Our annual Outlook report provides a platform for selected senior members of the air cargo sector to voice their views on their expectations, hopes, and visions for the coming 12 months. This year, we deliberately targeted individuals from across different parts of the air freight sector, although interestingly there are some significant common themes, such as an expectation for moderate growth of between 2% and 5%, globally, plus a belief in the importance of 2015 as the transformation year on the road to the digitalisation of the sector.
Following the continuing air freight recovery in the first half of 2014, the majority of those involved in international air freight seem relatively optimistic about the second half of 2014 and the prospects for 2015 when we canvassed people’s opinions in early to mid-summer, 2014. Interestingly, when we asked people this time last year about their expectations, they generally accurately forecast the recovery we have seen in the last 12 months.
IATA’s Business Confidence Index
According to IATA’s July Business Confidence Index, most airline heads of cargo and CFOs expect cargo volumes to increase and pricing to remain stable or improve over the next 12 months, in what is one of the most significant shifts in air freight pricing expectations for several years.
The quarterly survey of airline heads of cargo and CFOs indicated that air freight rates declined at a slightly slower pace in the second quarter of 2014 compared to the previous year, consistent with improvements in cargo demand. Moreover, the outlook for cargo yields for the next 12 months has improved. While a majority of respondents said they expected no change during the year ahead (57%), an increasing proportion believes there will be a rise in yields (31%). Only 11.9% of respondents predicted that average air freight prices would reduce over the following 12 months.
The optimism comes despite the fact that more than 35% reported that yields had continued to decline in the previous three months, with just 24% reporting price increases and 41% reporting no overall change in average rates.
The survey of airline heads of cargo and CFOs also confirmed that the outlook for cargo volumes remained positive, with 56% of respondents expecting an increase in demand over the next 12 months.
Global Economic Prospects
According to The World Bank’s Global Economic Prospects report from June 2014, the global economy got off to a bumpy start this year, buffeted by poor weather in the United States, financial market turbulence and the conflict in Ukraine. As a result, global growth projections for 2014 as a whole had been marked down from 3.2% in January to 2.8% by the middle of the year. Nevertheless, growth is expected to pick up speed as the year progresses, and world GDP is projected to expand by 3.4% in 2015 and 3.5% in 2016 – broadly in line with earlier forecasts. When expressed in 2010 Purchasing Power Parity terms, global growth is projected to accelerate from 3.1% in 2013 to 3.4%, 4.0%, and 4.2% in each of 2014, 2015 and 2016.
The bulk of the acceleration is expected to come from high-income countries – notably the US and the Euro Area – where reduced drag on growth from fiscal consolidation, improving labour market conditions, and a steady release of pent-up demand are projected to overcome first-quarter softness and lift high-income GDP growth to 1.9% in 2014 (from 1.3% in 2013), and to 2.4% and 2.5% in 2015 and 2016.
The outlook for developing countries is for growth of around 4.8% in 2014, broadly equal to the growth figures achieved in 2013 and 2012. This marks the third year in a row of sub-5% growth and reflects a more-challenging post-crisis global economic environment. The 4.8% average growth figure masks an expected firming of activity during the course of 2014, with developing country growth reaching 5.4% and 5.5% in 2015 and 2016 – “broadly in line with potential”, the World Bank says.
Its report observes that the global outlook reflects countervailing forces. On the one hand, the acceleration in growth for high-income countries will supply an important tailwind, with their contribution to global growth expected to rise from less than 40% in 2013 to nearly 50% in 2015. As a result, high-income import demand is projected to accelerate from 1.9% growth last year to 4.2% in 2014 and as much as 5.0% in 2016, and developing country exports from 3.7% last year to 6.6% by 2016.
Developing country growth will be limited in part because most developing economies are already fully recovered from the crisis and growing at close to potential. Moreover, in the medium-term, global financial conditions will tighten. However, given substantial further credit easing in the Euro Area, when that tightening will occur has become less certain. Other factors arguing against a more buoyant acceleration include restructuring in China, a gradual move towards a more neutral policy stance in developing countries and, for commodity exporters, stable or even declining commodity prices.
Regional prospects vary
Growth in East Asia is projected to slow slightly to 7% by 2016. Most countries in Latin America are operating at full capacity, but strengthening output in Argentina, Brazil and Mexico is projected to lift regional growth from a weak 1.9% this year to around 3.5% in 2016. In Sub-Saharan Africa, GDP growth is projected to gradually firm toward 5.1% in 2016 from a broadly flat 4.7% in 2014.
In the Middle East and North Africa, and in South Asia, growth is expected to pick up. In South Asia, the acceleration is expected to be focused in India, with regional growth projected to firm from 4.7% in 2013, to 5.3%, 5.9% and 6.3% in 2014, 2015, and 2016 respectively. In the Middle East, the projected rebound is more gradual, from stagnation last year to growth of 1.9%, 3.6% and 3.5% in each of 2014, 2015 and 2016, reflecting rising oil output in Iran and Iraq, and a partial recovery in Egypt and Jordan from the conflict-generated lows of recent years. However, the worsening security and political situation in Iraq will surely set back Iraq’s growth prospects.
In Europe and Central Asia, outcomes will be affected by the conflict in Ukraine. Growth for developing countries in the region is projected to drop from 3.6% in 2013 to 2.4% this year, before firming to 3.7% and 4% in 2015 and 2016. For the broader geographic region (including high-income countries such as Russia, Poland and other Baltic economies), The World Bank said growth was projected to gradually firm from a low of 1.7% in 2014 to 3.2% in 2016 – although this was before the escalation of the conflict in and political tensions over Ukraine triggered a new round of sanctions on Russia by the US and EU.
You can view more information and detailed data from this article in the magazine or it’s digital edition here