The contraction of China’s imports and exports this past summer has some industry observers wondering if it could be a sign of things to come for the air freight community.
     Although exports to the U.S. were steady over the two-month period compared to 2014, there were alarming declines of goods moving out of the ‘world’s factory’ both to developed and emerging markets. Moreover, some analysts said the August decline in assembly parts imports—used to produce consumer and other exports—was even more worrying in terms of long-term demand, especially given that other exporting countries such as Korea and Taiwan have also seen exports in value terms plummet over the last two months.
      Certainly, the trade figures for August, when China’s imports and exports fell 13.8 percent and 5.5 percent year-on-year, fit into a worrying pattern that has been evident in air freight markets in Asia and globally in recent months.
      According to Airports Council International, Asia-Pacific airports recorded a decline in cargo of -0.2 percent in June, but volumes over the first six months increased 3 percent. However, much of this 1H expansion was recorded in the first quarter when the U.S. was still afflicted by port congestion, and the figures were also boosted because of the relief effort in earthquake-stricken Nepal which saw, for example, growth of 12 percent at New Delhi, a key staging post in the relief effort.
      IATA said Asia-Pacific, North American, and Latin American carriers had reported year-on-year declines in June of -0.3 percent, -3.3 percent, and -1.6 percent, respectively, while European carriers reported that markets were flat.
      The air freight sector also saw little improvement in July. The Association of Asia Pacific reported a further weakening of air freight markets as both world trade and demand for Asian exports softened and Asia Pacific carriers suffered due to their greater exposure to Chinese markets. 
      Measured in freight ton kilometer (FTK) terms, air cargo demand registered a 2.2 percent decline in July compared to the same month last year, according to AAPA. This prompted Andrew Herdman, AAPA director general, to note that weak cargo markets highlighted some wider concerns about downside risks to the global macroeconomic outlook, not least the effects of slower growth in China, exaggerated currency movements, and stock market volatility that “could affect both business confidence and consumer demand going forward.”
      South Korea’s Ministry of Land, Transport, and Maritime Affairs reported a -3.2 decrease in cargo volumes at the country’s airports in July, with traffic to and from China contracting -6.3 percent, while China Airlines said it had seen a -2.5 percent decline in cargo traffic in July measured in freight ton kilometers, and yield fell -12.5 percent.
      The world’s largest freight hub, Hong Kong International Airport (HKIA), saw a 1.9 percent year-on-year drop to 363,000 tons in July as cargo throughput to/from Mainland China, Taiwan, and Europe underperformed other key regions. HKIA’s home carrier Cathay Pacific booked a 0.5 percent year-on-year increase in cargo in July, but Mark Sutch, general manager Cargo Sales & Marketing, said this was “below expectations” after a similarly flat Q2. “The growth in tonnage lagged the growth in capacity by a sizeable margin, which dragged down the month’s load factor. Yield remained under pressure due to overcapacity in a number of markets,” he added.
      The malaise in Asia also spread around the world. Amsterdam Airport Schiphol handled 784,567 tons in the first six months of 2015, down 2.1 percent on 2014, a decline largely attributed to Asia traffic, which fell 3.8 percent to 293,293 tons over the period.
      On a more positive note, Drewry’s East-West Air Freight Price Index recovered 2.0 points in July to a reading of 90.3. But while this lifted it away from its lowest ever level since the index was first launched in May 2012, in U.S. dollar terms this still left the benchmark well below the $3 per kg threshold first breached in May. “By comparison with the same month last year, the price index was 12 percent adrift, indicative of the remaining underlying weakness in the market,” added Drewry.
      “Drewry expects air freight pricing to remain weak over the coming months. Last month’s recovery represented no more than a minor market correction to record low freight rates. The combination of stagnant cargo growth and rising capacity, driven by buoyant passenger demand, will limit scope for any noticeable recovery in pricing.”
      In response to the poor cargo outlook, Tony Tyler, the departing director general and CEO of IATA, called on further intergovernmental stimulus to boost trade. "Overall it has been a disappointing first half of 2015, especially considering the strong finish to 2014,” he added. “The remainder of the year holds mixed signals. The general expectation is for an acceleration of economic growth, but business confidence and export orders look weak.
      “Air cargo and the global economy will all benefit if governments can successfully focus on stabilizing growth and stimulating trade by removing barriers.”  
Sky King