In 2017, IATA reported global air cargo demand up 9% – the highest growth since 2010, and the third highest since 2000. That growth was about twice the rate of last year’s global trade growth, and nearly three times the rate of growth of global GDP, leaving many wondering where growth is headed moving forward. Below, Alan Hedge, Senior Director at our sister company ACMG, shares his views on forecasting air freight demand…
As the recently deceased Stephen Hawking said, “The future is indefinite and exists only as a spectrum of possibilities.” After predicting baseline annual growth of 4.9%, IATA’s five-year forecast of 2018-2022 air freight demand, published on 13 March, concludes with an acknowledgement of future uncertainty by presenting two sensitivities around its baseline growth assumption.
IATA’s forecast rests on three pillars: GDP growth rate, the relationship between goods trade and GDP, and the relationship of air freight demand to goods trade. Unfortunately, rather than these pillars forming the three legs of a stool, they are stacked end-to-end, subjecting the forecast to the risk of the failure of any single assumption. Consequently, IATA has developed two (widely divergent) sensitivities, a high-growth scenario assuming five-year annual compound growth of 9.5%, almost double that of the baseline, and a low-growth scenario of 3.4%, in line with historical growth over the last five years.
Although IATA believes that the multiplier between GDP and goods trade will continue to revert from its average of roughly 1.0 during the post-global financial crisis period back to the prior decades’ 2.0 multiplier, only in the high-growth case does the multiplier actually reach 2.0. IATA also suggests that the relationship between air freight demand and growth of goods trade will continue to de-couple.
ACMG’s annual 2018-2027 Twenty-Year Freighter Forecast also relies on a forecast of underlying demand for air freight, but we are not economists, so we look at a wide variety of sources (including IATA) when developing our independent forecast of the development of the world freighter aircraft fleet.
Although we find IATA’s chain of reasoning to be somewhat persuasive, we are concerned that it buttresses its assumptions for the sustainability of air cargo growth at rates higher those of the last five years by citing growing demand from “e-commerce and pharmaceuticals.” ACMG agrees that both of these categories are of growing importance to air freight, but, we feel it is premature rely too heavily on them to support air freight demand growth in the face of economic pressures, such as rising interest rates, trade protectionism, and international conflict.
Therefore, we at ACMG are taking a conservative approach of using the same baseline twenty-year compound annual growth in air freight demand of 4.0% that we used in 2017. We also provide growth sensitivities of 3.0% and 5.0%, as well as the consequences of changes to freighter productivity and changes to the ratio of air freight carried on freighters vs. in passenger bellies.
Hopefully, last year’s stellar growth rate, although decelerating, will support a robust 2018. If so, ACMG will certainly consider raising our twenty-year average annual compound growth rate in our 2019 freighter forecast.
ACMG’s 2018-2037 Twenty-Year Freighter Forecast will be released at Cargo Facts Asia 2018 in Shanghai 23-25 April. Come join us to hear the latest forecast and its impact on the world freighter fleet.