A look back at the cargo market – IATA Q3/2015 cargo chartbook synopsis

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In their latest quarterly chartbook, IATA reports weak airfreight demand but expects modest economic growth in 2015.

In their cargo chartbook for the third quarter of 2015, International Air Transport Association (IATA) reports that the cargo market has shrunk this year compared to the levels achieved at the end of 2014. Nonetheless, IATA expects modest global economic growth in 2015 with downside risks from vulnerabilities in emerging markets.

While international air freight traffic rose by 3.2 percent in the year to July compared to the same period in 2014, freight volumes in July were down by 0.6 percent compared to a year ago. Although this sounds worrying, IATA points out that the effect could be short-term, as June and July coincided with a pinnacle of the EU sovereign debt crisis.

In advanced economies the upswing has been weaker than expected, and timid expansion endures in the Eurozone. Some good news come from the US in the form of solid GDP growth and unemployment levels at seven year lows. Strengthening of the US dollar, however, may have an adverse impact on emerging markets.

Vulnerabilities in emerging markets, with the exception of India, present downside risks. Lower commodity prices have been pushing Brazil into recession while lower oil and gas revenues and sustained sanctions keep Russia in a slump. In China, falling investment and financial volatility raise concerns.  

Several key drivers show signs of weaknesses in the demand environment, notes the report. In the US, despite the economy’s healthy GDP growth, inventory overhang will likely continue to weaken airfreight demand in the short term. The semi-conductor industry, long regarded as an indicator for air freight, has sent fewer shipments this year. This may also have a negative impact on demand over the short term. In the medium term, however, airfreight demand could get a boost from consumer confidence and lower oil prices, predicts IATA.

Furthermore, reduced freighter aircraft utilization and lower freight load factors may point to underlying weaknesses in the demand environment. Over the first seven months of 2015, international freight load factors have fallen by 3.2 percentage points. The Asia-Europe trade lane experienced the steepest fall of 6.2 percentage points followed by Europe-North America with a decline of 4.2.

According to the report, capacity remains an issue as well. In 2015, for every tonne of hull capacity added by a wide-body freighter, a further three tonnes will be added by passenger wide-body bellies.

The continued fall in yields has been lower than the fall in jet fuel prices overall, which may suggest improved air cargo profitability. However, reduced aircraft utilization and lower load factors may compromise profitability. Yield performance has also varied significantly by trade lane, direction, and service type. Cargo heads surveyed for the Q3/2015 report reveal cautious sentiments on yields.

Text by Maria Nokkonen

Cargo market analysis chartbooks are published quarterly on the IATA website.

 

Published September 25, 2015

Category: Market updates

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