Demand growth slows, but IATA optimistic

The International Air Transport Association released its air freight market analysis for May 2015, showing an overall 2.1% year-over-year increase in worldwide cargo traffic (in freight tonne kilometers flown). On a regional basis, however, results varied wildly, from a 10.5% decline in traffic reported by carriers in Latin America to an 18.1% increase for carriers based in the Middle East. International traffic was up 2.6% overall, while domestic traffic in May declined 0.8%.

For the first five months of 2015, IATA said worldwide air cargo traffic was up 4.0%, led by 4.5% growth in international traffic, while domestic traffic was up just 0.8%. As IATA points out, this indicates a trend of diminishing demand for air freight, following a more buoyant start to the year. However, as we have pointed out, that buoyant start was the product of two one-time factors that drove air freight demand up strongly, particularly on the Asia-to-North America lane, while obscuring the underlying trend. But with the backlog at the US West Coast ocean ports and the massive automobile recall in the US no longer playing any part in the air freight market, the underlying trend of sluggish growth is clearly visible.

IATA’s snapshot of low growth is mirrored in data just released by WorldACD, showing May cargo volume (measured by chargeable weight) up 1.8%. The WorldACD data also show a 14.4% y-o-y drop in yield in May, continuing a trend of steadily worsening yields that began in October last year.

So, it finally seems safe to say that, absent the one-time boosts from the labor strife at the US ports and the auto recall, growth in demand for air freight has fallen from a “modest” in 2014 to “minimal” this year. IATA points out, however, that there are reasons to be optimistic about the rest of 2015.

• While trade volumes for emerging Asia markets were down sharply y-o-y in the first quarter of this year, “there have been signs of improvement at the start of Q2, which if sustained, would help ease downward pressure on air freight demand.”

• North American economic performance in the first quarter was disappointing, but, “stronger growth… is expected in coming months as the effects of poor weather and US seaport congestion fade.”

• There have been recent improvements in business confidence in the Eurozone (although this has yet to translate into increased demand for air freight and consumer confidence remains subdued).

IATA said that while world trade is still only growing in line with domestic production, air freight’s share of world trade has been increasing since mid-2014, and summed up its analysis by saying: “At the moment we are sticking with our view that economic growth and trade will accelerate in the second half of the year, strengthening growth in air cargo volumes.”

Our own view is that much hinges on Europe. The rest of the world’s major economic regions, perhaps excepting Latin America, seem reasonably healthy, but as of yesterday, when Greece defaulted on its IMF loan, Europe is poised on an economic knife-edge. Handled properly, the current crisis could become a foundation for a strong recovery. Handled badly… well, let’s not go there.