Semiconductor inventory indicates weak demand for airfreight

air freight

Chief Analyst Thomas Cullen reflects on low inventory levels and its impact on airfreight.

Semiconductor production outlook continues to look pessimistic, implying weak demand for airfreight. For example, the leading semiconductor producer, TSMC has just issued a downbeat assessment of the market in its latest quarterly results, asserting that  “ fourth quarter business was dampened by end market demand softness, and customers’ inventory adjustment, despite the continued ramp-up for our industry-leading 5nm technologies…moving into first quarter 2023, as overall macroeconomic conditions remain weak, we expect our business to be further impacted by continued end market demand softness, and customers’ further inventory adjustment.”

The comment about inventory is particularly relevant for the airfreight sector as low inventory levels invariably result in depressed demand for airfreight.

This downward trajectory of airfreight was confirmed by the latest numbers from IATA, which described demand, as measured in cargo tonne-kilometres, falling by 13.7% as compared to November 2021, with a worse fall of -14.2% for demand on international routes. Although freight capacity on airfreight also fell, it was only down 1.9% year-on-year, although again, international routes saw only a 0.1% fall. However, compared to November 2019, volume of freight carried was down only 10.1%. Of course, November is the height of the ‘peak season’ where we would normally see demand volumes rising.

IATA states that factors such as cost inflation were part of the cause of the numbers, however it admitted that world trade did grow by an annualised 3%. Again, the big problem was that of inventory. US retailers had sufficient inventory to support Christmas sales and they certainly did not need to rush product into the US using airfreight.

That is why the inventory situation at TSMC and its customers looks so ominous for the prospects for airfreight over the next half-year. Neither component producers, nor end-product manufacturers and retailers, need to move freight fast. Rather, it makes sense to use increasingly cheap sea and road freight. In addition, passenger demand continues its moderate recovery, providing plenty of belly freight for the market despite freight operators looking to shrink their fleets in the short-term.

All of this points to continuing soft prices for airfreight through the first half of 2023 and possibly the whole year.


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