My crystal ball is broken

  • David Harris
  • January 11, 2012
  • Archive

The early results are in, and  what is clear about the year 2011 in the air freight industry is that nothing is clear. My crystal ball is so cracked and foggy that it’s hard to make sense of the past, let alone look into the future.


The first question to ask about industry performance in 2011 is what does one compare it to? 2010? That’s a tough one, because 2010 saw demand leap more than 20% compared to 2009. But then, 2009 was also a crazy year, in which we saw demand swing from a decline of 25% at the beginning of the year to a gain of 25% at the end of the year, for a net drop of 10%. And so on back at least through 2008.


To illustrate how tough it is to draw conclusions about 2011, compare the performance of the biggest cargo handler at the world’s busiest cargo airport, with that of one of the world’s biggest cargo airlines: Hactl, which handles over 70% of the cargo at Hong Kong International, today reported that its total handle for 2011 was down 6.3% from 2010. On the other hand, Lufthansa Cargo, one of the world’s top three international carriers, today reported 2011 cargo traffic up 6.5% for the full year to a new record.


Overall, it now seems likely that total worldwide cargo traffic for the year will be down about 1% compared to 2010. But 2010 was up over 20% from 2009, which in turn was down 10% from 2008, which was down 4% from 2007. In fact, 2007 has become the standard by which we now measure air freight demand. It was the pre-recession high point, and the end of a long period of relatively predictable growth in demand.


Compared to 2007, we believe cargo traffic in 2011 will be up about 4%, reflecting an average annual demand growth rate of close to 1% – a far cry from the old standard of almost 6%. Looking ahead, those industry leaders who will talk about it all are predicting more of the same – relatively flat demand – in 2012, followed by a return to more normal growth patterns either late in the year or early in 2013, but we point out that prediction has become something of a losing endeavor in recent years.


What happens if the euro zone crumbles? What happens if the US recovery comes to a halt, or reverses into recession? What happens if Iran carries out its threat to block the Strait of Hormuz? And just as interesting, what happens if none of those bad things comes to pass?


We’d love to hear your thoughts, on both the year just finished and what lies ahead.


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2 thoughts on “My crystal ball is broken

  1. Another comparison to consider is, in previous years there was usually about only a 3-5% overlap of ALL freight (sea + air) that could go either way (by sea or by air) so there was flexibility based on the pricing at the time, on which method of shipment would be chosen. So has that volume (3-5%) changed, as well? Fuel pricing is glued to the upper levels of the double digits, and I think what’s happening now in freight is going to be a permanent shift. Either we’ll have to learn to work more efficiently or focus on the oil alternate.

  2. @David, while the US economy is not out of the woods, most economic indicators (as opposed to Republican presidential candidates) show it in the early stages of recovery, while Germany has likely fallen into recession, along with many other EU Member States. The fate of the euro still rests (uneasily) with the “Merkozy” Plan.

    Despite bouts of sabre rattling, hopefully cooler heads will prevail in Iran, Israel, and the US–stay tuned.

    A big threat to the world economy you didn’t mention is the lack of transparency in China’s banking system and the uncertainty of the extent of its exposure to a potential collapse in Chinese real estate prices. If China can’t manage a soft landing of property values while stimulating domestic demand, more than air cargo is in serious trouble.

    @Karen, since the economics of oil alternatives are either based on roughly current oil prices or government subsidies to reach current prices (from even loftier levels), I will go with the hypothesis that shippers are running very lean, cheap (i.e. as much surface as possible) supply chains in response to stagnant consumer demand in developed countries.