A look back at the cargo market – IATA Q4/2016 cargo chartbook synopsis

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Global economic growth is expected to accelerate moderately, meaning consumer confidence may boost air cargo demand this year reports the International Air Transport Association (IATA) in its latest Cargo Chartbook.

Despite a moderate deceleration in economic growth in 2016, there is solid growth in air cargo demand. Industry wide Freight Tonne Kilometers (FTKs) grew 3.8 percent last year, the second highest annual growth rate since 2010. In seasonally adjusted terms, the market is nearly 10 percent above the year end levels reached in 2015.

The year did start off weak for the air cargo market, but recovered and grew in the second and third. By the fourth quarter, growth accelerated further due to a pick-up in Asia and a more intense peak season. European and Asian carriers experienced the lion’s share of growth in Q4 with 61 percent and about 64 percent in 2016; Middle East and North American carriers accounted for 24 percent and 11 percent respectively of traffic growth in 2016. 

Interestingly enough, a contributing factor to the increase in air cargo performance has been the fall in business inventories compared to sales. This has led to businesses relying more on air cargo to replenish stock. The global Purchasing Managers Index (PMI) for export orders continues to remain in expansionary territory, translating into steady consumer confidence.

Expansion of in-service payload capacity for wide-body freighters continued to increase for the seventh consecutive quarter. This is explained by a reduction of in-storage capacity and delivery of new freighter aircraft. Payload capacity available in storage stood at 13 percent of in-service payload capacity. During the fourth quarter of 2016, payload wide-body freighter capacity delivered was the largest within a quarter over the past three years.

As last quarter, 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 of belly capacity. 

Last year was a record year for delivered wide-body payload belly capacity. And on some trade lanes, this has had a substantial impact on the dynamics in the air cargo market. 

AFTKs grew 5.3 percent in 2016, outpacing FTK growth by 1.5 percentage points the previous year. For the first time since Q4 of 2013, demand has outstripped supply. This may seem like a welcome development for carriers, however analysts fear it may be short lived.

At an industry level, total international air cargo yields have continued to deteriorate when compared to year-on-year terms. Yields in Q4 of 2016 were on average about 6 percent lower over the same time period. In parallel, jet fuel prices were on average about 8 percent higher. Unfortunately, the rise in input costs combined with decreasing unit revenues points to worsening profitability outlook for air carriers.

Again, the IATA cites concerns over yield performance for the year ahead noting that an increase in capacity amid a weak global trade backdrop is a key risk for air cargo profitability.

Summary by Shelly Nyqvist

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

 

Published February 15, 2017

Category: Market updates

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