Here are five important global airfreight trends that all shippers should be aware of as the market moves past 2019 and pins its hopes on recovery during the year ahead.
Challenged by the ongoing trade and tariff wars, the global airfreight market is in the midst of a 10-month-long slump, the International Air Transport Association (IATA) reports. Measured in freight tonne kilometers (FTKs), industry volume contracted by 3.9% in August (the latest available figures) compared to the same period in 2018.
Airfreight capacity, measured in available freight tonne kilometers (AFTKs), rose by 2% year-over-year in August 2019. That means capacity growth has now outstripped demand growth for the 16th consecutive month. This marks the tenth consecutive month of year-on-year decline in freight volumes, the longest period since the global financial crisis in 2008, IATA notes.
“This is deeply concerning,” IATA’s Alexandre de Juniac said in a press release. “And with no signs of a détente on trade, we can expect the tough business environment for air cargo to continue. Trade generates prosperity. Trade wars don’t. That’s something governments should not forget.”
5 Airfreight Trends to Watch in 2020
From his vantage point as DB Schenker’s Head of Airfreight, Region Americas, Asok Kumar has seen firsthand the ups and downs that the global airfreight market experienced in 2019. From excess capacity, to lower freight volumes, to the ongoing trade wars, the market as a whole simply wasn’t able to catch a break this year.
Hopeful about a possible recovery in 2020, Kumar is keeping an eye on these five trends, which he tells all shippers to watch as we move into the new year:
- There may not be a peak season. A time period when airfreight cargo loads are greater than the average cargo volumes moved during other times of the year, peak season would typically have kicked off in August and lasted through the end of the year. That didn’t happen this year, according to Kumar, who said there were some peaks and valleys in terms of airfreight volume, but none was notable enough to constitute a peak season. “We are seeing a slight uptick in volume right now,” he said, “but nothing near what traditionally takes place during peak season (i.e., lack of capacity, difficulty moving freight, etc.).”
- Freight rates will remain flat. Shippers searching for opportunities to use up some of the extra airfreight capacity on the market could see good rates for those loads in 2020. And while airfreight will continue to be more expensive than ocean freight, existing rates could push companies to explore the latter as a shipping option. “In general, the airfreight market is weaker than it was in 2018,” said Kumar, “so we’re seeing rate levels compensate for that.”
- The trade wars continue to impact the market. As IATA pointed out in its latest market report, airfreight volumes are being impacted by factors like the trade wars and the resultant tariff upticks. “If the political situation does continue as it is right now, it will put a damper on the trade situation, and therefore on airfreight,” said Kumar. “However, if agreements are put in place and the issues begin to get resolved, then we may see a reverse effect.” One way shippers are dealing with tariff issues is to shift production away from China and into countries like Mexico, Vietnam, Thailand, and Malaysia. “Vietnam seems to be the most popular choice at the moment,” said Kumar. “If the current situation continues, those shifts could accelerate.”
- A “hard Brexit” could create new challenges. As we move into 2020, Kumar expects overall market capacity to ebb and flow along with demand—just as it would during any other year. Whether Great Britain agrees on a “soft Brexit” (one that keeps Britain closely aligned with the EU) versus a “hard Brexit” (which rejects the whole idea of close alignment) could impact that scenario. “If there’s a hard Brexit, we could run into a challenging scenario,” said Kumar. “For example, airfreight capacity could tighten up if the current policies and procedures change regarding the movement of freight in and out of Europe.”
- Companies moving production out of China should watch for bottlenecks. Kumar tells shippers to keep an eye on capacity, bottlenecks, and rates, all of which could impact their airfreight planning and budgeting in the coming year. A company that’s shifted production from China to Vietnam, for example, could wind up with less airfreight capacity at its avail and, therefore, higher transportation costs. “This could occur in countries like Vietnam and Thailand, where carriers may be unable to ‘shift’ quickly,” said Kumar, “thus creating some bottlenecks for shippers to deal with.”
Cautiously optimistic about the industry’s potential in 2020, Kumar said most market indicators are predicting another challenging year for the airfreight sector. “From the market data we’re seeing and the feedback that we’re receiving, it looks as if we might see some improvement over 2019,” said Kumar. “There are definitely a lot of external factors that will play into it, so we’ll just have to wait and see.”