TIACA chair warns against ‘pig cycle’ in 2018 outlook

Noting the cyclical nature of the global economy, TIACA chairman Sebastiaan Scholte warned air cargo the industry against ordering additional freighters during boom times, only to have them delivered during the next economic downturn.    In a year-end message, the chairman of The International Air Cargo Association (TIACA) is warning against the practice of ordering newbuild freighters when there could be an economic downturn right around the corner.
   In his remarks, which were first posted on the online publishing platform Medium.com, TIACA chair Sebastiaan Scholte said that although freighters represent only 8 percent of the world’s fleet, they carry over 50 percent of global air cargo.
   “Almost 85 percent of the wide body freighters ordered has been delivered. Integrators are responsible for around 70 percent of the freighter orders,” he wrote. “This implies that the extra freighter capacity on order unlikely will satisfy the extra demand for capacity.”
   “Even if freighters are now ordered, the delivery will be years later, when the economic outlook will be questionable,” he continued. “In the meantime, load factor improvements can only capture a part of the growth. If the growth continues, demand will outpace supply, forcing prices to go up.”
   “Hopefully we will not repeat the traditional ‘pig cycle,’ where freighters are ordered in booming times to be delivered when there is an economic downturn,” Scholte remarked.
   History has shown, Scholte said, that the global economy experiences a recession every eight to 10 years. The last big recession was in 2009.
   “Recessions usually start when interest rates are raised too far and fast to try to avoid overheating of the economy,” he explained. “Hopefully central banks will raise rates gradually and by not too much. Higher interest rates can lead to lower stock prices and default of heavy indebted companies and governments. At the same time, higher interest rates will make the cost of inventories higher which could benefit air over sea freight.”
   The positive aspect of a relatively global open market economy, he said, is that at the right price, increasing demand will cause capacity to catch up.
   “Hopefully the whole air cargo supply chain will benefit so necessary investments are made in much needed innovation, especially in digitization,” Scholte wrote.
   Miami-based TIACA is an independent not-for-profit association that represents the whole global air cargo supply chain with the goal of making the supply chain more efficient and transparent.
   In addition to his role with TIACA, Scholte is also CEO of Netherlands-based transportation and distribution services provider Jan de Rijk Logistics.