Should Apple’s results worry the air freight market?

Tech giant Apple slashed its quarterly sales forecast on Wednesday. It cited weaker iPhone revenue, primarily in the greater China region, which accounts for approximately 20% of product sales. However, revenue is expected to be lower in most regions.

The warning signs began beforehand though. Earlier in the year, it stopped reporting production and sales unit figures in its quarterly results. In November, it then produced weak sales estimates for the most recent quarter, which sent shares tumbling.

High tech has been a key growth sector for the air freight market in recent years. The smartphone boom has been a major part of this, creating sizeable manufacturing sectors in a number of developed and emerging markets. However, the market is maturing as smartphone performance has increased, models have become sturdier, with more processing capacity and larger memory. As sales growth of new units continue to fall, the implications for the air freight market could be significant.

Global semiconductor sales are a useful tool in assessing the strength of the high tech market. Integrated circuits in particular are included in many day-to-day tech items, such as laptops, phones and tablets. In 2018, sales growth has been particularly good. According to the Semiconductor Industry Association (SIA), year-to-date sales for January-November 2018 have already surpassed 2017 sales figures, after growing at double-digit percentage growth rates. However, according to president and CEO John Neuffer, “growth has slowed somewhat in recent months… Double digit annual growth is expected for 2018 once December’s sales are tallied, with more modest growth projected for 2019.”

The US, the world’s leading manufacturer of semiconductors, is a key part of global growth in high tech goods. For January-October 2018, exports of electrical machinery by air grew 13.2% year-over-year in volume terms, according to the US census bureau. This is not just important because of the straight export out of the US, but because of the integrated nature of the high tech supply chain, growth here indicates knock-on effects for air freight in other trade lanes.

As the Trump administration announced tariffs on Chinese semiconductors, the SIA understandably issued a statement rebuking the move. It pointed out that most US imports of semiconductors from China are designed and manufactured by US firms, largely in the US, which are shipped to China for final assembly, testing and packaging. This stage, it estimates, accounts for 10% of the value of the final product. So by imposing tariffs on the product, Trump has perhaps more significantly damaged US firms, whilst also negatively affecting the volume of flow of goods by air both to and from China.

The industry has also seen manufacturing sites set up in emerging markets, largely in South-East Asia. US exports of electrical machinery to Indonesia, Thailand, Malaysia and the Philippines by air have grown at double-digit percentage rates year-over-year in the first ten months of 2018. Here, new sites perform similar services to those seen in China. The build-up of smartphone and other high tech goods manufacturing sites in these countries has been a key growth driver for their economies. The slowdown in smartphone sales is concerning in these emerging markets.

In the short term at least, air freight forwarders are likely to see strong high tech growth continue, but Apple’s results highlight a worrying trend. The smartphone industry’s supply chain is highly globalised and the potential end of this growth cycle is likely to dampen volumes. That being said, the emergence of new technologies, such as Internet of Things, which will require huge numbers of sensors to transmit vast amounts of data generated could well offset declining volumes from smartphones.

Source: Transport Intelligence, January 3, 2019

Author: Andy Ralls


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