The good and bad of October

The International Air Transport Association released its air freight market analysis for October 2015, showing a 0.5% year-over-year increase in worldwide cargo traffic (in freight tonne kilometers flown). The 0.5% overall gain was the result of a 0.6% increase in international traffic and a 0.4% increase in domestic traffic.

Two weeks ago, when we looked at October cargo data from some of the world’s major carriers, airports, and handlers, we predicted that both IATA and WorldACD would report slight y-o-y growth for the month. So IATA’s report of a 0.5% y-o-y increase in volume, while hardly an indicator of strong demand growth, was about what we expected (see below for WorldACD’s report).

For 2015 through October, IATA said worldwide air cargo traffic was up 2.6%, led by 3.0% growth in international traffic, while domestic traffic was almost flat (up 0.4%) with 2014.

In the first two months of this year, when labor strife at the US West Coast ports, and a massive automobile recall in the US drove shippers to shift goods from ocean to air, overall traffic was up 7.5%, but since then it has become clear that underlying growth in air freight traffic is fairly weak. Year-over-year growth was 1.6% in March, 3.3% in April, 2.1% in May, 1.2% in June, -0.6% in July, 0.2% in August, and 1.0% in September; so the October gain of 0.5% was in line with the year-to-date underlying trend of very low growth.

However, before deciding that airfreight demand is going into the toilet, it is worth considering a couple of other things.

• First, Netherlands-based WorldACD published its analysis of the October air freight market yesterday, concluding that volume was up 1.8% y-o-y. Yes, WorldACD uses a different measuring stick (chargeable weight, as opposed to IATA’s FTKs); and no, 1.8% growth is not magnificent, but it is certainly more than 0.5%.
• Second, almost all the air freight demand growth in 2014 came in the second half, and was particularly strong in the last few months. Year-over-year comparisons are getting tougher as we approach the end of the year.

So, while we do not wish to imply that October was a good month for our industry, it was certainly not a bad one.

And, while we are on the subject of good and bad, WorldACD reported that while cargo volume was up 1.8% y-o-y in October, cargo yield (in US dollars) was down 17.5% compared to October 2014 – a decline that makes October sound like a month in which the air freight industry lost vast sums. But as both we and WorldACD have said many times in the last year, Yield is a top-line item, based on revenue. Given that fuel prices fell by more than half during that same year-over-year period, and that fuel surcharges are part of revenue, it would be remarkable if yield hadn’t fallen steeply. In fact, looking at data for the year to date and comparing to 2014, WorldACD concludes that, net of surcharge effects, “the worldwide average price per kg (in USD) stayed at the same level.”

This conclusion is further supported by the fact that, on average, carriers using an all-in pricing model reported prices per kilo stable on a y-o-y basis.

Turning back to IATA’s report, the chart above shows that there is considerable regional variation in cargo traffic growth, with carriers in the Middle East reporting their traffic up 8.3% y-o-y, and carriers in Latin America, where Brazil and Argentina continue to struggle economically, saw traffic fall 8.1%.

As it often does, IATA sounded both cautionary and optimistic notes. On the cautionary side, the Association said: “The start of Q4 was marked by weakness in all major regions.” On the optimistic side, IATA said that despite the low growth in October, “the better performance seen in recent months is expected to continue with improvements in Eurozone manufacturing and export orders likely to support air freight demand.”