The air freight market appears to be in a grim condition. Certainly, the IATA statistics just released show that demand measured in terms of ‘freight-tonne kilometres’ fell by 3.8% year-on-year in the 3 months to July. This is the weakest demand performance since 2012 and IATA observes that combined with an increase in capacity of 1.8%, load factors in the sector have continued to fall sharply.
The locus of the fall in demand has been in Asia, with year-on-year freight-tonne kilometres falling by 9.7% on intra-Asian routes. In contrast the equivalent Asia-Europe numbers are down just 2.7%. It is always wise to treat short-term air freight numbers with caution as the role that it plays in inventory management can lead to ‘whip-lash’ effects that amplify both positive and negative trends, however at present the inventory situation is fairly benign. Admittedly the figures do look slightly less bad when seasonally adjusted.
IATA are clear about the reasons behind the downturn. It cites the trade war between the US and China, with trade volumes between the two economies falling by 14% year-on-year. IATA also point to falling consumer confidence at a global level, although this still remains reasonable in absolute terms. Both in Germany and South Korea exports have fallen and PMIs hover just below 50.
However, the problems of the German economy are not just driven by a depressed market for cars in China. Certainly, structural changes driven by new technology in the automotive sector are creating uncertainty, depressing profits and leading to job losses but there is an underlying issue that German products- such as diesel cars- are no longer as attractive to consumers.
The situation in South Korea is also interesting, with many manufacturers of electronic consumer goods moving assembly operations to South East Asia as Korea looks to concentrate on higher value design and service activities. An interesting illustration of this was the announcement by Korean Air that it was starting a twice weekly freighter service to Bangkok in order to serve the expansion of what it calls “production bases” in South East Asia.
Certainly, there is a good deal of short term turbulence in the global trading system and this is depressing demand in logistics markets. The US-China trade friction is creating real difficulties for exporters. However, this should not obscure the longer-term view of a global economy whose structure continues to change, with new supply chain architectures emerging and with new patterns of supply and demand, something that includes demand for logistics services.
Source: Transport Intelligence, September 12, 2019
Author: Thomas Cullen