Most shippers, carriers, and students of the freight market spend most of their time focused on a particular mode. It makes intuitive sense that you would focus on the mode that you spend the most time in which you are buying services or providing services. Net result, there are plenty of experts in rail, truck, and intermodal/container freight, and with the ongoing prodigious growth of e-commerce, there is a growing number of experts in parcel freight. That said, we continue to be surprised how little attention overall is given to airfreight. We understand that only 1% of the weight of the U.S. and global economy is delivered via air, and we understand that this is often only in the last leg of the commercial supply chain. We also understand that over 15% of the value of the tangible goods flow is carried by air.
We should remind everyone that the decision to pay a premium for air transit confirms two very important facts about the goods being transported and the economy:
1. It’s valuable. It has a very high value to density ratio. Coal isn’t transported via air. Smart phones and microprocessors are transported via air. In the cost of goods delivered, the cost of delivery is minor. The shipper just wants it where they want it, when they want it, without it being lost, stolen, or damaged.
2. It is in high demand. There is a sense of urgency. At the most extreme end of this example, human organs that are to be transplanted, they are worthless if not delivered in an expedient manner. No one pays for air transport unless, as FedEx made famous years ago, “It absolutely, positively has to be there overnight.”
As an economist, we also know that airfreight tends to be very predictive of certain products (such as semiconductors), but fairly lagging as an overall economic indicator. Why? Because as an economy comes out of a slowdown, most firms are still focused on cost control, and neither the buyer nor the seller wants to pay the higher shipping expense. As an economic cycle becomes more mature, firms will pay a premium to drive incremental sales. “What if I could get it to you tomorrow?” becomes a sale closing question. It doesn’t predict that the cycle is ending, since this behavior can endure for many months or even years, especially in high value/low density goods, but it will continue right up to the very end of an economic cycle. Put another way, it has been our observation that inflections in airfreight volume tend to happen after the inflections in truck freight and rail freight, both on the way up and on the way down.
With all this laid out, we must now get the heart of our article – airfreight is confirming the U.S. and global economies are alive, well, and growing robustly. The International Air Transport Association (IATA) reported yesterday that FTKs (Freight Ton Kilometers) grew in 2017 by 9.9%, which is the largest amount since 2010 (a year in which the comparisons were ridiculously easy). They went on to point out that this is a rate of growth which exceeds the rate of global trade volumes by more than 2 times, and a rate of growth which exceeds the rate of capacity growth by a factor of 3 times (9.9% vs. 3.3%).
We conduct a survey of dozens of airports around the globe to produce our proprietary Broughton Capital Airfreight Indices. Data from our indices has been signaling that the European economy in general and the semi-conductor industry in particular, is stronger than widely understood since late 2016.
From a percentage perspective, it appears Asia is slowing down, but when viewed from a nominal perspective it becomes obvious that it is simply tough YOY comparisons.
As we pointed out for the Asia index, the YOY percentage is struggling with a tough comparison while the underlying nominal amount remains strong.
Bottom line, global airfreight is growing and signaling that the global economy is growing robustly.
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