tariffs have also been threatened by the US on “List 4” items that cover a further $300 billion of Chinese goods. List 4 includes some high-value cargoes generally transported by air, such as cell phones and laptop computers, and shippers could try to stock up on supply by front-loading imports in advance of any expected deadline.
In the week after the tariff announcement, rising freight rates were accompanied by reports of forwarders “quoting like crazy” for air cargo on the trans-Pacific.
Sebastiaan Scholte, chairman of The International Air Cargo Association (TIACA) and CEO of Netherlands-based forwarder Jan de Rijk Logistics, agreed there has been little time for shippers to react to the tariffs.
“I still think that the market has sufficient capacity and any rise of air cargo due to the tariff situation will most likely be short lived,” he told JOC.com. “In the long term, if the tariffs are going to be raised, you will see that trade and air cargo volume will go down on the trans-Pacific and rates will come under pressure.”
IATA is expecting the weak freight markets to further subdue growth in the coming months, noting that in month-over-month terms, export orders have increased only three times in the past 15 months and the global measure has been indicating negative export demand since September.
“April saw a sharp decline in air cargo growth and the trend is clearly negative this year. Cost inputs are rising, trade tensions are affecting confidence, and global trade is weakening,” said de Juniac.
“Airlines are adjusting their capacity growth to try and fall into line with the dip in global trade since the end of 2018. It all adds up to a challenging year ahead for the cargo business.”
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