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
 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.
  “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.”
 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 |
100%
Green