Global demand for airfreight has dropped 3.3% in the year through August, claimed the International Air Transport Association last week. That’s 10-consecutive months the longest declining stretch since the 2008 financial crisis. China’s structural economic slowdown and its tariff spat with the U.S. are the likely culprits.
The troubles of the airfreight industry are headwinds that airlines and plane makers, Boeing especially, will likely need to keep battling.
Just like in the container-shipping industry, faltering demand hasn’t been enough to stop the expansion in freight capacity, which rose 1.9% in the year through August.
This speaks to a fundamental problem in the air-cargo business. Worldwide general cargo yields were down 7.1% over the same period, according to market-data firm WorldACD.
U.S. carriers have so far been harder hit even than Asian ones, despite the disruption at the Hong Kong International Airport caused by recent protests. In the three months through August, North American airlines’ U.S. dollar revenue from air-cargo flows between China and the U.S. fell a worrying 26% relative to the same period of 2018, compared with 17% for Chinese airlines, WorldACD said.
An example is Boeing’s flagship 777 jet, which has long relied on cargo buyers: They made up 33% of orders in 2018 and 65% so far in 2019. The company has said it is now leaning on freighter deliveries to fill production gaps in 2020, because faulty General Electric engines are pushing out the production schedule of the new model, the 777X.
Having to cut wide-body production rates in the future would be bad news for both Boeing and its European rival Airbus, which spend a lot of money designing planes and need to build a lot of them to turn a profit. But the Chicago-based manufacturer would be especially affected because it dominates the market for bigger jets and has cut production rates on the grounded 737 MAX. Freighter demand from the likes of FedEx and UPS is also keeping its aging 767 in production.