Trade disputes are the problem, not global economy, according to the International Air Transport Association’s chief economist, Brian Pearce – reports Donald Urquhart.
Speaking at the association’s World Cargo Symposium in Singapore, Pearce (pitured above) says: “The hard reality of last 12 months is that we’ve actually seen no growth in industry, at all.”
While the much touted growth rate in FTKs for 2018 was 3.5 per cent, Pearce notes that once this figure is seasonally adjusted, it becomes clear that all of the growth happened in the early part of 2018. For much of last year the industry didn’t grow and in fact in the last few months of last year it experienced some contraction.
The weakness is also quite widespread – the major trade lanes show a consistent picture of the slow down. And in the the last few months, particularly in Asia – which is considered the bellwether for the industry, being as it is the manufacturing and assembly hub of the world, has shown particular weakness.
A key indicator – export orders – remain in negative territory with the expectation they will shrink further, Pearce says. With export order data typically preceding movement in air cargo by two or three months, Pearce says the impact will still be felt for some months to come.
This manufacturing contraction is partly due to the restocking cycle which unexpectedly peaked in 2017 driven by businesses around the globe who were surprised by a surge in demand. This of course led to a very good year for air cargo.
But Pearce notes that not only has this cycle ended, but “it’s clear in the last 12 months that the situation has gone beyond the typical industry restocking cycle – it’s more than that.”
Problems with world trade rather than general economic weakness is behind this. He notes that GDP growth is still in “pretty good shape.” The issue, he says, is “cross border trade is weakening sharply, that’s what’s damaging our business in air cargo.”
He also highlights that this year’s cargo growth forecast downgrade to 2.0 per cent growth, “is quite significant”. Pearce says this is in a large part due to what has happened already from late 2018 into early 2019.
The outlook for the rest of the year and five years that IATA has projected are based on the trade situation not getting any worse and based on world trade figures forecasting global growth of 3.5 per cent this year.
“Our projection – 2.0 per cent this year and 4.4 per cent on average over the next five years – is based on air cargo outperforming world trade, reflecting the increasing impact of structural changes like ecommerce which favours air cargo over other modes of transport.
“But obviously if we see a deterioration of the trade situation and I don’t think we are out of the woods yet, we could see a weaker trade environment.”
He highlights there could be other trade disputes, not just between the US and China, but Europe being pulled into US issues over auto components – an important air cargo product.
“It does look like we are on a cusp of deal between the US and China, but we need to have open eyes on the trade policy situation.
“We are in a different world today post-global economic crisis where aggressive unilateralism rather than the multilateralism the world pursued some time ago,” he adds.