The International Air Transport Association has revised its outlook for air cargo growth in 2019, downgrading it from 3.7% to 2% based on a slow start to the year and cyclical weakness.
“The hard reality of the last 12 months is that we’ve actually seen no growth in the industry,” said Brian Pearce, chief economist at IATA, speaking during the plenary session at the World Cargo Symposium in Singapore. “We know that, on average, freight tonne kilometres were 3.5% higher in 2018. But all that growth had happened by January 2018. From January, we didn’t see the industry grow and in fact, there were a few months last year where we actually saw some shrinkage.”
The weakness has been consistent and widespread, with the intra-Asia market, which Pearce called the bellwether for the industry, showing particularly poor performance in the last few months.
While business inventory restocking is cyclical and the industry saw a downturn after an unexpectedly strong 2017, Pearce said that it’s clear that what the industry has experienced over the last 12 months has gone beyond that typical pattern.
“What we’ve seen is more than what we should expect to see from the inventory restocking cycle,” he said. “The fact is that we are facing a particular problem with trade rather than a general economic weakness. Global GDP growth is actually in pretty good shape. The issue though, is that cross-border trade is weakening very sharply and that’s what’s damaging air cargo.”
While EU imports have been on the decline for a while now, the trade disputes between the US and China resulted in a surge of trade in the middle of the year as businesses tried to beat the restrictions, and then a slump towards the end of 2018.
“I think the issue of trade wars is certainly something we need to worry about,” said Pearce. “It’s very damaging for the cargo business. We flourish with open borders.”
In terms of the global economy, businesses have been less confident since late 2017, but the level of confidence in the first quarter of this year is still consistent with the global GDP growth rate of 2.5-3%.
One factor behind the continued growth of the world’s economies is the money that governments are injecting into them through tax cuts or spending programmes.
“Five years ago we were in a period of austerity fiscal policies,” Pearce said. “Governments were extracting money from their economies and that led to a very downward pressure on further growth. A couple of years ago that turned around. In China we saw a very substantial injection policy and after the US elections we’ve seen the US join that with substantial tax cuts. Even in Europe, fiscal policy this year is supporting growth.”
Overall, economic growth is set to continue, at least in 2019, but the issue is how that growth translates to growth in trade. According to IATA, the trade-to-GDP multiplier is unlikely to change much in the years to come.
“We are in a different world,” said Pearce. “Supply chains have stopped expanding across borders. Globalization and the establishment of assembly manufacturing overseas was a real driving force of growth in the industry before the global financial crisis. The proportion of foreign value added in exports has stopped growing.”
The International Monetary Fund forecasts a global GDP growth of about 3% over the next five years, and trade growing at about 3.5% over the same period, after a slight uptick starting from next year.
Despite that relatively flat trade growth, Pearce said that there is cause for optimism in air cargo’s share of world trade.
“Looking at the share over the last few decades, we had that period after 2002 where we saw our industry losing ground against other modes of transport,” he said. “That stopped four to five years ago. Around 2012-2013 we saw it bottoming out and then a slow rise in air cargo’s share of world trade, arguably as the e-commerce revolution started to reach critical mass. This was boosted by the business restocking in 2017.”
Taking into account the IMF’s figures and the multiplier between trade growth and FTK growth, IATA expects air freight’s share of world trade to dip a little further in 2019 and then gradually improve, resulting in an average FTK growth of 4.4% over the next five years.
“The uncertainty ahead of us now is where we go in the share, and I think in many ways that’s in your hands,” Pearce told the industry. “Increasing that share depends a lot on our initiatives, on trade facilitation by air improving, and I think that there’s scope for very significant debate about the slope of that line going forward.”
By Jeffrey Lee
Asia Cargo News | Singapore