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Economic, Trade Issues Clipped Wings of Global Air Freight in First Half

Global air freight slowed down in the first half of the year, particularly in the second quarter, as economic and political factors played a role.

The International Air Transport Association (IATA) said growth for the first half of 2018 was 4.7%, less than half the growth rate of 2017. IATA reported demand for global air freight, measured in freight ton kilometers (FTKs), increased 2.7% in June compared to the same period the year before.

IATA noted this continues a slowdown in air cargo growth that began earlier in 2018. Freight capacity, measured in available freight ton kilometers (AFTKs), rose 4.1% in June, with capacity growth now outstripping demand growth in every month this year since March.

IATA said there are three main factors driving the slowdown. The first is that the restocking cycle, when businesses rapidly build up inventories to meet demand, ended in early 2018. As a result, “There was a marked fall in air cargo volumes from March,” IATA said.

The second factor is a slowdown in global trading conditions, as evidenced by the fall in the Purchasing Managers Index (PMI) to its lowest level since 2016, IATA noted. There’s also been a decline in manufactured goods exports in China, Japan and the U.S., the organization’s monthly report said.

A third issue was the temporary grounding of all aircraft of the Nippon Cargo Airlines fleet in the second half of June after an error was uncovered in maintenance records, which shaved up to 0.5% off June growth.

“Air cargo continues to be a difficult business with downside risks mounting,” Alexandre de Juniac, IATA’s director general and CEO, said. “We still expect about 4 percent growth over the course of the year. But the deterioration in world trade is a real concern. While air cargo is somewhat insulated from the current round of rising tariff barriers, an escalation of trade tension resulting in a ‘reshoring’ of production and consolidation of global supply chains would change the outlook significantly for the worse.”

All regions except Africa reported a year-on-year increase in freight volumes in June, but the slow growth in Asia-Pacific, which accounts for nearly 37 percent of the overall air cargo market, dragged the global growth rate down.

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Asia-Pacific airlines saw freight demand increase just 1.5% in June compared to the same period last year, while capacity increased 5.2%. The international freight performance in the region fell to 1.1%, a 17-month low. In the first half of the year, FTKs grew 4.6% year-on-year and freight volumes are expected to settle at an annual growth of 3 percent to 4 percent, IATA forecast.

European airlines posted a 3.3% increase in freight volumes in June, as capacity rose 5.4%. IATA said growth is being negatively impacted by a slowdown in export, and supply chain bottlenecks that are often why companies turn to air freight, have eased. For the first half, the region expanded 4.1% year-on year.

North American airlines’ freight volumes lifted 3.8% in June from the year-ago period. International FTK accounted for 5.9% of volume, making the region the strongest-performing market for the first time in two years. Capacity increased 3.4%.

“The strong dollar and robust growth in the U.S. economy is driving inbound shipments,” the report said.

IATA said growth for the first half was 5.3%, second only to exceptional growth in Latin America, where the increase for the first six months was 10.1%.

Latin American airlines experienced increased demand of 5.9% in June, continuing a recent run of registering the largest increases of any region, although capacity decreased 5.7%. The pick-up in demand for international freight of 5.2% was a slowdown from the previous months. However, it continues to trend well above the five-year average of 1.6%, and posting the best performance of any region.

Middle Eastern carriers’ freight volumes grew 3.8% in June. This was an improvement on a 2.7% gain in May, but well below the average five-year rate of 9.5%. Capacity increased 4.5%. The first half increase was 4.3% year-on-year, and the expectation is for volume growth to remain modest in the coming months, IATA said.

African carriers saw freight demand fall 8.5% in June year-to-year, as capacity fell 1.4%.

“It is difficult to be positive about the current picture in Africa,” IATA added. “International FTKs fell at the fastest pace (-8.6%) for nearly nine years. Although the year-on-year growth rate for the first half of 2018 was 3 percent in seasonally-adjusted terms, FTKs are trending downward at an annualized rate of almost 20 percent over the past six months, and demand conditions are weak on all the main markets to and from the continent.”