Asia was full of mixed signals as airfreight stakeholders entered the second quarter of 2019 hoping for an upturn after a slow start to the year.

Contrationary Contradiction

     After three consecutive contractionary months of scores below 50, the official Chinese manufacturing Purchasing Managers’ Index (PMI), which measures sequential growth momentum, climbed to 50.5 in March from 49.2 in February.

Exports Move Up

     Of more interest to the logistics sector, the new export orders sub-index jumped to 47.1 in March, from a slump to 45.2 a month earlier, while the new orders sub-index climbed to 51.6 last month from 50.6 in February.

Reading The Tea Leaves

     Yet despite the upturn in economic indicators, analysts warned the jump in activity might simply be a rebound from post-Chinese New Year factory closures. Certainly, there was not much sign of a major turnaround in airport volumes at key Asian origins at the start of April.
     Flexport reported that although the ex-China market was picking up and rates had increased into the EU and U.S., there was still ample capacity available to shippers. Ex-Vietnam capacity was stable, but rates were “expected to increase”, while ex-Hong Kong “market demand is picking up, especially to the U.S. East Coast,” although “no backlogs are foreseen.”

Reports Moderate But Slow

     Paul Tsui, managing director of Hong Kong-based forwarding and logistics operator Janel Group, said the current market to the U.S. “was at a moderate level,” but other trade lanes “were quite slow at the moment.” Tsui does not expect a significant pick up in the Asia export market before August, at best.

Flying Stallion

     Taking a different tack, Peter Stallion, an air cargo derivatives broker at Freight Investor Services, told FlyingTypers that the China-U.S. market had rebounded into positive territory.
     By contrast, China-Europe lanes had seen “a continued decline in prices indicating a drop in volumes,” although he said market feedback was more positive than price movements suggested. This, he added, possibly indicated that European trade lanes were being priced inefficiently.
     “Market drivers remain the same as always,” he said. “Our Chinese freight forwarder clients report they are experiencing a minor rebound of export demand into the U.S. and Europe. We will have to wait for volume data from IATA to confirm this. However, it appears this demand will be outstripped by capacity over 2019. Even with this being the case, carriers have maintained higher price levels, perhaps in an attempt to compensate for lack of booking volume given slack demand.”
     According to Stallion, the key market feature of 2019 will be increased spot-market buying, resulting in an increase in market volatility with forwarders betting on their buying teams securing ad-hoc space effectively.
     “The danger is that barriers to cross-border commerce—trade wars, tariffs etc.—will wind down as early as Q4, which could threaten to flood the market with extra demand in a short period of time,” he added. “You would see the market react in a similar fashion to 2017, ideally softened due to greater wide-body capacity.”

Q2 According To World

     The latest analysis of after-the-fact volumes covering February by WorldACD revealed the usual disruption caused by diminished business activity around Chinese New Year. To overcome the difficulties presented by the lunar calendar in terms of year-on-year comparisons, the analyst instead combined January/February data to get a more accurate reading.
     “The area Asia Pacific took the largest beating in the first two months of 2019: outgoing volumes were down year-on-year by 6.8%, incoming by 6.1%, against the backdrop of a 3.6% worldwide decrease,” said WorldACD. “All other regions also suffered in incoming traffic, with year-on-year percentages ranging from -5% for Central & South America to -0.6% for North America. “In year-on-year outgoing business, performances ranged from +2.5% for Africa to -3.8% for North America.
     “Taking a slightly longer view, we should draw your attention to the fact that Jan/Feb 2019 were still better than the first two months of both 2016 and 2017.”
     However, World ACD said predictions of 3% annual air freight demand growth this year would likely prove optimistic. “At this moment in time, it seems harder and harder to achieve the 2% to 3% growth predicted for the full year 2019 by some of the industry players,” it concluded.

IATA Into Headwinds

     IATA said demand for air cargo continued to face significant headwinds including trade tensions, weaker global economic activity and tepid consumer confidence, and declining global PMI figures for manufacturing and export orders. Indeed, IATA noted that global export orders have now been contracting since September 2018.
     “Cargo is in the doldrums with smaller volumes being shipped over the last four months than a year ago,” said Alexandre de Juniac, IATA’s Director General and CEO.
     “And with order books weakening, consumer confidence deteriorating and trade tensions hanging over the industry, it is difficult to see an early turnaround. The industry is adapting to new markets for e-commerce and special cargo shipments. But the bigger challenge is, trade is slowing.
     “Governments need to realize the damage being done by protectionist measures. Nobody wins a trade war. We all do better when borders are open to people and to trade.”

Another Voice

     However, Dean Maciuba, head of consulting services at Logistics Trends & Insights, told FlyingTypers that IATA’s analysis was too simplistic. “It’s much too easy to lay-off air cargo declines on global economic softness and protectionist trade policy at the country level,” he said.
     “My clients are telling me that air cargo rate increases, especially via the air cargo carriers flying dedicated freighters, are forcing them to source manufacturing and assembly solutions closer to the end user.”
SkyKing