The global air freight industry remains mired in a months-long downturn. Yet in the midst of the gloom, there appears to be a tiny ray of sunshine poking through the clouds.
The May 2019 data published early Wednesday by the International Air Transport Association (IATA), the leading airline trade group, gives little cause for near-term optimism. Freight ton-kilometers (FTK), measured as one ton flown one kilometer and considered the main gauge of global demand, declined 3.4 percent from May 2018 levels. The three major regions of activity, the Asia-Pacific, North America and Europe, posted year-over-year declines, according to IATA data. The Asia-Pacific region, the world’s largest with a 35.4 percent share of originating volumes, fell 6.2 percent as the impact of higher tariffs imposed by the U.S. on Chinese goods curtailed end demand.
Of the six reporting regions, only Latin America and Africa posted year-over-year gains. However, the two regions combined comprise just 4.3 percent of the global market, based on IATA data.
Air freight capacity, measured in available freight ton-kilometers, rose in May by 1.3 percent over 2018 levels. That was the 13th consecutive month that aircraft supply exceeded demand, IATA said.
End demand has been weak since September 2018, based on ongoing declines in new export orders registered by the global Purchasing Managers Index. For U.S. exporters, the problem has been compounded by the dollar’s continued strength, which have made U.S. exports more expensive relative to domestic competition.
IATA Director-General Alexandre de Juniac blamed much of the May decline on the impact of the U.S.-China trade war, adding that even if trade tensions ease following announcements on June 29 at the Group of 20 Summit in Osaka, Japan that trade talks will resume, it will take time to restore business confidence and re-start shipping activity. The “tough business environment” for air cargo will continue, de Juniac said.
Yet a deeper, slightly elongated look at the trends indicate that a bottoming may be in sight. IATA reported that seasonally adjusted FTK levels in May increased modestly for the third straight month, a sign that the “low point of this cycle may be behind us.” According to the group’s second quarter “Cargo Chartbook,” an analysis of new export orders in the global PMI suggested “slightly positive” growth in third quarter air freight volumes. An April 2019 IATA survey of airline cargo chiefs indicated an uptick in optimism for higher volumes and yields – which have suffered due to airline overcapacity – by year-end. For the year, global volumes are expected to be flat over 2018 levels.
Jesse Cohen, Freightwaves’ air cargo market expert, said that, in a somewhat ironic twist, cargo yields have been weighed down by increases in passenger traffic, which compels carriers to bring more passenger planes – and more bellyhold capacity – on line. Cargo departments have no control over those decisions, and they are doing what they can to rationalize capacity, especially on routes served by freighter aircraft. No U.S. combination carrier – those that handle passengers and cargo traffic – operates freighters. Instead, they haul goods in the bellies of airplanes filled with passengers.
Most U.S. passenger airlines have reported year-over-year traffic declines, according to industry data and figures compiled by trade group Airlines for America, formerly the Air Transport Association. By contrast, FedEx Corp. (NYSE:FDX) and UPS Inc. (NYSE:UPS) have managed to keep volumes slightly ahead of last year, according to the group’s data.
Passenger and cargo airlines alike are banking on continued robust increases in cross-border e-commerce activity to trigger the next wave of worldwide shipping demand. As the theory goes, as consumers demand fast deliveries of online orders being fulfilled hundreds if not thousands of miles away, businesses will increasingly turn to air cargo services to execute the transportation of those goods.