The International Air Transport Association (IATA) reported worldwide cargo traffic (measured in freight tonne kilometers flown) up 12.8% y-o-y in May – considerably more than the 8.7% growth in April, and more than triple the five-year average growth rate of 3.8%.
For the year through May, worldwide traffic was up 10.2%. This is the strongest start to a year since 2010, when the air freight industry rebounded from the great recession. That big spike was followed by a dramatic return to earth, and, as mentioned above, the average rate of growth in air freight demand over the last five years has been just 3.8%. With that in mind, should we be preparing for an equally dramatic fall from the current high demand?
Probably not, as conditions now are significantly different. The current growth rate is not a rebound from a massive global financial crisis, but rather a reflection of a steadily growing world economy. Growth at double-digit percentages cannot last forever, but, absent some major catastrophe (war, for example), the decline from the current 13% should be gradual. IATA predicts demand growth of about 8% in the third quarter – still strong, but a reasonable reflection of the change in two important indicators:
- The fall in the inventory-to-sales ratio bottomed out last month. It is still lower than it was a year ago, but has now begun to rise slightly, indicating a lower need for merchants to restock their shelves (or their fulfillment centers).
- The new export orders component of the global purchasing managers index (PMI) is “still consistent with growing export orders,” but it has fallen since it peaked in February, indicating a moderation in air freight demand later this year.
With all that in mind, we agree with IATA that demand growth will likely decline in the coming months, but will still be quite strong relative to what we have seen in the last five years.
And a final note, just to point out the uncertainty of the whole “predicting the air freight future” game: In its lengthy analysis of the May results, IATA noted that North American carriers had benefited from the strength of the US dollar, because that strong dollar boosted the inbound freight market. It also noted that European carriers had benefited from the weakness of the Euro, because that weak Euro boosted the outbound freight market. Hmmm…
On that final thought, we invite you to join us at the Cargo Facts Symposium in October to see how the third quarter played out, and hear the thoughts of top industry executives about the future. For more information, or to register, visit www.cargofactssymposium.com