Rapidly slowing air freight suggests worsening global trade

Growth in the global economy is slowing. Citing heightening trade tensions as a factor, the International Monetary Fund’s half yearly World Economic Outlook suggested that global GDP would grow at 3.4% in real terms in the next twelve months, its slowest rate in ten years. Trade volume growth is falling starkly from 2018 too – the IMF predicts goods import growth at 3.7% and goods export growth at 2.9% in 2019 down from 4.3% and 3.5% respectively the previous year*. Its projections are not infallible, however other indicators are also showing a marked slowing in the economy.

For example, IATA (International Air Transport Association) has just released its monthly data on air cargo showing a fall of 4.7% year-on-year in Freight Tonne Kilometres (FTKs) in February, the largest fall in more than three years.

This was driven by the crucial Asia Pacific region, where FTKs fell by 11.6% with growth elsewhere seeing less of a fall. North America for example was down 0.7% year-on-year.

Although real detail about the reasons for this drop in demand is lacking, the salience of Asia Pacific does suggest that that supply chains such as electronics are under stress. Ascribing this to trade tensions between the US and China is easy to do, however there has been more noise than action coming out of Washington. It also does not fully explain why exports from Germany have been hit so badly. This may have more to do with a fall in demand within China itself.

As a consequence of such contractions the air freight market is now faced with growing over-capacity. Although IATA comment that in February capacity increased by a “moderate” 2.7%, over the past ten months the gap has continued to widen resulting in a load-factor 3.5% lower than a year ago.

Such imbalances in supply and demand may also be seen in other logistics sectors, resulting in lower prices generally. It also seems possible that fuel prices may fall back slightly as output rises in response to earlier market strength.

Any predictions of recession should not be overdone. US consumer demand is still growing and Europe other than Germany may be seeing improvements in production. Rather, the immediate prospects for wider logistics may be one of price moderation and slower growth rather than outright falls. 

Source: Transport Intelligence, April 11, 2019

Author: Thomas Cullen

*Click here why for an explanation of why global imports does not equal global exports growth 


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