FlyingTypers conducted multiple interviews with forwarders and airline executives that paint a cautiously optimistic picture of air freight demand this year. But it was only as the festive spirit hit full swing that meat was put on the metaphoric bones of late 2016, offering a more detailed insight into what might be expected in early 2017.
      Drewry reported last month that its East-West Airfreight Price Index recorded a year-high of 103.2 in November, against 99.3 in the same month of 2015. “Anecdotally, while it sounds as if rates have come down slightly in December, carriers are saying rates are surprisingly high for the last week before Christmas—and even more surprisingly, January is looking strong,” said the analyst.
      The key reason for the January optimism noted by Drewry is Chinese New Year, which falls earlier this year than normal and always prompts a rush by manufacturers to re-stock before factories shutdown for the holidays. Paul Tsui, managing director of operator Janel Group and the immediate past chairman of the Hong Kong Association of Freight Forwarding & Logistics, said air freight demand would see a “moderate peak” before Chinese New Year, helping extend the strong end to 2016.

2016 Surges

     The true strength of the 2016 peak has only become clear over the last week. The Drewry Index—a weighted average of all-in airfreight “buy rates” forwarders pay to airlines for standard deferred airport-to-airport airfreight services on 21 major East-West routes for cargoes above 1,000 kg—was on an upward curve as 2016 drew to a close. The analyst reported late last month that its November 2016 reading of 103.2 equated to an average rate of $3.35 per kilo. This represented a major recovery from the year’s low of 80.8 ($2.62 per kilo) recorded in February. Indeed, the Index didn’t get out of the 80s until the final quarter.
      The Chinese economy also ended 2016 on a high, with the Caixin China Manufacturing Purchasing Managers Index hitting a 47-month peak of 51.9 in December.
      The Association of Asia Pacific Airlines reported in early January that in the first eleven months of 2016 its member carriers had seen improving growth, including a 5.3 percent year-on-year increase in international air cargo demand in November.
      “The region’s carriers have seen a modest but progressive recovery in international air cargo demand, with volume growth of 1.2 percent for the first eleven months of 2016,” said Andrew Herdman, AAPA Director General.

Quarter One Goes Deep

     Chinese New Year starts on January 28 this year and usually sees factories close (or operating with staff shortages) for weeks thereafter. A demand lull in February seems likely. Tsui predicts subdued demand for at least two months post-CNY.  Looking further ahead, he added: “For 2017 overall, there are many elements that might change the overall economic outlook, especially for the U.S. If nothing happens, then air freight demand will be pretty much the same as in 2016 with a 2-3 percent increase.”
      Herdman said that while cargo markets had picked up modestly during the course of last year, rates remained “highly competitive, reflecting soft global trade conditions.”

2017 Remains Reasonably Positive

     He added: “The general outlook for the global economy in 2017, including further growth in demand for air travel, remains reasonably positive, but airlines will need to be vigilant over costs, given fluctuations in oil prices as well as exchange rate volatility."
      More general economic analysis by HSBC noted that the Trump factor, UK Brexit negotiations, and currency depreciation in emerging markets were threats to global growth and trade in 2017.
      However, its latest report on the global economy found global purchasing managers’ indexes were at their highest level for more than a year, while U.S. growth was “robust” and China was holding up “remarkably well.” This prompted the bank to increase its forecasts for global growth for the first time since early 2012, with HSBC predicting growth of 2.5 percent this year. Global exports are expected to grow at 1 percent in 2017, up from 0.4 percent last year, and led by developed economy growth of 2.2 percent as emerging market exports decline.
      Not bad, but not great, either.

