Air cargo market slows and heads into recession
The two-year bull market for air cargo may be heading for a slowdown. Cargo volumes carried by passenger and cargo airlines contracted in March and April as manufacturing and supply chains faltered in the face of war and COVID headwinds, figures from a large commercial group of airlines and independent analysts.
The International Air Transport Association said Tuesday that air cargo demand in March fell 5.2% year-over-year and seasonally adjusted volumes hit a 16-month low. On Wednesday, Clive Data Services reported that global air cargo volumes in April were down 8% from 2021 after previously reporting a 4.5% decline for March.
IATA reports lag behind Clive Data, which compares air cargo supply and demand using a different methodology and current transaction information instead of monthly statistics based on airline weight.
The two organizations attributed the slowdown in air cargo to the conflict in Ukraine, COVID isolation measures in China that limited factory production and airport access, airport processing delays due to the understaffing in warehouses and high inflation which is dampening consumer demand for goods.
In its monthly report, IATA said the air cargo market appears to be heading for a slowdown after growth slowed from 6.9% in 2021 to 2.7% in January and February, with demand lower than 2019 levels since the beginning of the year. This year, ton-cargo-kilometres have fallen more than the decline in overall world trade.
Clive said April freight throughput contracted 5% from April 2019.
New export orders, a leading indicator of freight demand, are falling in all markets except the United States. The Purchasing Managers’ Index which tracks new global export orders fell to 48.2 in March, the lowest point since July 2020. Germany, Japan and South Korea, and a decreased in China. The inventory replenishment cycle that began during the initial pandemic rebound at the end of 2020, and which led to companies turning to air freight to meet demand quickly, appears to have come to an end, the official said. ‘IATA. And economists predict that China’s economy will grow only 4-4.5% this year, down from 8% a year ago.
“The combination of the war in Ukraine and the spread of the omicron variant in Asia has driven up energy costs, exacerbated supply chain disruptions and fueled inflationary pressure. As a result, compared to a year ago, there is less cargo being shipped, including by air,” said IATA Director General Willie Walsh. “Peace in Ukraine and a change in China’s COVID-19 policy would go a long way in mitigating industry headwinds. As neither seems likely in the near term, we can expect growing challenges for air cargo as passenger markets accelerate their recovery.
IATA said passenger traffic rose 76% in March from a year ago and was now down 41% from pre-COVID levels. International volume, which supports wide-body aircraft that can also carry large amounts of cargo, increased by 285%.
Dynamic load factor, which measures how full an aircraft’s payload capacity is by volume and weight, fell 9 points to 62% last month, Clive Data said. The load factor was difficult to compare because the load factor of 71% a year ago was exceptionally high.
Despite a 1% increase in cargo space, the market remains at a 13% capacity deficit compared to the pre-pandemic period, Clive Data said. Russia’s invasion of Ukraine led to a reduction in the supply of cargo ships serving Europe as Russian carriers were sanctioned by Western countries and Ukrainian cargo planes were destroyed or reassigned to humanitarian missions .
IATA measured the March cargo load factor in available tonnage at 54.9%, down 3.7 points from a year ago. It follows a 4.9 point decline in February and highlights how weaker demand is reducing freight yields. The trade association said interest in using passenger planes for dedicated cargo service, common when passenger flying came to a halt due to the pandemic, has waned in recent months in the face of a lower demand.
Capacity constraints support high rates
Lower volumes last month did not lead to an overall drop in air freight rates. April spot rates were almost 2.5 times higher than in 2019 and even increased slightly compared to March. Air freight prices were 26% higher than a year earlier, according to Clive.
The disconnect between demand, supply and prices is well illustrated by the trade route between North America and Northern Europe. Flight delays due to airport backlogs have reduced effective capacity on the transatlantic corridor despite an influx of more passenger planes for the busy summer travel season as airlines put COVID in the rearview mirror. Outsourced logistics providers claim that it can take more than 10 days in Europe from when a shipment is booked to when it can be loaded onto a plane. As reported on Wednesday, the combination of logistical issues and airlines passing on higher jet fuel costs to customers partially offset the lower price environment due to softer market conditions.
Air cargo demand soared in the second half of 2020 as the global economy struggled to recalibrate after the pandemic shutdowns, but has leveled off for most of last year as measured by seasonally adjusted freight tonne-kilometres. Now the sector appears to be shrinking, according to IATA.
But there could be another explanation. Logistics officials say there is still significant demand for air freight in many markets, including Singapore and the transatlantic region. This suggests cargo bookings are strong compared to 2019 but not being measured in a timely manner due to supply chain disruptions and airport backlogs compressing what is actually carried on planes.
Glyn Hughes, chief executive of the International Air Cargo Association, said on The Loadstar podcast that high interest rates coupled with inflation could actually benefit air cargo, as companies that have financed or prepaid orders may want to expedite shipments so that products do not lose value. the ocean, where transit times have doubled and tripled over the past 18 months.
European carriers saw the biggest decline of any region in March, with volumes down 11.1% from March 2021. The domestic market fell 19.7% due to the war in Ukraine. Labor shortages and lower manufacturing activity in Asia due to COVID outbreaks have also affected demand, IATA said.
Demand from North American carriers fell 0.7%. The transpacific market was down significantly as seasonally adjusted volumes fell 9.2% while capacity increased 6.7%. Middle Eastern carriers saw a 9.7% year-on-year drop in cargo volumes as the expected benefit of re-routing traffic south to avoid overflying Russia did not materialize. not materialized, according to the trade group.
Click here for more FreightWaves/American Shipper stories by Eric Kulisch.
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