How the international air freight markets fared in 2018 and what’s ahead for the new year.
In its most recent monthly analysis of the global air freight market, the International Air Transport Association (IATA) observed that while demand for air freight was softening, cargo volumes are still trending higher. Industry-wide freight ton kilometers (FTK) grew by 2.0% year-over-year in September 2018 – well below the five-year average pace (5.1%) but consistent with the typical pattern seen after past inventory-led upturns, IATA reports.
“Freight volumes are continuing to trend upwards at a solid rate by historical standards, helped by strong consumer confidence and robust global investment growth,” the group points out. “Nonetheless, amid signs that manufacturing firms’ export order books are no longer growing, other demand drivers have softened over the course of the year.”
IATA also says that more moderate FTK growth in 2018 is “typical of the pattern seen historically following inventory restocking cycles.” Recall that air freight volumes grew much faster than global goods trade in 2017, it notes, as firms turned to air freight from other modes of transport to restock inventory levels quickly. “But amid signs that the inventory restocking cycle peaked in late-2017,” IATA says in its report, “the best of this boost to demand has long since passed.”
The Impact of Tariffs
The well-publicized trade and tariff wars are of particular concern to air carriers and shippers right now. Because these policy changes involve multiple different countries, the tariffs initially pushed more shippers to make their overseas trades ahead of the tariff start dates. This created some demand for both ocean and air early in the year. “For the first nine months of 2018 or so, air freight activity was pretty robust; it was an active market,” says Al Sullivan, DB Schenker’s PM, Air in the U.S. “In fact, it was a bit stronger that we’d seen in previous years.”
That activity has slowed somewhat in the last couple of months—starting in September—with the slowdown creating a slight weakening in the air freight market. As a result, what would normally be considered the “peak” or heaviest time of the year, when capacity issues start to rear their heads, has actually been a time of opportunity for air shippers.
“We’re really not seeing the capacity issues we’re accustomed to during this time of the year,” Sullivan says, “or at least not as significantly as we have in the past. The market seems to be taking a breather right now.”
IATA’s latest numbers support this theory, though it points out that freight volumes are continuing to trend upwards in seasonally adjusted (SA) terms, and that FTKs have risen at an annualized rate of 4.1% over the past six months. This is a solid pace by historical standards, IATA says, and should the trend sustain itself, “the year-over-year growth rates will soon converge around this pace as the best of the upturn in 2017 drops out of the annual comparison.”
In terms of the existing and prospective international policy and tariff changes, Sullivan says they’ve yet to significantly impact companies’ shipping or sourcing patterns. Some companies are exploring sourcing options outside of China, and particularly in areas like Southeast Asia and Latin America. “We’ve seen one or two shippers make a move in that direction,” says Sullivan, “but it’s more about having a Plan B and then maybe moving forward on that plan, if necessary.”
Going forward, IATA expects the air freight market to continue to be supported by a number of factors, including strong levels of consumer confidence and investment, as well as fast-growing sectors such as e-commerce. Concurrently, other demand drivers have continued to soften – particularly manufacturing firms’ export order books. The new export orders component of the global manufacturing Purchasing Managers’ Index (PMI) fell into contractionary territory in October for the first time since June 2016,” IATA notes, “reflecting a broad-based weakening across the world’s major exporting countries.”
Sullivan, who interacts daily with both shippers and carriers, expects the air freight market to remain stable over the next few months. And while there may not be much of an uptick in the market, Sullivan says the general feeling is that things will remain status quo to slightly lower over the coming months.
Looking ahead, Sullivan expects the air freight market as a whole to stay robust, with some geographic sectors staying more balanced than others. For example, he says markets in Southeast Asia, Australia, and India are all seeing continued capacity constraints for air freight.
To shippers that are running into challenges in these areas, or dealing with other air freight-related issues, Sullivan suggests developing more accurate forecasting, using good demand planning, and working with a reliable logistics provider to secure air freight. “Shippers should also try to secure more commitments with forwarders or logistics companies,” he advises, “in order to protect themselves in some of the tighter or constrained markets.”