Air cargo demand takes off in 2015

   Global 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 3.3 percent. 
   Compared to October, demand ticked up 0.8 percent, a rate IATA characterized as “healthy” and 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 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 1.3 percent. At the same time, capacity on the international market jumped up 4 percent, while domestic capacity stayed flat. Through the first 11 months of 2014, both international air freight volumes and capacity outpaced domestic volume growth by 2 percent.  
   Regionally, African airlines expanded their volumes in November by 10.5 percent, while cutting capacity 2.9 percent. Middle Eastern carriers rode a 12.9 percent volume increase, but also increased capacity 17.1 percent; in the Asia-Pacific region, volumes rose 5.9 percent, as capacity grew 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 2.6 percent, as North American carriers cut capacity by the same amount. 
   IATA noted that the U.S. West Coast port congestion helped air cargo volume numbers, but since economic indicators are solid, more air cargo growth was expected.  
   “The air cargo industry enters 2015 propelled by a 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.”
   Predicting the health of the air cargo industry is difficult, but Kevin Sterling, an analyst at BB&T Capital Markets, has said following the sales of semiconductors is a good barometer for the health of air freight. In a recent industry note, he wrote, “semiconductor sales are 72 percent correlated with air freight 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 said.
   IATA predicts cargo revenues of $63 billion in 2015, up $1 billion from 2014. Cargo volumes will grow by 4.5 percent in 2015, the group said, after 4.3 percent growth in 2014. Tonnage will grow to 53.5 million tons next year, up from 51.3 million tons. This nearly mirrors world trade growth, which should average 4 percent in 2015; world GDP is expected to grow by 3.2 percent over the same period.  
   The average freight rate will come out to about $2.11 per kilogram in 2015, a 5.8 percent reduction from 2014’s average cost of $2.25 per kilogram. In 2013, IATA said carriers paid an average of $2.35 per kilogram.
   Air cargo shrank or didn’t grow between 2010 and 2013, but since then it has experienced a slow expansion.
   “Air cargo is expanding more or less in line with international trade… but only in the last few months have we exceeded the peak seen in 2010,” Economist Brian Pierce said during IATA’s global media day in December.
   Pierce said air cargo is in the midst of a cyclical upturn, but that this growth pace is slower than that experienced on the passenger side. He also noted that air cargo tonnage only recently surpassed highs seen during the air cargo peak four years ago.   
   Uneven recovery has been the name of the game, Pierce said, with Middle Eastern carriers seeing most of the business. Asia-Pacific carriers are seeing 8 percent less business than in 2010, he said. The Middle Eastern carriers, by contrast, are up 55 percent. North American carriers are down 4 percent.
   Globalization is experiencing a “pause,” Pierce said, and this is threatening the resurgence of air cargo. According to IATA data, air cargo tonnage grew 6.4 percent, on average before the financial crisis; now, volumes are only accelerating by an average of 1.2 percent annually. Pierce pointed to on-shoring and trade protectionism as two trends limiting globalization and air cargo growth.
   “The airline industry is delivering great value,” Tyler said. “And while the rewards are still shy of sustainable, it is good to see that the gap is narrowing.”
   As the air cargo industry, and aviation industry in general, continues to grow, safety is increasingly important. The International Civil Aviation Organization is currently developing increased tracking standards and will progress toward these measures throughout 2015. The disaster involving Malaysia Flight 370 pushed aircraft tracking into the international consciousness, but Tyler cautioned that solutions may not come quickly. 
   “The industry is working to improve, but some issues, such as tamper proofing, will take time to address and implement,” he said during the Geneva meeting. “Remember, the sealing of cockpit doors after 9/11 took several years to complete.”
   Finally, IATA sees that while airline profits will get better in 2015, carriers still may not be considered healthy. U.S. airlines will have a successful 2015, Tyler said. 
   “Airlines in other regions, while doing better than 2014, still have a long way to go before they could be seen by investors as being financially healthy,” he said.

This column was published in the February 2015 issue of American Shipper.