Airlines across the world are experiencing what they hope will be a minor diversion from the positive air-cargo demand trend seen over the past three years.

Wobbling freight volumes have come amid a global rise in protectionist policies and rhetoric – which has played out most dramatically in the US-China trade spat – as well as a general slowdown in economic expansion across many territories.

In the quarter ending 31 March, global freight volumes measured in freight tonne kilometres (FTKs) fell by 2.0% year-on-year, while capacity measured in available freight tonne kilometres (AFTKs) rose by 3.3%, according to IATA data released in early May.

There was suggestion of a turnaround, however, in the figures for March, which showed a tiny uptick in FTKs of 0.1% year-on-year.

Global demand had been down 4.7% year-on-year in February – the fourth consecutive month of negative growth.

The key question now is whether the most recent figures suggest the air freight market is making a return to the growth that had endured from March 2016 through to October 2018.

IATA is certainly cautious about reading too much into the marginal improvement recorded in March.

"After four consecutive months of contraction, this is an encouraging development," says IATA director general Alexandre de Juniac. "But the headwinds from weakening global trade, growing trade tensions and shrinking order books have not gone away."

FALLING CONFIDENCE

Speaking in early April, de Juniac had described the freight market as "in the doldrums", citing factors including "order books weakening, consumer confidence deteriorating and trade tensions hanging over the industry".

Later in April, the director general of the Association of Asia Pacific Airlines, Andrew Herdman, said the "cautious" cargo market sentiment was linked to "unresolved trade tensions, particularly between the United States and China".

Around the same time, ACI World director general Angela Gittens stated that "trade negotiations between major economies are still under way, leaving the industry in a state of uncertainty", adding that such factors had had a "significant impact on the freight market".

The tit-for-tat imposition of tariffs by China and the USA appeared to be intensifying in mid-May, raising doubts about the demand growth achievable in the rest of 2019.

"The industry is adapting to new markets for e-commerce and special cargo shipments," de Juniac said in April. "But the bigger challenge is that trade is slowing. Governments need to realise the damage being done by protectionist measures. Nobody wins a trade war. We all do better when borders are open to people and to trade."

Among a set of less-than-encouraging economic indicators cited by IATA, the most recent data from the CPB Netherlands Bureau for Economic Policy Analysis shows that overall world trade volumes were some 1.7% lower in February year-on-year. That followed a second half of 2018 that saw a negative figure for that measure in three of the six months. The contraction recorded in December – at 2.0% – was the sharpest fall seen in the available historical data, which stretches back to 2010.

The global Purchasing Managers Index (PMI) meanwhile indicates falling global export orders since September 2018, IATA adds.

It also points out that annual cargo capacity growth outpaced that of demand in 11 of the past 12 months, leaving March load factors some 1.5 percentage points lower than they were in the same month of 2018. In this environment, airlines have been moderating capacity growth to around 3% year-on-year in recent months, down from a pace of 6-7%, IATA notes.

Looking ahead, however, industry confidence regarding the outlook for the rest of 2019 remains relatively upbeat, IATA said in May, with only 13% of respondents to its Business Confidence Survey expecting to see a decrease in freight volumes in 2019 compared with 2018.

REVERSE GEAR

Regardless, comments around the latest round of financial reports suggest airlines are cognisant of the challenges ahead.

In the Middle East, the chairman and chief executive of Emirates Group, Sheikh Ahmed bin Saeed Al Maktoum, said in early May that "the uptick in global air freight demand from the previous year appears to have gone into reverse gear".

Elsewhere, Alan Graf, FedEx executive vice-president and chief financial officer, said in mid-March that "slowing international macroeconomic conditions and weaker global trade growth trends continue, as seen in the year-over-year decline in our FedEx Express international revenue".

In response to that, Fedex had "launched our voluntary employee buyout program, constrained our hiring, are limiting discretionary spending and are reviewing additional actions to mitigate the lower-than-expected revenue trends", Graf added.

In early May, meanwhile, Air France-KLM cited a slowdown in cargo volumes that was "visible in the whole air freight market, due to economic slowdown, political uncertainties and trade disputes".

"Network rationalisation measures" were implemented during the quarter to counterbalance the negative trend, the Franco-Dutch group says.

In Hong Kong, Cathay Pacific’s director of commercial and cargo Ronald Lam said in mid-April that the airline was continuing to see "a trend of year-on-year decline in both volume and yield".

The carrier did experience, however, "some slight improvements" in March, "including from our key markets of Hong Kong and mainland China to both regional and long-haul destinations".

The operator is continuing to "closely observe China-US trade talk developments and their impact on global trade flows".

But Cathay Pacific was an outlier in the region in seeing demand improvement in March.

LARGEST MARKET

IATA's figures for the month show Asia-Pacific airlines recording FTKs some 3.4% lower year-on-year, as the world’s largest air freight market weighed heavily on the global total (a 0.1% increase). Asia-Pacific's negative figure for March was not as steep as the 11.6% decline in FTKs reported for February.

Asia-Pacific was the only region to record a year-on-year fall in FTKs for March, however, in contrast to a largely negative set of figures in February.

Demand for air freight in Asia-Pacific is strongly tied to the fortunes of the Chinese economy, which has seen slowing growth since the second half of 2018, amid the trade tensions with the USA.

Europe appeared to see a strong recovery from February, recording a 3.6% year-on-year increase in FTKs for March. IATA suggests, however, that the positive trend "may not be sustained" amid a weakness in German export orders, subdued activity in several key economies and the lack of clarity around Brexit.

North America recorded a small uptick of 0.4% in March, way below levels of around 10% seen before an easing in demand that began 12 months ago. Slowing domestic economic activity has been cited, alongside "global headwinds", IATA states.

In February, North America had recorded a year-on-year decline of 0.7% – its first negative figure since mid-2016.

The Middle East recorded a small increase of 1.3% in March, swinging from a decline of 1.6% in February. Volumes from North America into the Middle East market have seen "double-digit declines", IATA notes, alongside a "solid fall" from Asia-Pacific.

Latin American airlines were the only operators to record a consecutive positive FTK figure in March, with volumes up 3.6% year-on-year. That expansion has been supported by Brazilian economy’s recovery, although “ongoing economic and political uncertainties in various parts of the region continue to present challenges for the industry”, IATA says.

African carriers saw a 6.0% increase in FTKs for March – although they only account for around 1.7% of global volume.

Read all the latest news and information from the 2019 IATA AGM on our dedicated page.

Source: Cirium Dashboard

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