What Drives The Shape We Are In?

      We know now that world trade 'collapsed' in the last quarter of 2008. The Organization for Economic Cooperation and Development (OECD, says values fell by more than 20% in annualized terms (see chart 1 right).
      Maybe worse, the WTO is projecting a continuation of the slump in 2009, with trade volumes falling 9% for the year, due to three factors: the synchronized nature of the world downturn, a higher cost of trade finance, and the effect of international supply chains.
      During the 'Great Moderation' of the two decades leading up to the global financial crisis, world trade growth outstripped GDP growth, and buoyed the world economy.
      But now the tables have turned: during the 'Great Recession' the contraction in world trade is outstripping that of
GDP, and worsening the recession.
      The influence of international supply chains (ISCs) on the world trade and GDP cycles is important and should not be overlooked.
      In the pre-ISC era, when most of the value added in an export widget was created within the borders of one country, the following would happen.
      Say U.S. demand for Chinese exports fell by $100. Then Chinese exports and GDP would each fall by $100. And world trade would also fall by $100.
      Now, in the ISC era, when U.S. demand for Chinese exports falls by $100, Chinese exports again fall by $100.
      But now goods are 'Assembled in China', not 'Made in China'.
      So Chinese exporters who are losing export orders cut their imports of parts, components and materials fromAsian neighbors by $95.
      Result? Chinese GDP falls by $5. World trade falls by $195.
      As the 'foreign trade multiplier' takes hold, there will of course be further rounds of export and import cuts, and corresponding GDP cuts.
      But the important point to note is: a given collapse of world trade no longer has the same impact on world GDP as it once did, because so much of trade nowadays consists of intermediate goods, rather than consumer and capital goods destined to meet final demand.
      So the world trade 'collapse' is of concern, but needs to be kept in perspective.
      One of the paradoxes of the current world recession is that export-dependent economies have been suffering worse slumps than economies at the epicenter of the financial crisis.
      So far at any rate.
      Why?
      See the chart showing quarterly growth rates (or in most cases, rates of contraction) for December quarter 2008.
      Notice how Asia's newly industrializing economies and many Latin American economies have entered deep slumps that would warrant the term 'depression' if they continue.
      Meanwhile, the advanced economies, many of which suffered the biggest financial implosions, are taking it tough, but nowhere near as tough as some of the emerging markets, which almost completely escaped the financial crisis - even countries like Thailand, where political risk has been escalating.
      One reason seems to be the interconnectedness of the world economy.
      The crisis-hit advanced economies are de-leveraging and cutting back their consumption and investment.
      What that means is lower demand for exports, and consequently large setbacks for export industries in emerging markets.
      The result is: the day of reckoning is at least as bad for the thrifty suppliers of export goods as for the spendthrift customers, who have now had to tighten their belts.
      Many emerging markets are feeling aggrieved by this, arguing that they are innocent bystanders.
      Still, there is reason to believe that they will bounce back fairly quickly from their horrible fourth quarter.
      The data suggest that, in response to the cut in demand from advanced economies, emerging economies cut export production even more severely, and ran down stocks.
      Once their de-stocking is complete, they will have to crank up production again.
      Why are China, India and Indonesia managing relatively well?
      They are not as trade-dependent.
      And in China especially, the government is rolling out a big fiscal stimulus.
      Perhaps the biggest surprise is the Philippines - an open economy heavily dependent upon workers' remittances and earnings from export industries like IT and business process outsourcing.
      Despite this, it has managed to outgrow every other economy.
      The Philippines will undoubtedly suffer further hits from the world recession this year, but does seem destined to perform well.
G. Feller

