Air cargo expands into 2015

IATA recorded a 4.2% increase in worldwide air cargo volumes in November.    International air freight demand in November grew 4.2 percent, year-over-year, according to the latest figures from the International Air Transport Association, while capacity was up by 3.3 percent.
   Compared to October, demand ticked up by 0.8 percent, a rate IATA characterized as “healthy,” on its way to a projected 2014 growth rate of 4.5 percent. Demand is expected to equal this result in 2015.
   According to IATA, one of the key drivers of this growth is a continued expansion in cross-border trade, which started emerging during the second half of 2014.
   “More goods are being traded internationally, and that is fueling the growth in air freight,” stated Tony Tyler, IATA’s director general and chief executive officer, adding that 2014 world trade growth is only projected to hit 4 percent. He cautioned, as he has for months, that any sunniness in the air cargo market “is tempered by the many macro-economic and political risks that continue to impact trade flows.”
   The November growth is slanted toward international freight volumes, which expanded 4.6 percent, while domestic volumes only improved by 1.3 percent. At the same time, capacity on the international market jumped up by 4 percent, while domestic capacity stayed flat. Through the first 11 months of 2014, both international airfreight volumes and capacity outpaced domestic volume growth by 2 percent.  
   Airlines have been a major beneficiary of lower fuel prices, and carriers who haven’t hedged a significant portion of their fuel costs have seen their spend on fuel drop. According to Platts, a leading global provider of energy and commodity information, a barrel of jet fuel from the U.S. Gulf Coast — which supplies the vast majority of domestic fuel — was $126.24 on the last day of the year in 2013. On Jan. 6, that same barrel cost carriers $66.51. (The low point in price occurred a few days earlier on Dec. 22, when prices fell to $64.80.)
   “Lower oil prices are a tailwind for the air freight industry,” noted Kevin Sterling of BB&T Capital Markets in an investor note.
   Predicting the health of the air cargo industry is difficult, but Sterling has said following the sales of semiconductors is a good barometer for the health of air freight. In the note, he wrote, “semiconductor sales are ~72 percent correlated with airfreight volume.” In November, the Semiconductor Industry Association measured 9.1-percent, year-over-year, growth in sales.
   “SIA also noted that macroeconomic trends bode well for continued growth in 2015,” Sterling noted.
   Regionally, African airlines expanded their volumes in November 2014 by 10.5 percent, while cutting capacity by 2.9 percent. Middle Eastern carriers rode a 12.9-percent volume increase, but also increased capacity by 17.1 percent; in the Asia-Pacific region, volumes rose by 5.9 percent, as capacity grew by 4 percent.
   In November, a small volume bump was experienced by European airlines, and North American airlines transported 0.3-percent less cargo than in November 2013. Over the same period, European airlines increased capacity by 2.6 percent, as North American carriers cut capacity by the same amount.
   IATA noted that the West Coast port strike helped the U.S. air cargo volume numbers, but that since economic indicators are solid, more air cargo growth is likely.  
   “The air cargo industry enters 2015 propelled by solid growth trend. Shippers have a choice in modes of transport and, like customers everywhere, demand ever greater value,” Tyler said. “To turn the growth into sustained stronger profitability, the air cargo industry faces the challenge of investing in more efficient and higher quality processes and facilities that will give it the winning edge over its competitors.”