Air cargo industry recap shows widespread softness, but mild confidence too

On Friday, June 28, the International Air Transport Association (IATA) published its quarterly Cargo Chartbook for the second quarter. The Chartbook is a broader and deeper analysis of market developments and drivers for what’s happened in air cargo for the period. 

Overall, industry-wide freight-ton-kilometers (FTKs) were down 3.3 percent year-over-year, but what stood out is how widespread the softening of industry traffic is globally. Intra-Asia lanes have seen the greatest negative impact, down 12.6 percent, with other major lanes such as North America-Asia down 5.3 percent, Asia-Europe off 3.4 percent and Europe-North America falling 2.5 percent. Cargo yields are off almost 6 percent compared with 2018, though IATA notes its survey of industry leaders indicates an expected improvement later in the year. 

IATA’s tracking of overall international trade overall shows softening, but with air cargo volumes declining at a faster rate. This is the second straight quarter of a year-over-year seasonally adjusted slump in FTKs, which has not occurred since 2015 and is comparable in weakness to what the industry experienced in 2011.

In response, airlines have cut capacity, as expressed in available freight-ton-kilometers (AFTKs). Capacity growth now is showing up at 3 percent, or half the previous rate. In Asia, AFTK growth is even less, at just 0.9 percent for the year. Freighter load factors have seen sharp fall-offs in the last few months. Asian airports are especially feeling it, with throughput at Tokyo down 14.4 percent, Singapore off 12.8 percent, Shanghai down 10.2 percent and Hong Kong off 7.3 percent. 

Tariffs and trade tensions, combined with reduced business confidence about slowing global economic growth, are major drivers. Interestingly, IATA’s statistical analysis of PMI new export orders indicators, while slowing since mid-2018, still suggest slightly positive growth in third quarter industry traffic. IATA also notes its April 2019 Business Confidence Survey of Airline Heads of Cargo indicated an uptick in optimism for improved volumes and yields before year end. Overall, IATA’s forecast for FTK traffic is flat for the year with no growth over 2018.

Validating the IATA observations are recent U.S. airline carrier reports through the Airlines for America (A4A) showing an overall industry decline in volumes through May, particularly for most passenger airlines. FedEx and UPS have managed to keep ton-mile volumes slightly ahead of last year, whereas American, Hawaiian, Southwest and United have seen drops of 12.2 percent, 14.2 percent, 1.5 percent and 1.7 percent year-to-date respectively. Delta Air Lines, which does not report through the A4A, is off 8.0 percent for the year through June 2019. Only Alaska Air is up 10.6 percent, due primarily to its merger with Virgin America, which did not carry cargo previously. FreightWaves SONAR displays the multi-carrier five-year growth trend through May below, showing the relatively faster growth for FedEx and UPS.

SONAR Air Cargo Volume Trends for FedEx, UPS, American, United, Southwest, Hawaiian and Alaska Airlines

Traffic and yield declines of the levels noted by IATA mean a double-digit revenue impact for airlines. While concerns about the possibility of a recession on the passenger side of the business exist, passenger capacity continues to do reasonably well in this environment, which helps keep more belly capacity than is perhaps needed for cargo in the schedule. But expect more tightening such as continued freighter capacity cuts as the industry rightsizes itself by reallocating aircraft away towards better-performing markets to stabilize load factors and yields. On a positive note, airlines will push faster on e-commerce, product improvements, digitalization and other customer service initiatives to diversify their offerings to air cargo buyers and improve yields.

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Jesse Cohen, Air Cargo Market Expert

Jesse has over 30 years of broad global experience on both the airline and forwarding sides of the air cargo business. He started his career in Houston in Business Development for 2 different freight forwarders, gaining exposure to both air and ocean freight for large project and general cargo. He then relocated to Chicago to join United Cargo, starting out as a Cargo Capacity Analyst and moving on to more senior commercial, pricing, regional sales and product management roles. He was promoted to a key leadership role as Managing Director-Cargo Pricing and Revenue Management, where he oversaw a 25-person team responsible for coordinating with sales and operations to optimize the revenue from this $1B business at United. His specific responsibility areas included pricing, revenue planning, capacity management, RM systems and business analysis. After leaving United, Jesse gained valuable field commercial management experience with two non-US flag airlines, Etihad Cargo and SilkWay West Airlines. He led the Americas regional commercial teams for both carriers and got significant exposure to freighter aircraft. Jesse’s overall air cargo experience covers North America, Pacific, European, Latin American, Middle East, and Central/South Asia markets. Jesse Cohen, Air Cargo Market Expert Jesse has a Master’s in International Economics from the Johns Hopkins School of Advanced International Studies in Washington, DC.

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