Air cargo markets seem certain to continue expanding this year despite the relative slowdown suffered in March. And while rates in ‘greenback’ terms have remained firm on buoyant demand, one analyst notes that pricing can only be viewed in the context of currency fluctuations.

Stable & Able

      Freightos, a digital marketplace, reported last week that air freight rates were currently “very stable”, adding that the first week of May was the “sixth straight week with the same average air freight rates,” which on the China-U.S. lane, it recorded in the $2.90-$5.00 per kg range; China-Europe hovered at $2.80-$4.50 per kg and Europe-U.S. was steady at $1.80-$2.70 per kg.
      Elsewhere Flexport said ex-Europe rates in the first week of May were “trending higher” while demand for airfreight into Europe was rising, in part due to the U.S. Euro exchange rate, which was encouraging imports from the U.S.
      Ex-U.S., Flexport said that some passenger and cargo-only carriers were indicating that rates would rise in the coming months, despite the usual increase in capacity during the summer holiday months.
“Capacity is tightening on most U.S. export lanes due to continued e-commerce demand,” it added.

Study UPS

      “According to a recent UPS study, online shoppers are increasingly looking to international vendors when shopping.
      “The e-commerce trend places pressure on air freight, as shoppers look for fast delivery times.
      “The increase in demand could lead to rate increases and capacity shortages.”

The Supply Bottleneck

      Tobias Meyer, COO of DHL Global Forwarding, told FlyingTypers that supply remained a bottleneck and this would not change in the near future making air freight a sellers’ market.
      “Carriers have learned from history, and make efforts to secure their current market position by strictly managing capacity,” he added.
      “This entails dynamic pricing on constrained routes and freighter cancellations even during high demand periods to optimize load factors.
      “Furthermore, carriers have reduced the share of capacity available to Block Space Agreements, to secure additional yields out of the highly profitable spot market.”
      Meyer, the subject of a wide-ranging interview with FlyingTypers to be published later this month, also said the demand side of the equation remained strong.
      “Our view is that 2018 airfreight market volumes will grow significantly in terms of absolute additional volumes flown,” he added.
      “I do not see the market growing as strong as it did in 2017, but this is due to the fact that the market was soft until late 2016 and then tightened in 2017.
      “The baseline was low.
      “We think 2018 markets will also be tight, but we need to compare it to a very strong baseline and factor in capacity constraints. In other words, supply will be a limiting factor to growth.”

IATA Numbers Add Up

      IATA predicted growth of 4-5% in air cargo demand through 2018 despite recording only a 1.7% year-on-year increase in demand in March measured in freight ton kilometers. But although the March reading was five percentage points lower than the February result and the slowest pace of growth in 22 months, IATA said the slowdown was principally due to the end of the restocking cycle and softening of global trade.

Situation Normal

      “It's normal that growth slows at the end of a restocking cycle,” said Alexandre de Juniac, IATA's Director General and CEO. “That clearly has happened.”

Wait Until Next Year

      WorldACD, however, attributed the March downturn – the analyst recorded global demand growth of 0.9% in the month – to the late timing of Chinese New Year this year compared to 2017.
      Looking at the quarter as a whole, WorldACD recorded growth of 4.8% compared to a year earlier.
      The analyst also said that price increases so far in 2018 needed to be placed in context.
      “We need only point to the fact that the year-on-year yield increase in Q1 worldwide was 18.6% when measured in USD, but only 2.7% when expressing it in Euros,” said its latest report.
      “A similar pattern is seen when comparing yields in USD with yields in almost any other major currency.
      “In other words, the large yield increase in USD can only be understood against the background of the loss the USD suffered against many other currencies when comparing Q1-2018 with Q1-2017.
      The ‘greenback’ lost 13% against the Euro, 11% against the British Pound, 8% against the Chinese Yuan and 5% against the Japanese Yen.

Unamed Airline Source

      “The CFO of a U.S. airline, thinking and accounting in USD, will be clearly pleased, but his European counterpart, thinking and accounting in EUR, much less so.
      “Add to this that jet fuel prices have almost doubled over the past two years, and we understand that the recent large yield increase as measured in USD, may take on a different meaning for different parties.”

IATA Remains Positive

      Irrespective of currency fluctuations, IATA was positive the remainder of 2018 would deliver further growth for freight, albeit while tempering its outlook based on potential risks to trade.
      “Looking ahead, we remain optimistic that air cargo demand will grow by 4-5% this year,” said de Juniac.
      “But there are obviously some headwinds.
      “Oil prices have risen strongly, and economic growth is patchy.
      “The biggest damage could be political. “Implementation of protectionist measures would be an own-goal for all involved—especially the U.S. and China.”
SkyKing