Cargo demand continues to face “significant headwinds” says the International Air Transport Association (IATA) pointing to data for global air freight markets showing that January demand – in FTKs – dropped 1.8 per cent year-on-year.
Describing the January 2019 numbers as “the worst performance in the last three years,” IATA notes that while demand dropped in the January period y-o-y, freight capacity in AFTKs, rose by 4.0 per cent over the same period, with industry-wide freight load factor 2.7 percentage points lower than its year-ago level. This was the eleventh month in a row that capacity growth outstripped demand growth.
“Demand for air cargo continues to face significant headwind,” says IATA highlighting the fact global economic activity and consumer confidence have weakened, as evidenced by falling global export orders since September 2018 according to the Purchasing Managers Index (PMI).
Highlighting the “enduring reliability” of the PMI for identifying movements in FTK growth, IATA says the PMI series has increased only once in the past 13 months and has been below the key 50-mark (the area normally associated with falling export orders), since September.
“At current levels, the indicator continues to suggest that annual FTK growth is unlikely to pick up anytime soon, and may weaken further in the near-term,” IATA economists say. The country-level data that underlie the global PMI series show that the weakness has been broad-based across major exporters since around the middle of 2018.
The one exception to this is the US, where positive export orders were identified in one of the last three months. Business confidence also remains elevated in the US, with both continuing to reflect a generally sound domestic economic backdrop, IATA notes.
IATA’s economists were also quick to highlight that while the start of the year can bring more than the usual volatility, “we could find no evidence that the two-week difference in the timing of the Chinese New Year in February affected the growth rates.
“The emerging trend in the data is clear. In seasonally-adjusted terms – where we try to remove the regular data volatility – seven of the past 12 months have recorded a decline,” IATA says.
“Air cargo markets contracted in January. This is a worsening of a weakening trend that started in mid-2018,” says Alexandre de Juniac, IATA’s director general and CEO. “Unless protectionist measures and trade tensions diminish there is little prospect of a quick re-bound.”
Only two of six regions reported year-on-year demand growth in January 2019 – North America and Africa. Asia-Pacific, Europe and the Middle East all contracted, while Latin America was flat.
Asia-Pacific airlines saw demand for air freight shrink by 3.6 per cent in January 2019, compared to the same period in 2018. Weaker manufacturing conditions for exporters in the region, ongoing trade tensions and a slowing of the Chinese economy impacted the market. Capacity increased by 4.1 per cent.
For the Asia-Pacific carriers, air cargo typically accounts for a larger part of the airline’s business operations than is the case in other regions, due to the AsiaPacific’s role as the global manufacturing hub, notes IATA. Consequently, this weakness may deliver additional challenges to the financial performance for airlines in the region over the coming period, it says. Ongoing trade tensions and indications of some slowing in the Chinese economy, are also likely to weigh upon air freight outcomes for the Asia Pacific airlines.
North American airlines posted the fastest growth of any region for the eighth consecutive month in January 2019, with an increase in demand of 3.3 per cent compared to the same period a year earlier while capacity increased by 5.0 per cent. The strength of the US economy and consumer spending have helped support the demand for air cargo over the past year, benefiting US carriers.
European airlines experienced a contraction in freight demand of 3.1 per cent in January 2019 compared to a year ago with capacity increasing by 2.8 per cent year-on-year. Weaker manufacturing conditions for exporters, and shorter supplier delivery times particularly in Germany, one of Europe’s key export markets, impacted demand. Trade tensions and uncertainty over Brexit also contributed to a weakening in demand.
Middle Eastern airlines’ freight volumes contracted 4.5 per cent in January 2019 compared to the year-ago period as capacity increased by 4.1 per cent. Seasonally-adjusted international air cargo demand, which trended upwards for the past three months helped by stronger trade to/from Europe and Asia, has started to decline, IATA notes.
Latin American airlines’ freight demand was flat (0.0 per cent) in January 2019 versus last year. Despite the economic uncertainty in the region, a number of key markets are performing strongly, IATA says. Freight traffic within South America and between Central and South America grew at a double-digit rate in January. And demand on routes between North and South America also performed well. Capacity decreased by 0.7 per cent.
African carriers saw freight demand increase by 1.0 per cent in January 2019, compared to the same month in 2018. Capacity grew 8.2 per cent year-on-year. Seasonally-adjusted air cargo demand has now trended upwards for six months. And while seasonally-adjusted international freight volumes are lower than their peak in mid-2017, they are still 35 per cent higher than their most recent trough in late-2015.
The challenges and opportunities facing the air cargo industry will be discussed at the 13th World Cargo Symposium which will gather the air cargo industry in Singapore, 12-14 March.