Profits In Adversity

     But what 2016 did make clear is that despite the travails of air freight pricing and uncertainty over global growth, travel, and trade, the airline industry is rather good at turning a profit. IATA’s forecast for 2016 airline industry profitability was some $35.6 billion, a figure that, if realized, would be the highest absolute profit ever generated by the airline industry.
      “Even though conditions in 2017 will be more difficult with rising oil prices, we see the industry earning $29.8 billion,” said Alexandre de Juniac, IATA’s Director General and CEO IATA. “That’s a very soft landing and safely in profitable territory. These three years are the best performance in the industry’s history—irrespective of the many uncertainties we face. Indeed, risks are abundant, political, economic, and security among them. And controlling costs is still a constant battle in our hyper-competitive industry.”
      Of course, fast growing passenger services delivered most of the profit in 2016, but IATA was unusually positive about cargo in 2017. “There is some optimism over the prospects for the cargo business in 2017,” said IATA. “The break in falling yields and a moderate uptick in demand (3.5 percent) will see cargo industry volumes reach a record high of 55.7 million tons, up from 53.9 million tons in 2016.
      “Industry revenues are expected to rise slightly to $49.4 billion. “Trading conditions remain challenging.”
      Things could be worse as a new year dawns.
Sky King

dnata’s UAE operations continued an exponential pattern of growth in 2016, reaching new heights despite a challenging year.
      dnata closed the year with 419,133 tons of cargo at DXB—a monthly average of 46,570 tons and an eight percent increase from the previous year.
      “It was a challenging year, but our team has demonstrated unwavering commitment to delivering the highest standards to our customers,” dnata Vice President Commercial & Business Development Cargo, Kevin Ennis told FlyingTypers.
      Al Maktoum International Airport at Dubai World Central (DWC) has also developed into a regional cargo hub.
      “With capacity to grow to 16 million tons per year, dnata now handles more than 117,000 tons of cargo, and these numbers are set for takeoff,” he said.
      dnata said that it has invested “millions into securing state-of-the-art ground support equipment (GSE) to ensure flights landing at the two airports are serviced safely and efficiently.”
      In addition to Dubai, dnata has ground handling operations in place at 74 other airports around the world serving more than 250 airlines, and is the world’s largest ground handler of the Airbus A380 aircraft.
Geoffrey

RE: 2017 Face To Face

Geoffrey,

      Glad to read that you remember the New Orleans Air Cargo Association.
      I have been retired for six years this month as Manager of Commercial (and air cargo) Development at Louis Armstrong New Orleans International Airport.
      Shortly after I retired, NOACA was absorbed into the International Freight Forwarders and Customs Brokers Association of New Orleans (IFFCBANO).
      The move makes sense because most of the cargo moving through New Orleans goes through the Port and a high percentage of the cargo associations membership were freight forwarders and customs brokers and they felt there was a redundancy.
      I resisted this for several years because I thought the air cargo needed its own identity.
      After I retired, there was not so much opposition to this integration.
      So NOACO still exists, but as part of IFFCBANO.
      As an aside, I enjoy watching Madam Secretary with your son.
      I am sure you are very proud of him.

      Larry Johnson

Larry Was Always Right

      Great to hear from Larry Johnson, who stands tall amongst the pioneer gateway-based airport cargo development specialists. He served MSY for decades, innovating and building that gateway’s cargo association of thinkers, dreamers, and doers for air cargo, and making MSY (amongst other things) a must-stop for transportation executives on the air cargo club speaker circuit.
      Larry always knew the importance of gathering people and lifting voices to work together.
      For example, we recall in 2000 MSY dedicated a 10,000-square foot Perishables Center in a bid to capture a greater share of  “a growing air cargo market” and the observation was made that while New Orleans could not boast the large number of flights or the forwarder infrastructure available elsewhere, “If you look at the map, our location makes MSY the best transit point for Latin American shippers to reach 80 percent of all major American markets.”
      As we said in our short blast Monday, it only takes a couple of determined people in each air cargo community to organize their brethren for the greater good. One just needs to bring people together every so often—if even just for coffee and a web chat—and air cargo can appreciate a giant boost.
      Larry Johnson used to keep MSY and local business on top of air cargo and in the news.
      It’s good to remember the power many people have to change things in air cargo. When it came to building new business partners, innovative thinking, and working for a strong local air cargo community, Larry was always right.
      Nice to read his mail in 2017 and observe that he is still working to help and educate us all.
Geoffrey

Vol. 16 No. 3
Turhan Özen Rides The Rocket
Chuckles for January 9, 2016
Uli Uli Home Free
Face To Face 2017