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   Vol. 15  No. 52
Monday July 11, 2016

Tough Numbers; Long, Hot Summer

Tough Numbers Long Hot Summer

    At the start of July the air freight industry was hoping the introduction of new container weighing regulations for ocean transport would provide a demand boost. As previously reported in FlyingTypers, the new rules from the International Maritime Organization (IMO) for VGM (verified gross mass) compliance make it compulsory for shippers and their proxies to verify the weight of containers before the box can be loaded onboard a vessel.
    As Panalpina’s Global Head of Air Freight Lucas Kuehner told FlyingTypers recently, given that it only takes 23 TEU to fill a B747-8F and every single container loaded for export by sea worldwide as of July 1 is now subject to the new rules, it will not take a great deal of supply chain disruption to high-value box shipments to see air freight demand spike.
    Given the state of current markets, any respite will be much welcomed.
    But according to early returns, both VGM and the new Safety of Life At Sea (SOLAS) rules that went into effect last Friday, July 1 (so far at least), have not caused much disruption at shipping centers in Europe and elsewhere. Stay tuned on that front.
    Indeed, such is the imbalance between capacity and demand growth that Drewry’s latest East-West Air Freight Price Index fell to its lowest level this May since it was launched in May 2012.
    The index—a weighted average of all-in airfreight “buy rates” paid by forwarders to airlines for standard deferred airport-to-airport airfreight services on 21 major East-West routes for cargoes above 1,000 kg—lost 1.3 points in May, falling to 79.1 and eroding the incremental gains made over the previous two months.
    The May reading corresponded to an average rate of $2.57 per kg on the trades covered, down from a 12-month high of $3.24 in October last year.

Softly As She Goes

Andrew Herdman    Freight volumes for May from the Association of Asia Pacific Airlines (AAPA) reflected the soft market out of key manufacturing hubs in the Far East. Tonnage was down 0.7 percent year-on-year in May measured in freight ton kilometers. By contrast, offered freight capacity increased by 2.0 percent. This mismatch produced a 1.6 percentage-point drop in the average international freight load factor, which fell to 61.3 percent for the month.
    “International air cargo demand remained soft, with year-to-date demand registering a 3.9 percent decline compared to the same period a year ago, reflecting the weak trading conditions in the global economy,” commented Andrew Herdman, AAPA Director General.
This followed something of a mixed bag in April. Airports Council International reported “largely stagnant” across the Asia-Pacific, which posted a marginal monthly year-on-year increase of 1.3 percent. “The top 3 airfreight hubs in Asia-Pacific all reported mild increase from last year: Hong Kong (HKG) +1.2 percent, Shanghai (PVG) +0.6 percent, Incheon (ICN) +1.2 percent,” said ACI.

Tony Tyler's Luck

    The International Air Transport Association (IATA) released global air freight data showing that demand measured in freight ton kilometers (FTKs) slowed in May with growth falling to 0.9 percent year-on-year.
    “Yields remained pressured as freight capacity measured in available freight ton kilometers (AFTKs) increased by 4.9 percent year-on-year,” IATA said.
    “Freight demand flatlined in May across all regions with the exception of Europe and the Middle East.
    “These regions recorded growth in air cargo volumes of 4.5 percent and 3.2 percent respectively in May, compared to the same period last year.”
    IATA points to broad weakness in world trade volumes, which have largely tracked sideways since the end of 2014, accounting for about 80 percent of air freight’s sluggish performance.
Tony Tyler Peter Gerber   “Global trade has basically moved sideways since the end of 2014, taking air cargo with it.
    “Hopes for a stronger 2016 are fading as economic and political uncertainty increases.
    “Air cargo is vital to the global economy.
    “But the business environment is extremely difficult and there are few signs of any immediate relief,” said Tony Tyler, IATA’s Director General and CEO.
    IATA has lowered its growth forecast for air freight demand in 2016 to 2.1 percent from 3 percent.
    “It’s a landslide,” said Lufthansa Cargo CEO Peter Gerber (right).
    “With prices falling so quickly, we have to cut costs.”
    Lufthansa Cargo says it is looking at dealing with customers directly, bypassing the freight forwarders that contribute about 95 percent of its business.
    “There’s no reason why the industry can’t operate a profitable, re-sized cargo business to address the more limited growth in markets, but that takes time to achieve,” IATA economist Brian Pearce said.

Asia Down, Sub-Continent Up

    Forward indicators are also bearish. HSBC’s latest analysis of purchasing managers’ indexes in Asia found that “China is softening again, global new export orders continue to contract, and new orders in Asia aren’t improving.”
Simon Heaney     Most worryingly, new export orders in June saw declines in China, Japan, and Malaysia, although orders in India, Korea, Taiwan, and Vietnam rose slightly. “For the region as a whole, [new export orders] continue to contract,” said HSBC, adding that in China the manufacturing sector was still shedding workers.
    With the export outlook from Asia poor and little in the way of major new product launches expected to boost demand on key lanes in the coming months, much then depends on modal shift from ocean to air as a result of the new SOLAS ocean container weighing regulations.
    Unfortunately, Drewry’s take on the market at present is less than upbeat. “We did a survey of shippers for Container Insight Weekly a few weeks ago on the likely related modal shift and the results suggested minimal modal transfer will take place,” Simon Heaney, (right) Drewry’s Senior Manager, Supply Chain Research, told FlyingTypers.
    Drewry Sea & Air Shipper Insight concluded: “Drewry expects airfreight pricing to remain under pressure through the Northern Hemisphere summer season as more passenger aircraft are brought into service to support the peak tourist season, releasing more bellyhold capacity.”
Sky King

If You Missed Any Of The Previous 3 Issues Of FlyingTypers
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Vol 15. No. 50
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SOLAS Changes Ocean July 1st
Chuckles For June 29, 2016

On The Ground In London

Mercury Rising

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Family Time

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