Why have airlines on the Europe-Asia trade lane enjoyed such a strong start to the year?

Air cargo

The logistics industry expects some growth at the beginning of each year on the Europe to Asia trade lane as Chinese New Year tends to offer a seasonal boost. However, a look at the key data in H1 2017 shows that this year has been particularly impressive, and air freight providers are seeing the benefits.

Various carriers have produced impressive Q1 results in 2017. Kuehne + Nagel’s air cargo division reported 15.5% volume growth on the Asia-Europe lane, whilst Lufthansa reported revenues in its logistics division (mostly air cargo), growing 18.5% year-over-year. IATA saw this trend repeated across the industry, reporting year-over-year freight tonne kilometre (FTK) growth in Asia Pacific and European carriers of 11.8% and 10.5% respectively.

Airports are also reporting impressively high volumes too. Data presented in the Ti-ASR Logistics Tracker, showed an 18.7% year-over-year growth in air freight in China in February 2017. The growth rates in Tokyo, Taiwan, South Korea and Hong Kong were also encouraging. Whilst Chinese New Year certainly affects these rates, the growth across the past few months suggests an upward trend.

Zahra Ward-Murphy, co-author and Equity Strategist at ASR, commented: “The improvement in global activity picked up by our logistics dataset from the middle of last year is not yet showing any obvious signs of abating.”

Why is it that air freight performances are improving? One reason is that the phasing-in of the new major shipping alliances, Ocean, THE and 2M, appears to have been more difficult than expected. The new schedules have caused global delays. In Shanghai for example, the world’s largest container port, Reuters reported last week that the difficulties had caused over 100 vessels to be stuck outside the port. These issues have been forcing shippers to look to the skies for help.

Better than expected world trade performance is also fuelling demand for carriers. The WTO recently forecasts its growth expectations as 2.4% in 2017, up from 1.3% in 2016. This increase in demand is pushing up freight volumes.

The state of play in the skies is changing too. High tech goods are primarily transported by air, in part due to their weight and value. In recent years, though, more and more food products are being flown across borders. According to a recent article in the Economist, the number of food products being flown has risen by a third since 2007. This fits with a growing Chinese middle class, now looking further afield for their produce.

Also aiding this positive period for air freight is cross-border e-commerce. Whilst growth in this sector is hardly new, it is worth noting that e-commerce logistics in China was estimated to have grown by 27.1% in 2016. The Chinese middle class is driving growth at this period in time and airlines are having to adapt to increased consumer demand for express deliveries.

In October 2016, IATA had warned, “any boost in the near term is likely to prove transitory; the bigger picture is that the ongoing sluggishness of global trade conditions continues to present a stiff headwind for air freight.”

Perhaps IATA was overly pessimistic (not that these forecasts are easy). Yes, the sea freight market will settle down in time as new alliances find their footing. But IATA had cited sluggish global trade as a reason for its downbeat forecast. New trade figures are positive though and this could lead to a better than expected year for air freight providers.

Source: Transport Intelligence, May 2, 2017

Author: Andy Ralls

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