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   Vol. 16 No. 4
Wednesday January 11, 2017
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Uplifting Reports of Cargo Surge in 2017

Everlifthing Reports of surge in 2017

     FlyingTypers conducted multiple interviews with forwarders and airline executives that paint a cautiously optimistic picture of air freight demand this year. But it was only as the festive spirit hit full swing that meat was put on the metaphoric bones of late 2016, offering a more detailed insight into what might be expected in early 2017.
      Drewry reported last month that its East-West Airfreight Price Index recorded a year-high of 103.2 in November, against 99.3 in the same month of 2015. “Anecdotally, while it sounds as if rates have come down slightly in December, carriers are saying rates are surprisingly high for the last week before Christmas—and even more surprisingly, January is looking strong,” said the analyst.
      The key reason for the January optimism noted by Drewry is Chinese New Year, which falls earlier this year than normal and always prompts a rush by manufacturers to re-stock before factories shutdown for the holidays. Paul Tsui, managing director of operator Janel Group and the immediate past chairman of the Hong Kong Association of Freight Forwarding & Logistics, said air freight demand would see a “moderate peak” before Chinese New Year, helping extend the strong end to 2016.

2016 Surges

     The true strength of the 2016 peak has only become clear over the last week. The Drewry Index—a weighted average of all-in airfreight “buy rates” forwarders pay to airlines for standard deferred airport-to-airport airfreight services on 21 major East-West routes for cargoes above 1,000 kg—was on an upward curve as 2016 drew to a close. The analyst reported late last month that its November 2016 reading of 103.2 equated to an average rate of $3.35 per kilo. This represented a major recovery from the year’s low of 80.8 ($2.62 per kilo) recorded in February. Indeed, the Index didn’t get out of the 80s until the final quarter.
      The Chinese economy also ended 2016 on a high, with the Caixin China Manufacturing Purchasing Managers Index hitting a 47-month peak of 51.9 in December.
      The Association of Asia Pacific Airlines reported in early January that in the first eleven months of 2016 its member carriers had seen improving growth, including a 5.3 percent year-on-year increase in international air cargo demand in November.
      “The region’s carriers have seen a modest but progressive recovery in international air cargo demand, with volume growth of 1.2 percent for the first eleven months of 2016,” said Andrew Herdman, AAPA Director General.

Quarter One Goes Deep

     Chinese New Year starts on January 28 this year and usually sees factories close (or operating with staff shortages) for weeks thereafter. A demand lull in February seems likely. Tsui predicts subdued demand for at least two months post-CNY.  Looking further ahead, he added: “For 2017 overall, there are many elements that might change the overall economic outlook, especially for the U.S. If nothing happens, then air freight demand will be pretty much the same as in 2016 with a 2-3 percent increase.”
      Herdman said that while cargo markets had picked up modestly during the course of last year, rates remained “highly competitive, reflecting soft global trade conditions.”

2017 Remains Reasonably Positive

     He added: “The general outlook for the global economy in 2017, including further growth in demand for air travel, remains reasonably positive, but airlines will need to be vigilant over costs, given fluctuations in oil prices as well as exchange rate volatility."
      More general economic analysis by HSBC noted that the Trump factor, UK Brexit negotiations, and currency depreciation in emerging markets were threats to global growth and trade in 2017.
      However, its latest report on the global economy found global purchasing managers’ indexes were at their highest level for more than a year, while U.S. growth was “robust” and China was holding up “remarkably well.” This prompted the bank to increase its forecasts for global growth for the first time since early 2012, with HSBC predicting growth of 2.5 percent this year. Global exports are expected to grow at 1 percent in 2017, up from 0.4 percent last year, and led by developed economy growth of 2.2 percent as emerging market exports decline.
      Not bad, but not great, either.

Profits In Adversity

     But what 2016 did make clear is that despite the travails of air freight pricing and uncertainty over global growth, travel, and trade, the airline industry is rather good at turning a profit. IATA’s forecast for 2016 airline industry profitability was some $35.6 billion, a figure that, if realized, would be the highest absolute profit ever generated by the airline industry.
      “Even though conditions in 2017 will be more difficult with rising oil prices, we see the industry earning $29.8 billion,” said Alexandre de Juniac, IATA’s Director General and CEO IATA. “That’s a very soft landing and safely in profitable territory. These three years are the best performance in the industry’s history—irrespective of the many uncertainties we face. Indeed, risks are abundant, political, economic, and security among them. And controlling costs is still a constant battle in our hyper-competitive industry.”
      Of course, fast growing passenger services delivered most of the profit in 2016, but IATA was unusually positive about cargo in 2017. “There is some optimism over the prospects for the cargo business in 2017,” said IATA. “The break in falling yields and a moderate uptick in demand (3.5 percent) will see cargo industry volumes reach a record high of 55.7 million tons, up from 53.9 million tons in 2016.
      “Industry revenues are expected to rise slightly to $49.4 billion. “Trading conditions remain challenging.”
      Things could be worse as a new year dawns.
Sky King

If You Missed Any Of The Previous 3 Issues Of FlyingTypers
Access complete issue by clicking on issue icon or
Access specific articles by clicking on article title
FT120616Vol. 16 No. 1
2016: Year of Dubious Distinction
Chuckles for January 2, 2017
Fond Farewell to a Lady Of Style & Class
Great Stone & The New Silk Road
Letters to the Editor
FT120616Vol. 16 No. 2
Delta 2017 Looks Like A Very Good Year
Chuckles for January 5, 2017
It Takes A Village To Ship Air Cargo

FT120616Vol. 16 No. 3
Turhan Özen Rides The Rocket
Chuckles for January 9, 2017
Uli Uli Home Free
Face To Face 2017

Publisher-Geoffrey Arend • Managing Editor-Flossie Arend •
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