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What goes up must come down – Air cargo monthly update

Image: Flickr/Kevin Hackert

The latest overall industry reports for air cargo covering May traffic came out last week. Consistent with earlier reporting, the International Air Transport Association (IATA) reported air cargo ton-kilometers were off 3.4 percent globally in May, a modest improvement from April when volumes fell 5.6 percent. A day earlier WorldACD reported that industry chargeable kilos were down 5.0 percent in May, with yields also off 5.6 percent for an overall revenue loss exceeding 10 percent. WorldACD showed general cargo off 7.2 percent with specialty cargo down slightly at 0.1 percent, with live animals (+14.4 percent), pharmaceuticals (+9.9 percent) and vulnerable/high tech (+5.3 percent) still gaining. Both sources show all regions being down. 

But the July 3 release of U.S. Census Bureau trade data for May provides the most insight into several key changes within the U.S. international air cargo market. FreightWaves has analyzed a number of these metrics along with other data in FreightWaves SONAR. The findings are interesting. 

Value of product shipped by air is up, but tonnage down

U.S. air exports for May improved in value by only 0.8 percent, or $342 million, to $41.8 billion, but gross tonnage was off 6 percent, or 17.6 million fewer kilos for the month. In contrast, containerized ocean exports were off only 1.0 percent in May. For May year-to-date, air exports are down 83 million kilos, or 5.7 percent. Similarly, U.S. air imports grew to $56.7 billion in May, a 2.7 percent increase, but tonnage fell 5 percent, a loss of 21.6 million kilos for the month and 43 million kilos year-to-date (-2.2 percent). Again, containerized ocean imports were off only 0.2 percent for the month, but up 5.2 percent year-to-date. That 125 million kilos lost from U.S. air cargo in just five months is worth hundreds of millions of dollars to airlines and forwarders. 

Air cargo increasingly higher value within supply chain

This growth in value suggests air cargo continues to be the preferred transport mode for the highest value cargo, but lower value kilos are shifting to surface modes. While this is an ongoing occurrence as suppliers try to find supply chain cost savings by shifting transport modes (especially for maturing products), this is accelerated at times when there is economic uncertainty, increased concern about budgets and a desire to be more conservative on spending.  May 2019 air imports averaged $138.82 per kilogram in customs value compared with $128.34 in May 2018, an increase of $10.48 (+7.5 percent). Air exports are seeing a similar increase, with May 2019 averaging $150.98 per kilogram in customs value against $140.82 last May (+7.2 percent)..  

China trade falls fast, others grow fast too, but not fast enough 

For the month of May, air export tonnage declines were led by China (-7 percent), Canada (-14 percent) and Germany (-9 percent) with only the Netherlands (+14 percent) growing over 1 million kilos for the month. May air import tonnage fell off most in China (-11.5 percent), Japan (-19 percent) and Colombia (-18 percent). Also in May, Vietnam (+19.5 percent), Argentina (+140 percent) and France (+10 percent) topped import tonnage growth. While supply chains are adjusting to the U.S.-China trade tensions and tariff threats, the growth of Vietnam, India and others at this point in time only fractionally makes up the loss of China as a driver of air cargo in both directions. Year-to-date figures dramatically show the dependency on China for air cargo and how much growth is needed elsewhere to close the gap.   

Source: FreightWaves analysis, U.S. Census Bureau, USA Trade Online

Not so sweet for cherries and lobsters

California cherries were badly impacted by a hailstorm and bad weather, resulting in 1.4 million fewer kilos (-25 percent) exported this May. Perhaps Washington state cherries can make up the gap in June and July. Auto parts (-35 percent), semiconductor equipment (-36 percent) and lobsters (-46 percent) also exported far less this year. But exports of laptops and tablets (+95 percent) and chemical products (+55 percent) helped offset part of the export drop. Fewer automotive parts imports comprised most of the import drop, along with fewer roses in May (compared to April) due to Mother’s Day falling a day earlier this year. Mobile phones and plastic resins led the gains for air imports.

Most U.S. airports seeing less cargo

As seen below, the widespread slowdown of air cargo this year is being felt in nearly all major U.S. airports, with few exceptions. This primarily affects trucking volumes shipped from airports, and to airports secondarily. It makes for a tough business environment, squeezing not only airlines but also air cargo handlers and trucking firms that also support the flow of air cargo. 

Source: FreightWaves analysis, U.S. Census Bureau, USA Trade Online 
Note: continental USA only, excludes Memphis and Louisville

Belly carriers taking more of the hit?

Another trend FreightWaves has observed when the economy shifts is the higher volatility for air cargo volumes and revenues at belly carriers. Belly carrier traffic and revenue will turn south more quickly when the economy softens, and will often rebound faster when the economy heads north. When the market declines, freighter carriers have more flexibility to move capacity around, whereas passenger scheduling largely drives belly capacity. Forwarders tend to have a strong interest in maintaining freighter capacity in the schedule and will support allocations and ad hoc traffic there as a first priority, seeing freighters as more flexible and belly capacity as more commoditized. As the economy strengthens and freighters fill, belly capacity is well placed to absorb the increase in demand. In the SONAR chart below on U.S. competitor airline volumes through May 2019, the U.S. passenger belly carriers (American, Hawaiian, Southwest, United) are seeing flatter growth of late and greater declines in traffic volumes compared with FedEx and UPS, which are seeing steeper increases in their growth trajectories. Delta Cargo also saw double-digit decreases in traffic in both May and June as well. 

Airlines 4 America Cargo Volume Trends – Jan 2016-May 2019 FedEx — AIRRTM.FDX, UPS – AIRRTM.UPS, United – AIRRTM.UAL, American – AIRRTM.AAL, Hawaiian – AIRRTM.HA, Southwest – AIRRTM.LUV, Alaska – AIRRTM.ALK