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   Vol. 18 No. 47
Wednesday July 10, 2019

Down In The Depths At 35,000 Feet

Air cargo rates continue to see weekly volatility, but with the demand outlook tepid and ample capacity available on most lanes, pricing continues to fluctuate, albeit within boundaries far below those enjoyed in 2018.

Flex Sees Stable

     Capacity out of most Asian origins was reported by Flexport to be “stable” at the end of June with capacity available. The exception was Central China where demand was strong and rates going up as Apple, HP and other electronics shippers exported to the U.S. ahead of anticipated tariffs.

Rating The Traffic

     Hong Kong–U.S. rates reached $3.39 per kg at the start of July after hovering in the $3.27-3.55 per kg range through June, according to TAC Index.
     By comparison, rates on the same lane were $3.66 per kg on July 2, 2018 and were just about to embark on a Himalayan traverse to the heights of $5.73 per kg in November.
     Hong Kong–Europe rates are also volatile, climbing slightly over the previous week to reach $2.74 per kg at the start of July, still a long way short of the $3.77 per kg recorded in December last year, although level compared to a year ago.

Demand Driven Summer Lull?

     As guides go, year-on-year pricing comparisons are tough on an air freight market that saw such an elongated demand spike last year thanks, mostly, to the U.S.-China trade war.
     Desperate frontloading on the Asia to North America trade lane ahead of various tariff deadlines in the second half of the year saw ocean supply chains suffer congestion and delays at ports, adding to modal shift and sucking capacity out of global air freight markets.

Forward Comparison Looks At 2017

     By contrast, some analysts believe that comparisons to 2017 – a more traditional year for air freight demand - illustrate that the Transpacific market now is less bearish than year-on-year comparisons suggest, while Europe, subject of continuously poor economic projections, is in fact currently performing satisfactorily.
     And there is some truth in this: rates at the start of July 2017 on the Hong Kong–U.S. and Hong Kong–Europe lanes $3.36 per kg and $2.27 per kg, respectively.

Eliminate Extremes

     WorldACD made much the same point in its latest report, which takes in the first five months of 2019. “Let’s join the people who find that a comparison with 2017 is more ‘realistic’ than a comparison with 2018, given last year’s ‘extreme’ growth figures,” huffed its latest report.
     “Compared with Jan-May 2017, the year 2019 so far shows worldwide growth of +1%. Moreover, 22 of the 40 largest air cargo countries in the world show positive growth for the same period.
     The growth percentages between 2017 and 2019 range from 32.6% for Chile to 0.1% for India.”
     However, although comparisons versus 2017 add context, there is no disguising the slowdown the market has suffered so far this year.
     In the month of May, WorldACD found that total chargeable weight again fell compared to the same period of 2018, this time by 5%. Yields in USD fell by 5.6%, resulting in revenue loss for airlines of more than 10% year-on-year.

Nowhere To Run Nowhere To Hide

     “Not a single region escaped the trend: the origins Africa and Europe suffered least, with year-on-year volume drops of 2.2% and 2.4% respectively, but the origins Asia Pacific and North America chalked up year-on-year losses of -7.0 % and -7.2 % respectively,” it said.
     “Latin America and the Middle East & South Asia (MESA) could not buck the trend either (-4% and -3.4%).”

Word From Mount IATA

     IATA reported a 3.4% year-on-year in global demand in May, a slight improvement on the 5.6% contraction in April.
     However, capacity growth outstripped demand growth for the 13th consecutive month, up 1.3% year-on-year in May.
     IATA said air cargo demand had suffered from very weak global trade volumes and trade tensions between the U.S. and China. “This has contributed to declining new export orders,” it noted. “The indicator for new manufacturing export orders, part of the global Purchasing Managers Index (PMI), has indicated falling orders since September 2018.”
     Alexandre de Juniac, IATA's Director General and CEO, said the impact of the U.S.-China trade war on air freight volumes in May was clear. “Year-on-year demand fell by 3.4%,” he said.      “It’s evidence of the economic damage that is done when barriers to trade are erected. Renewed efforts to ease the trade tensions coming on the sidelines of the G20 meeting are welcome. But even if those efforts are successful in the short-term, restoring business confidence and growing trade will take time. And we can expect the tough business environment for air cargo to continue.”

Looking For The Light

     Optimism elsewhere is difficult to find. “[The] market price recovery continues, however changes aren't significant enough to indicate an airfreight recovery,” commented Peter Stallion, an air cargo derivatives broker at Freight Investor Services.
     WorldACD added: “Writing this message at the half-way point for the year 2019, it is difficult to believe that the year will recover from its dismal start.”

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