March results are in. What do they mean?

The International Air Transport Association released its air freight market analysis for March 2016, showing a 2.0% year-over-year decrease in worldwide cargo traffic (in freight tonne kilometers flown). International cargo traffic, which accounts for 87% of total traffic, was down 2.8%.

For the first quarter of 2016, IATA reported total traffic down 3.8% and international traffic down 6.2%.

However, as we pointed out when we analyzed March results from some of the world’s biggest cargo carriers and airports two weeks ago, labor problems at the US West Coast ocean ports and a major airbag-related auto recall in the US in early 2015 gave a large boost to air freight traffic, particularly on the trans-Pacific. While the shift to air had begun to ease in March, it was still a factor, and this makes for a tougher-than-usual comparison in March 2016. In fact, when analyzing cargo traffic for the first two months of this year, IATA noted that while traffic was down 1.6% compared to Jan/Feb 2015, it was up 6.3% over Jan/Feb 2014 – an annualized growth rate of 3.1%.

IATA did not provide a similar two-year comparison for the full quarter, but we believe that, adjusting for the impact of the modal shift to air in early 2015, underlying air cargo demand growth is likely modestly positive.

Looking ahead, IATA was fairly pessimistic, saying “All told, 2016 is shaping up to be another year of disappointing growth for air freight. Even if FTKs grow in line with their five-year average rate of around 1.5% over the rest of this year, given the poor start, overall volumes would still only expand by 0.6% in 2016 as a whole.”

Our own view is that current political and economic conditions are such that prediction is very difficult. Will the UK exit the European Union? Will Greece default again? Will the Middle East become more stable or less? Will Brazil recover or fall into economic chaos? What about China? And India? What seems clear is that air freight demand is closely linked to world trade, and given the potential impact on trade of all of these unanswerable questions, we are reluctant to say much more than that, all other things being equal, IATA’s prediction is probably reasonable.

But when were all other things ever equal?