A look back at the cargo market – IATA Q2/2016 cargo chartbook synopsis


Air cargo performance is not as bleak as anticipated despite the repercussions of the Brexit vote and a sluggish trade outlook reports the International Air Transport Association (IATA) in its latest Cargo Chartbook.

As the world waited with bated breath for the Brexit vote, global economic growth was weak but positioned for a moderate improvement. However, the vote reversed expectations with forecasts revised downward from what was projected to be lackluster growth.

That said, the air cargo market grew slightly in the second quarter. June levels point to year-on-year growth of 4.1 percent in Freight Tonne Kilometers (FTK). Compared to 2015, volume growth for the same period was 0.5 percent. 

The second quarter saw strong growth in trade by air on the Europe-Asia trade lane. Middle Eastern carriers report the largest share (36%) of Q2 growth, while Asian and European carriers represent 32 percent and 20 percent respectively. In contrast, growth has been slow for Latin American carriers as regional trade and macroeconomic weakness has led to a decrease in traffic.

Global merchandized trade has continued to contract in 2016, with monthly trade levels falling perpetually every month. The level in May was down by 1.6 percent compared to the 2015 year-end level. The good news is that international FTK growth has fared better. In the second quarter, air cargo recovered from a weak first quarter. The level in May was up by 1.7 percent and 2.2 percent in June compared to the 2015 year-end level. 

The improving trend, although still weak, is a positive development for air freight. In the short term, the decrease in semi-conductor shipments points to weaker demand drivers yet again. The confluence of a sluggish world trade outlook, Brexit aftermath and weak demand drivers suggest that the positive momentum observed in FTKs throughout this quarter may lag a bit.

Regardless, another bright point comes in the form of consumer confidence, which has continued to improve. Strength in this and prospects for favorable lagged impact of lower oil prices can reenergize growth in the global economy.  

Furthermore, in-service payload capacity for wide-body freighters increased for the fifth consecutive quarter. This is explained by a reduction of in-storage capacity and delivery of new aircraft. Payload capacity available in storage remains high at 17.5 percent of in-service payload capacity, significantly above pre-crisis levels of 2007 when it was 10.5 percent. During the second quarter of 2016, in-service payload capacity grew by 4.1 percent compared to Q2 in 2015. In contrast, FTK growth over the same period was just 2.8 percent.

The capacity challenge is further exacerbated by the strong growth in demand in the passenger business. Deliveries of wide-body passenger aircraft have led to a significant increase in hull capacity. On some trade lanes, though, this has had a positive impact on the dynamics in the air cargo market. 

At an industry level, total international air cargo yields have continued to deteriorate with the latest likely to be damaging to profitability. This unfortunately comes at a time of increasing fuel prices. Average fuel prices were 43 percent higher in June compared to the beginning of the year.

Although the forecast reads mixed for the year ahead, IATA notes that a weak global trade backdrop and rising fuel costs may well take a bite out of air cargo profitability. 

Summary by Shelly Nyqvist

Cargo market analysis chartbooks are published quarterly on the IATA website

Published August 1, 2016

Category: Market updates