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Global gains

Seabury Consulting’s annual analysis in conjunction with Airline Cargo Management shows an air cargo industry enjoying strong growth, driven by a variety of sectors and regions, as Marco Bloemen and Julia de Meij explain

After years of tentative talk – green shoots, cautious optimism, glimmers of hope on the horizon – it’s finally time for some straightforward celebration. Seabury Consulting’s latest annual analysis of the air cargo industry shows that volumes are strong, the supply/demand balance has tipped in the right direction and there is – while it lasts – cause for cheer.

Barring catastrophes in the traditional fourth quarter peak season, which is playing out as Airline Cargo Management goes to press, 2017 has been a good year for air cargo, with positive developments across the board, and across the globe.

Global air trade demand rose by around 11% year-on-year, with almost all industries and major trade lanes seeing growth and, in total, a dramatic improvement of almost 1.5 million tonnes in the first eight months of 2017 alone. To put this in perspective, the first half of the year generated more growth than the full years of 2013, 2014, 2015 & 2016 combined.

When it comes to airline revenues, IATA forecast cargo revenue of $50.7 billion for 2017, up 6.5% from 2016. However, if growth as seen in 1H17 continues, with year-to-date air cargo volumes up 11% and gross yields increased approximately 4%, this could end up being even higher.

The rise spells a very welcome relief to most cargo carriers: global airline cargo revenues are on the road to recovery, inching closer to 2014’s $62.4 billion peak, although there remains a long way to go.

Oil prices and revenue

The fall in airline cargo revenues was driven mainly by lower oil prices, with the drop in fuel costs reflected in lower surcharges – in turn lowering gross yields. This caused the evaporation of an estimated $15 billion in cargo revenues between 2014 and 2016, purely through yield decline.

The effects of such yield drops had different effects and were either a blessing or a curse, depending on the player. Freighter operators saw their lost revenues partly recovered by lower fuel costs. Belly operators, on the other hand, are a long way from the revenues (and profit levels) seen three years back, as benefits of lower fuel costs are limited for belly carriers, while revenues have plummeted. Finally, for forwarders and ultimately shippers, the reduction in surcharges simply meant lower costs of doing business.

However, in contrast to the decreases from 2014-16, today’s recovery of airline cargo revenues is driven mostly by increased demand, with cargo yields – despite year-on-year growth – still far below the levels of the high-fuel era.

Hence, 2017 is thus far a good year for demand and supply stakeholders alike, with volumes up and costs still low.

For the second time since the start of this century, the air share experienced a positive trend compared with containerised ocean freight. Air freight in fact outgrew containerised ocean freight in 1H17, and that was reflected in the volume share of air cargo rebounding.

While it’s not the only factor, one likely contributor is poor on-time performance seen recently in ocean freight, thanks in part to severe port congestion in, for instance, China and Europe, as well as the introduction of new alliance networks, putting further pressure on reliability. As a result, global on-time performance of container carriers dropped from the usual 80% or more to nearer 70% earlier this year. On trade lanes where schedule reliability was most affected, like Asia-Europe and the transatlantic, air freight regained twice as much market share compared to the global average.

Growth engine: Asia-Pacific

Overall, almost all air trade lanes are showing positive year-on-year growth for air cargo, with key players such as Germany, China and Vietnam on top of the list, both in terms of absolute growth and relative to other markets.

The real engine of growth this year has been Asia-Pacific. With China in particular expected to overtake the US as the world’s largest economy, according to some economists, responsible for one third of the world’s air export growth alone. At the same time, the remaining Asian countries contributed 21% to the total export volume growth. >>

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