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    Vol. 14  No. 81
Tuesday October 13, 2015

Frank Sumatra & Cargo Vision 2015

Frank Sumatra & Cargo Vision 2015

The razing of vast swathes of pristine Indonesian forest in Sumatra and Kalimantan by palm oil companies has left both locals and the city dwellers of Kuala Lumpur and Singapore smothered in smog clouds. At its worst, as your correspondent’s throttled lungs can testify, the air, even in afflicted city centers, is dangerously putrid, and vision can become so limited it is more reminiscent of a mountaintop snowstorm than midday on a major high street.


Nowhere To Run, Nowhere To Hide

     While caught in this tropical perfectly terrible storm, for no particular reason your correspondent thought of the air freight industry. Like the people of Singapore and KL, it has been beset over the last month by a welter of negative headwinds that it cannot dodge.
     Indeed, for much of the last year, the outlook has been almost relentlessly bleak. China’s ‘soft landing’, global share price and currency tumult, the recessionary look of some BRIC and European economies, war in the Middle East - all have left analysts scratching around for any signs of economic or trade positivity.
     U.S. growth is the exception, not least for Transpacific trades, but fears surround the potential impact of an income rate rise by the Federal Reserve later this year and the impact this might have on currencies and consumer demand from emerging markets.
     And elsewhere the optimism cupboard is decidedly bare.
     Speaking on the sidelines of the GLCS LogiSYM conference and expo in Malaysia in Kuala Lumpur last week, the logistics procurement manager for a major Europe-based electronics company said he thought rates would remain low into 2016 because there was little on the demand side to suggest a major rebound, except for the traditional end of year retailing peak. “Although even then,” he added, “most retailers already have inventory so at best I’d expect a smallish bump linked to new product launches.
     “We did use air more ahead of China’s Golden Week holiday [when factories close for at least a week] at the start of October as we needed to get product out, but it was a short-term thing. We use shipping as much as we possibly can just like everyone else.
     “The economic outlook in Europe is not good. The U.S. is better. China, is ‘wait and see’ for us.”
     Yet despite all the poor economic forecasts, the latest round of statistics on air freight rates and growth were surprisingly upbeat, at least in the context of a stricken global economy.
Tony Tyler and Andrew Herdman     IATA’s figures for August revealed a stabilization in global air freight markets after two months of contraction. Global air cargo volumes rose 0.2% compared to the same month a year ago. Although such modest growth is hardly a lightning rod for freight managers, it is a welcome crutch after the year-on-year declines recorded in June and July.
     As is becoming usual, most of the positivity came from carriers in the Middle East which saw collective growth of 10.4% in August. European carriers saw marginal 0.7% expansion, although this was offset by a 1% decline from Asia Pacific based airlines, a surprising 3.3% contraction in North America and a 7.3% decline in Latin America.
     Drewry’s East-West Air Freight Price Index also recovered in August, up 3.7 points to a reading of 93.7 after also recording a 2-point recovery in July. The index was lifted by strengthening rates on Asia origin trades into North America and Europe, despite notable declines in pricing on both legs of the Transatlantic.
     The analyst was upbeat for September. “Drewry expects air freight pricing to have strengthened - albeit low compared to the same period last year - through September, and for this to continue into October as new product launches boost short term demand,” reported Drewry Sea & Air Shipper Insight.
     August figures from the Association of Asia Pacific Airlines, however, offered only limited positivity as the Asian carriers most closely linked to the world’s leading export markets reported relatively weak demand.
     AAPA said the weakness in air cargo markets had extended through August, with demand in freight ton kilometers terms recording a slight 0.3% decline compared to the same month last year. Offered freight capacity grew by 3.3% and the average international cargo load factor of carriers fell by 2.2 percentage points to 61.0% for the month.
     Andrew Herdman, AAPA Director General, said that while passenger markets had seen high single-digit growth over the first eight months of the year, cargo markets had reflected a further slowdown in world trade.
     “Overall, however, after accounting for the initial growth spurt earlier this year, air cargo demand has still registered a 3.0% increase for the first eight months of the year,” he added.
     "Looking ahead, the outlook for air passenger markets remains positive, with competitively priced fares underpinning robust consumer demand. The outlook for air cargo markets is more uncertain, given signs of weakness in global trade activities, but should see some seasonal demand as we move towards the end of the year. "
     Tony Tyler, IATA's Director General and CEO, was also cautious about reading too much into the improvement in air freight indicators in August. "After declines in June and July, signs of a stabilization in air cargo are welcome,” he said. “But all is not well.
     “Total volumes are down 2% compared to the end of 2014. And some of the key reasons for the earlier weakness - for example , downgraded growth expectations in emerging Asia, and the rebalancing of the Chinese economy toward domestic consumption - are still there. Even though world trade volumes have picked up slightly, the industry will have to work hard to match the strong finish to 2014."
Sky King

 

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