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Turning tide

With a tough basis for comparison after 2015’s West Coast port strike, 2016 was always going to be a tricky year. Lower oil prices and a decline in high-tech export volumes have also skewed the picture. Seabury’s Marco Bloemen and Soufiane Daher look ahead to what 2017 has in store

As 2016 draws to a close, the air cargo industry is poised at a turning point – times have been tough but there are signs that a more positive phase is beginning. Are they to be relied upon?


This year got off to a difficult start, with air trade volumes hit by the negative comparison with 2015, when traffic was given an exceptional boost by the knock-on effects of the West Coast port strike.


Topping the double-digit transpacific performances recorded in the early months of the year would have been a tall order. Besides other one-off events such as car recalls, the port strike added about 200,000 extra transpacific tonnes last year into the USA, around 80,000 of which were from China, Seabury’s analysis has found.


Back to earth with a bang, transpacific air trade fell by 18% eastbound and 11% westbound in the first seven months of this year, contributing to a 1.2% dip in global air trade growth in the same period. In fact, we estimate that air trade growth could have been marginally positive, without that exceptional uptick in the first half of 2015. 


Stronger second half


With a recovery from the disruptions of 2015 underway, the second half of 2016 looks likely to be stronger, with a traditional year-end peak set to help matters. Still, as shown in Chart 1, cargo revenues may fall about 6% in the year as a whole. While there will be no respite from the downward trend of the past years, fuel cost savings could end up helping profitability to the tune of about $1.8 billion over the past three years – a small silver lining, but a silver lining nonetheless.


While the drop in fuel prices has provided some relief in terms of operating costs, mainly for freighter operators but also for belly capacity, operators know that this evolution in the oil price is a double-edged sword. 


Not only has the oil and gas sector taken a hit, reducing volumes of goods to be transported for some operators on some key routes, but the lower operating costs have done nothing to discourage capacity growth, despite weak growth in demand, pushing load factors down once again. Freighter operators, some of whom may have expanded their reach during the highs of 2015, are seeking to maintain their advantage and for some that might mean holding on to capacity that lower fuel prices make cheaper to run. 


All that contributes to a situation in which capacity continues to outpace demand, further exacerbating the imbalance between supply and demand while also hitting yields and load factors. Since 2010, only in 2014 has cargo traffic demand (FTK) outgrown capacity (ATK).


The steady growth in capacity is also due to increases in belly hold availability, which is outpacing growth in freighter capacity and looks set to continue to do so as operators open up new passenger routes and aircraft order books continue to swell.




If tough comparisons characterised the first half of 2016, geopolitical and corporate shocks have been the order of the day in the second half. They may not have had a concrete impact on the global logistics sector yet. However, industry operators are waiting with bated breath to see what effects surprise events including Britain’s Brexit vote, turmoil in Turkey, the recent passing away of King Rama IX of Thailand and the bankruptcy filing of Hanjin Shipping line will have on their businesses. Not to mention another huge world event – the results of the US elections in November. >>

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