In its second quarter Cargo Chartbook today, the International Air Transport Association (IATA) declared that the best of the upturn in air freight traffic is past, as traffic in freight tonne kilometers (FTKs) rose by only 4.0% year-over-year during the three months ended April.
The positive air freight performance during 2017 was supported by overall strength in world trade demand that is beginning to flag. Although FTKs continue to increase y-o-y, in seasonally adjusted terms, FTKs actually fell quarter-on-quarter for the first time in two years, and have tracked sideways for the past six months. The decline is likely related to weaker momentum in world trade, as the slowdown in air freight growth is also reflected in containerized trade – both likely connected to increasing concerns over protectionist rhetoric and tariffs.
IATA also noted a decline in the new export order component of the global manufacturing Purchasing Managers’ Index (PMI), an indicator of economic health in the manufacturing and service sectors. The PMI reached a twenty-one-month low recently, which is “still consistent with rising orders,” according to IATA, but indicates that third-quarter FTK growth is likely to be even lower, at just under 2%.
However, as usual, these predictions should be taken with a grain of salt. IATA may be overly bearish on the outlook for air cargo, especially considering that heads of cargo surveyed by IATA remain positive on the outlook for air freight. Expectations from heads of cargo indicate continued growth in cargo volumes, although volume expectations have fallen slightly since IATA’s previous survey. They are especially bullish on the outlook for cargo yields, with the weighted average score for the next twelve months of cargo yields reaching its highest level in almost eight years.
Is this wishful thinking on the part of cargo heads in an era of protectionism? Perhaps, but the impact of recently imposed tariffs on air freight has not yet emerged, as FedEx executives noted during the company’s Q4FY18 earnings call earlier this month. Raj Subramaniam, EVP, chief marketing and communications officer, FedEx Corp., told analysts, “We have not seen any changes from the customer behavior directly related to these new tariffs,” with impacted volumes quite small and impacted commodities “[making] up a very, very small portion of our US-to-China business.”
The DHL Global Trade Barometer also confirms the robustness of global trade in the face of increasing protectionism. According to the most recent index, released this week, global trade is likely to continue accelerating at least over the next three months, while the overall GTB index rose by one point to 67 points. The global air trade index remained at 70 points, well-above the 50 point mark that indicates a positive forecast.