Local air traders in Hong Kong have a bleaker outlook for overall air trade to and from China for the fourth quarter amid concerns about weak consumer demand, high logistic costs, as well as inflation, according to the findings of the latest DHL Hong Kong Air Trade Leading Index (DTI).

The report — released on October 20 — said the overall air trade index retreated again in Q4 2022 despite approaching the traditional peak season.

The report said the index dropped by 4.8 points to 34.7 points in Q4 2022 as both Air Imports and Air (Re-)Export Indices suffered declines. This comes after the 7.6-point rebound to 43.1 points in Q3 2022.

For the fourth quarter, the report saw Air Imports plunge again in Q4 2022 to 36.3 points (-6.8 points), slightly higher than the level when the fifth wave of the pandemic took place (35.5 points in Q2 2022).

Air (Re-)Exports Index also retreated by 3.2 points to 33.8 points, which was even lower than Q2 2022 (36.0 points).

An index value above 50 indicates an overall positive outlook while a reading below 50 represents an overall negative outlook for the surveyed quarter. The further the reading is from 50, the more positive or negative the outlook is.

Less optimistic outlook in Q4 found

"As the traditional peak season approaches, the overall trade index retreated again after recovering from the previous quarter. Concerns over weak consumer demand, high logistics costs, and inflation have surfaced among local air traders, affecting their business outlook during Thanksgiving and Christmas Eve this year," the report said.

Nonetheless, the report said not all air-freighted commodities suffered amid the plunge in the overall Air Trade Index.

While declines were observed in the indices for Apparel and Clothing, Gifts, Toys and Houseware, as well as Electronic Products and Parts, index performance for Food and Beverage was maintained, and Watches, Clocks and Jewellery registered an uplift in the index.

"The Food & Beverage index continued to be the highest commodity along with watches, clocks and jewellery, while Apparel & Clothing saw the biggest drop and hit its lowest point over the past two years," the DHL Hong Kong Air Trade Leading Index report added.

The report — commissioned by DHL Express Hong Kong and compiled by the Hong Kong Productivity Council — said profitability remained "relatively stable" in Q3 2022. However, the concerns mentioned above on weak demand, high logistic costs and surging inflation affected the local air traders, affecting their business outlook in Q4 2022 amid the traditional peak with Thanksgiving and Christmas Eve.

"Business expectation for the traditional peak (Thanksgiving and Christmas Eve) this year was not as optimistic as in previous years," the report said, noting that only 18% of the air traders held positive expectations while 27% held negative expectations.

Compared with other markets, air traders trading with the Americas were more optimistic towards their business over the traditional peak this year.

Online B2C business outlook has also fallen back to the pre-booming level in Q1 2021.

In particular, the report said the proportion of air traders expecting an increase in online B2C business in Q4 2022 (8%) has fallen back to a similar level in Q1 2021, after accounting for 24%- 32% over the preceding six quarters.

The report said 27% of local air traders held negative expectations towards the coming traditional peak (Thanksgiving and Christmas Eve) with over half (56%) of them citing "weak consumption demand" as the reason, while over one-third mentioned "high shipping cost" (36%) and "inflation" (34%) respectively.

Worsened China-U.S. relations wary air traders

On the other hand, more than half (56%) of the air traders expect their business to be negatively affected by the latest developments in China-U.S. relations and only 18% of air traders are optimistic about the coming traditional peak due to the perceived return to normalcy after COVID (43%).

"Aside from inflation, the worsened China-U.S. relations in Q3 2022 also posed negative impacts on air traders' business outlook, reaching the worst point over the past 2 years. In particular, 56% of the air traders expected their air trade business to be negatively affected in Q4 2022 due to the latest developments in China-U.S. relations, showing a 15%-point rebound from Q3 2022," it said.

The report further added that the proportion of respondents expecting "no impacts" also decreased to 42%, compared with 50% in Q3 2022.

"Although the profitability of local air traders remained relatively stable in Q3 2022, all key indices recorded significant declines in the traditional peak season of Q4 2022, reflecting the impacts associated with inflation driven by the appreciation of US dollars, such as high logistic cost and weak consumer demand," said Edmond Lai, the chief digital officer of HKPC, adding that air traders need to be prepared to survive under these tough conditions.

"On the other hand, the expectations that Hong Kong will be joining the Regional Comprehensive Economic Partnership Agreement will create new opportunities for the local air trade industry in the long run. Hence, air traders must formulate medium-to-long-term plans to be ready to seize on these opportunities," Lai added.

The DHL Hong Kong Air Trade Leading Index is the first indicator of its kind in Hong Kong that aims to provide a forward-looking perspective on overall air export and import trade volumes.