World air cargo market slowing down

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Since 2008, the air cargo market has been roller-coastering. The industry includes businesses that provide air transportation for commercial and private cargo, on either scheduled or nonscheduled routes. It includes air transportation that is part of a national postal system and express services, but excludes the courier services of express operations.

According to a recent Global Cargo Airlines Market Research Report, scheduled airfreight transportation is the largest service segment of the industry, accounting for an estimated 60% of industry revenue.

After years of stagnation and retraction, the air cargo traffic market started to rebound in 2014. Indeed, air cargo traffic faced a brutal 13%-downturn in 2008-2009, due to the global economic slowdown. Consequently, there was a “credit crunch”, a phenomenon in which banks started to cut or reduce their credit lines to their corporate and retail clients. Thus, the economies all over the world began to contract. Global trade collapsed sharply and even if there was a recovery in 2010, it has never reached again the level before crisis. According to the WTO, trade growth has averaged only about 3% a year since 2010, compared with 6% a year from 1983 to 2008. Yet, world air freight traffic is strongly correlated to GDP, so when the economic growth is gloomy, so does the air freight traffic.

Nevertheless, as shown above, World air cargo traffic began to grow again during H2 2013. In 2014, the International Air Transport Association (IATA) announced that FTKs were up 4.5%. Freight Tonne Kilometers (FTK) measures actual freight traffic and it measures of how much freight business an airline gets. One FTK is one metric ton of revenue load, carried one kilometer. The sum of FTKs for every segment flown by every aircraft over a specific period is the FTK of an airline over that period. But the market share of airlines based in Asia and the Middle East has grown relative to that of airlines based in other regions. Thus, in the 2014 top-10 busiest international cargo airlines established by the IATA, 4 firms were Asiatic with 40% of the traffic, 2 were from Middle East with 24% of the FTKs, 2 were American (18%) and 2 were European (18%). The number one was Emirates Airlines with 11.2bn of FTKs out of 72bn of FTKs. Emirates operates 13 B777Fs and two Boeing 747-400ERFs.

However, in 2015, the air cargo market seems to be declining agaain, mainly due to a sharp drop in global trade. Indeed, the WTO is expected to cut its 2015 trade forecast a second time after a sudden contraction in H1 2015—the first such decline since 2009. Economists blame the slowdown on many factors, from the deterioration of emerging countries’ economies, especially China’s, to the stagnation of the EU: Furthermore, even the USA are facing difficulties: for H1 2015, U.S. exports dropped 5.6% to $896bn. What is new is that China, for the first time, has started to look into its domestic market: “Beijing is now engineering a shift toward domestic consumption, services and advanced manufacturing. China has started building many of the products it used to import.” As Robert Wall is writing in the Wall Street Journal: “Lower demand in Asia is coming at the same time air-cargo capacity is climbing. A large chunk of the air-cargo market is transported in the hold of passenger planes. With major airlines adding flights globally this year, that is weighing on cargo rates. Falling fuel costs also are delaying plans by airlines to retire older jets, exacerbating the problem”, said Robert Wall from the WSJ.

In July 2015, air freight volumes fell 0.6% from a year earlier, with 1.9% contraction in FTKs in Asia-Pacific, – 1.5% in Europe, – 5.1% in South America and -3.7% in North America. The only region which performed well is MEA with a rise of 10.8% in July YoY.
“The disappointing July freight performance is symptomatic of a broader slowdown in economic growth,” said IATA Director General. Consequently, whereas Boeing executives expected in 2014 a rebound in cargo traffic, they have just faced the cancellation of their order of 4 B747-8 jumbo freighter aircraft from Nippon Cargo Airlines, thus cutting 14% of Boeing’s backlog. Partly due to such adverse conditions in the cargo market, Boeing has decided to scale back its production of the 747-8 from 2.5 to 1 jet a month next year. This cancellation is another warning sign for the manufacturers of large freighter aircraft.

Although IATA economists forecast that economic growth and world trade will improve in H2 2015, it is not sure at all that there will be benefits for air freight transport, given recent declines in the sector.



Written by ADIT – The Bulletin and republished with permission.