Many major forwarders have seen air freight volumes drop considerably over the first half of 2019. DHL, the world’s largest in terms of air revenue and volumes, saw Q1 volumes fall 3.9% and Q2 volumes down 5.8%. Kuehne + Nagel saw Q1 and Q2 declines of 3.1% and 8.4% respectively. DB Schenker’s H1 volumes are down 10.9% year-on-year.
These kinds of performances have been repeated across the board. The global air freight forwarding market contracted by 4.2% year-on-year in real terms in H1.
Whilst market growth was widely expected to slow this year compared to the year previous, the severity of the plight has proven difficult to predict. In December, IATA projected that total freight-tonne kilometres (FTKs) would increase 3.7% in 2019, but by June of this year, FTKs were 3.6% lower in year-to-date comparisons (-4.3% for international FTKs).
The market should be viewed against the backdrop of the inventory re-stocking cycle which took place in 2017 and early 2018. In this period, with economic growth accelerating at a level not seen since before the global financial crisis, shippers rushed to re-stock warehouses close to end consumers to account for the acceleration in demand. Bottlenecks appeared throughout various stages of supply chains and the need to move finished and semi-finished goods more rapidly meant that the global air freight market expanded rapidly in 2017.
This cycle ended in early 2018 and growth reverted to lower levels, closer to that of global international trade growth. Whilst growth maintained a steady pace through the year, the first signs of further weakness began in Q4. According to IATA, in November 2018, year-on-year FTK growth declined to zero and in December volumes fell 0.5%.
The trade war has compounded the effects of the end of the re-stocking cycle and is hammering some parts of the air freight forwarding market. Air freight tonnage shipped between China and the US is 10.9% lower in H1 than in the same period the previous year. However, these dire trade figures between the two largest economies only tells part of the story. Both markets (although more so in China) have significant intra-regional supply chains feeding exports to the other partner. Therefore, exporters of components and semi-finished goods which are used in finished good exports have suffered significantly as a result.
Japan and South Korea, which are major manufacturers of chips and equipment used in Chinese high tech finished product exports, showed sharp declines. However, the high tech sector is showing signs of weakness that appear to be structural. According to the Semiconductor Industry Association, worldwide sales of semiconductors fell 14.5% in the year through to June. The so-called ‘Upgrade Cycle’ for mobile phones appears to be broken. A recent report by Ting Mobile revealed that only 18% of consumers now upgrade phones because a phone is outdated. The consistent revenue stream manufacturers received from two-year phone upgrades is more shaky now. Similarly, increased endurance of laptops and tablets mean demand for replenishment is weaker. This has significant consequences in air freight, where even the launch of a new iPhone can have a significant impact on certain trade lanes.
The automotive sector has been one of the hardest hit industries in 2019, with slowing or declining sales in the US, China and Germany. Parts maker Continental expects global vehicle production to fall 5% over 2019. For forwarders carrying spare parts and semi-finished goods for just-in-time supply chains, this slowdown has severely damaged volumes.
With the effects of the trade war still being felt, slowdowns in major sectors and little sign of a recovery in the global economy, expectations for the full year are similarly downbeat. For 2019, Ti projects the market will have contracted by 3.9% compared to 2018. This would mark the worst year for market growth in this decade.
Source: Transport Intelligence, October 31, 2019
Author: Andy Ralls
Ti has produced new market sizing data, featuring 2019 H1 growth rates and full year projections for freight forwarding, contract logistics, express & parcels and European road freight. It covers 23 major logistics markets across seven regions. To find out more, visit our product page, or contact Head of Business Development Michael Clover +44 (0) 1666 519907 or [email protected]