Shipping and air freight between Asia and Europe continued to post declines in the first half, as headwinds from the escalating trade war between the US and China persist, further dragged by a general economic slowdown.
Industry players said companies are diversifying operations to buffer the drop, but full-year results could still come below the 2018 volumes.
Air cargo volumes down
“The first half of 2019 has been challenging for us, and this is a fact for most of the airlines in our industry,” Eric Lamare, vice president, scheduled cargo operations APAC at AirBridgeCargo Airlines told Asia Cargo News.
“The air cargo sector is cyclic, with its ups and downs. Now we are in the downward period, stimulated by challenging times for the world’s biggest economies, trade tensions between the US and China, and recession in Europe,” Lamare said, adding that AirBridgeCargo saw a global decrease of 3% in tonnage compared to the same period in 2018.
“This year’s market situation is a tough one, with a global decrease of volumes compared to 2018,” he added.
For Swiss WorldCargo, loads have “remained stable” in the six months to June, but compared to last year, 2018 level was an “extraordinary year for the entire air cargo industry.”
“In Asia, tariffs have affected overall trade flow, which has led to consequences for shipments between Asia and the US, as well [as] Asia and Europe,” Alexander Arafa, head of global area and contribution management at Swiss WorldCargo said.
“Reduction in output from the tariffs are felt across Asia. Furthermore, these also have a direct impact on European trade and even manufacturing,” he added.
IATA reported that global air freight demand decreased by 4.8% in June 2019, compared to the same period in 2018, marking the eighth consecutive month of year-on-year decline in freight volumes.
Asia-Pacific airlines saw demand for air freight contract by 5.4% in June 2019. European airlines posted a 3.6% decrease in freight demand in June.
“Global trade continues to suffer as trade tensions – particularly between the US and China – deepen. As a result, air cargo markets continue to contract,” said Alexandre de Juniac, IATA’s director general and CEO in a statement.
Korean Air likewise felt the slump which the airline also attributed to the trade dispute between the world’s two biggest economies and its own tiff with Japan. “The ongoing trade dispute between the US and China has affected the global supply chain around China. As a result, the market demand declined year-on-year, regardless of the region – trans-Pacific or Asia-Europe,” a Korean Air spokesperson said.
Cathay Pacific and Cathay Dragon also reported a slowdown in cargo volume. The two airlines carried 163,977 tonnes of cargo and mail last month, a drop of 9.4% compared to the same month last year. In June, cargo and mail revenue freight tonne-kilometers (RFTKs) declined by 9.1%. In the first seven months of 2019, tonnage fell by 6.1% against a 6.6% decrease in RFTKs, the company said.
“Our cargo business continued to face headwinds with market sentiment softening across the board,” Cathay Pacific director commercial and cargo Ronald Lam said in a statement. “Market outlook remains uncertain.”
Hong Kong International Airport, the world’s busiest air cargo hub in the world, also had a tough first half of the year, as its cargo volumes declined by 6.7% year on year to 2.3 million tonnes with weak demand seen for imports, exports and transshipments “amid the uncertain global economic situation.” It said cargo throughput to Southeast Asia and Europe decreased most significantly.
Airports Council International (ACI) Europe said overall air cargo traffic in the first half at European airports declined by 3.5% year over year.
Sea freight also recorded declines
The shipping industry is also feeling the slowdown.
Container cargo shipments from Asia to Europe totaled 1.36 million TEUs in June, posting a 1.3% decline, while sea freight from Europe to the Far East was at 565,947 TEUs, or a drop of 8%, according to the latest data from Container Trades Statistics (CTS).
“Eastbound full trades decreased by 3% during the first half of 2019,” Daniele Testi, marketing and communications director at Contship Italia Group told Asia Cargo News, although he said that Contship’s La Spezia Container Terminal (LSCT), has recorded a 9% increase in westbound trades from central and Southeast Asia in the first half of the year.
“This is as a consequence of the ongoing US-China trade tensions, which continue to affect Chinese exports and manufacturing – and Italy, as Italian products and machineries play a significant role [in] the value chain for many final products manufactured or assembled in China,” he added.
The ongoing trade tensions between the US and China has also resulted in certain cargo being exported to Europe instead of to the US – usually at a lower price than it would have fetched on the American market, he added.
Global logistics and transportation company China Tigers said the first half of the year has also been challenging with the US trade tariffs and ongoing uncertainty in Europe over Brexit.
“International customers are delaying investment in China operations and focusing on their domestic markets, so we have seen a general decline in volumes,” Laura Crow, managing director China, Tigers told Asia Cargo News.
While traditional air freight volumes on key routes such as the US, European Union and Australia are down year-on-year, Crow said there’s an uplift into less developed markets in Southeast Asia and India from China with strong demand for cross-border B2C solutions, particularly ordering direct from Chinese suppliers through online platforms such as Amazon.
Hong Kong has yet to release its first-half 2019 data, but from January to March, Hong Kong ports handled 4.42 million TEUs of containers, representing a 9.5% drop compared with the first quarter of 2018. Seaborne boxes decreased by 9.1% to 2.65 million TEUs, while river-laden containers also declined by 9.2% to 1.1 million TEUs compared to the first quarter of 2018, according to data from the Census and Statistics Department.
Outlook for 2019
Industry players say the slump will most likely persist throughout 2019.
“We expect to see the high-season coming for the last quarter, which will slightly align the market situation by the end of the year. However, the results shall be lower than in 2018 or, hopefully, at the same level,” said Lamare.
He added that the industry’s situation could improve once trade tensions are minimized between leading economies, which will stimulate the volumes on certain lanes. Meanwhile, the current state of the freight industry “could get worse in case trade wars continues and embrace new countries which will influence even further the global economy.”
Korean Air said it doesn’t expect a “normal peak season” in the second half of the year due to the trade skirmishes between South Korea and Japan and the US and China. Cargo traffic between Asia and Europe, however, is expected to grow as a substitute for US-China trade as new demand is expected to come about from e-commerce, pharmaceuticals and fresh cargo.
“It is possible that we will continue to see industry-wide shifts,” said Arafa. “However, our customers are reporting a stabilization which leads to regular flows and warehouses should begin filling up in preparation for the year-end rush.We remain very positive about Asia-Europe trade, especially given the close historical connection between both regions and the existing cooperation and trade agreements.”
Crow says that, for Tigers, trading for the remainder of the year will also continue to be a challenge. “Asia-Europe will continue to be an important trade lane, but the product mix will continue to change with B2C volumes becoming more significant. Operators that are able to provide end-to-end solutions, visibility, consistent lead times and support with meeting EU import requirements and fiscal representation will be in a strong position, she said.
By Charlee Delavin
Correspondent | Hong Kong