China Civil Aviation's Tough Year

     China Civil Aviation Development Forum 2009, held its important and annual high-level meeting for officials and executives of the civil aviation industry, in Beijing last month.
     The event might have been titled “Taking It Tough In 2009” but was instead themed “Challenges and Solutions for the Global Civil Aviation Industry.”
     Senior officials present at the forum included Minister Li Jiaxiang, Administrator of CAAC, Dr. Taïeb Chérif, Secretary General, International Civil Aviation Organization (ICAO), Ms. Dorothy B. (Di) Reimold, Acting USA Assistant Administrator for Aviation Administration, among others.
     Also in attendance were executives of several airports and carriers.
     So what’s the word from China as 2009 rolls on?
     Mr. Li Jiaxiang (left) brought good news on Chinese carriers: “China’s stimulus package has shown positive impact on civil aviation, resulting profits of RMB1.94 billion for domestic airlines in the first four months.”
     Mr. Yang Guoqing, (right) Deputy Administrator of CAAC, introduced current status of air transport in China:
     “By December 2008, there were 33 public air carriers in China, 9 of which are all-cargo carriers; and number of registered aircraft reached 1,259.
     “Cargo and mail volume in the first four months of 2009 amounts to 4.1 million tons, still lower than that of last year; but evidence of slow recovery has been identified: domestic market trends to positive growth rate in coming months, while international and regional market has shown clear cycle growth month by month.”
     In his speech ”Calmly Facing the Challenges Actively Focusing on the Long Run”, Mr. Yang also summarized major measures of CAAC to cope with the financial crisis:
     “Provide subsidy to special policy-related long-range international routes and domestic regional routes.
     “Return Civil Aviation Government Funds collected in the second half of 2008 and the first half of 2009 to airlines (Total RMB4.29 billion )
     Dr. Taïeb Chérif, (left) Secretary General of ICAO, expressed his confidence in the industry:
     “The air transport industry, however, has always been resilient. Following the anticipated recovery next year, our long-term prospect for China and the Asia Pacific Region is for overall passenger traffic within the region to grow at an average annual rate of 5.5 percent until the year 2025.
     This would mean almost 290 million passengers a year at that time.
     Optimistic view also comes from Boeing’s forecast, Randy Tinseth, (right) Vice President, Boeing Marketing, said:
     “Challenging and volatile business environment in 2009.
     “But long-term market outlook is strong. 5% annual growth projected –China annual growth will be 7.9%. 29,400 new airplanes valued at $3.2 trillion needed over next 20 years –China will need 3,700 new airplanes valued at $390 billion.
     “China is the world’s most dynamic aviation market,” said Mr. Tinseth.
David

Feeling Horny    

Martinair Cargo flew three Black Rhinos named Deborah, Jabu and Jamie – originally from the Czech Zoo Dvur Králové – from Schiphol to their new home in Tanzania (Africa). The Black Rhinos departed Czech Zoo Dvur Králové on May 27 and were trucked to Schiphol.
     At AMS, the large animals rested and had a few beers in a Martinair hangar before taking to the skies bound for Kilimanjaro in Tanzania.
     A special intermediate stopover was to be made in Kilimanjaro before the flight continued to its scheduled destination, Johannesburg.
     Martinair Cargo saw to it that the Rhinos were escorted by the world’s most experienced Rhino vet, Pete Morkel.
     Mr. Morkel apparently would just rather travel with a rhino and has set a record of sorts having accompanied more than five hundred Black Rhinos during transport.
     Nice work around Martinair Cargo . . .

Contact! Talk To Geoffrey

Geoffrey,

     It is amazing to me that we in air cargo expect the air cargo market to grow every year.
     Many air cargo people still think that the market size is determined by capacity. Capacity used to be the dominant factor in forecasting, but times have changed and we need to update our forecasting methodology.
     The passenger side of our business has sophisticated forecasting departments and huge IT systems to aid them in this process.
     I think the time has come for cargo to follow suit as I believe that the cutting edge of the successful future air cargo companies will be those who forecast best and budget their business to operate in that forecasted market size.
     We all need to stop complaining about the growth or non-growth of the overall air cargo market and start to think more strategically.

Bill Boesch
(Somewhere in Iraq)