The restocking boom

posted on 13th December 2018

Air freight experienced an exceptional year in 2017, but unsurprisingly, the rates of growth, especially the double-digit increases in the first half, have not been sustained, writes Will Waters

As has become increasingly apparent as 2018 has progressed, air freight experienced an exceptional year in 2017, with more than 9% growth that was around double the rate of overall global goods trade and three times the level of air cargo capacity growth – driving up aircraft utilisation levels and leading to rising yields and revenues. Indeed, IATA calculates that air cargo revenues rose by around 25% in 2017, helped by a substantial improvement in yields, which were up by around 20% compared with their low point in 2016. Although some of that yield rise reflected higher fuel prices, a large part was an increase in underlying air freight prices.
Looking at the performance of the world’s top cargo airports, total air cargo volume at the 30 busiest cargo airports grew 7.3% in 2017, ACI reports. These airports handled a combined 62 million metric tonnes of cargo, representing 52% of all global air cargo volume.
As it has for several years, Hong Kong leads the ranking with five million metric tonnes of cargo handled in 2017, a 9.4% increase over 2016. Memphis remained in second place with 4.3 million metric tonnes and Shanghai stayed in third with 3.8 million metric tonnes.
Airports located in countries that are major exporters of manufactured goods handled almost 75% of global air cargo volume, ACI highlighted.
“Even with the uncertainty regarding the threat of trade wars and the growth of protectionist sentiments across the world, industrial production continued to make gains in 2017 as a result of the cyclical recovery in the global economy,” ACI noted. “Inventory build-ups, augmented export orders and a strengthening of consumer demand reflected in increased online purchases were important drivers in the near-term. All of this translated into growth in air cargo volumes.”
Indeed, IATA has done some modelling to identify what proportion of the air freight growth in 2017 and early 2018 had come from restocking, concluding that restocking was responsible for about half of this growth, with the other part due to growth sectors such as e-commerce and pharma.
Unsurprisingly, the rates of growth achieved in 2017, especially the double-digit increases in the first half of 2017, have not been sustained in 2018, with the restocking cycle gradually fizzling out. By early 2018, IATA’s chief economist Brian Pearce was reporting a slowdown in export orders often an indicator, of what is likely to happen to air freight demand in two to three months’ time. Export order levels were still strong, but not quite as strong as in early 2017, corresponding to a slowdown in freight-tonne-km (FTK) growth.

Inventory restocking
Pearce noted that what air freight had benefited from in the 18 months from late 2016 to early 2018 was “typical of the inventory restocking that we tend to see at the start of the economic cycle”, highlighting the close (negative) correlation between air freight growth and inventory-to-sales ratios. He noted that the 2016-2018 restocking phase had been longer than the previous one in 2010, and also correctly predicted that “this will not last forever; once the restocking has taken place, businesses will look more to cheaper forms of transport”.
In December 2017, IATA had originally forecast 4.5% air freight growth for 2018, but in its mid-year industry outlook, it revised its 2018 freight growth forecast downwards to 4%. According to IATA, FTK growth for the first half of 2018 was 4.7%, less than half the growth rate in 2017, and IATA estimates that international FTKs grew by just 1.9% in the third quarter (Q3) of 2018, year on year.
WorldACD estimates that worldwide air cargo showed just 2.8% year-on-year volume growth in the first three quarters of 2018, accompanied by a yield increase of 14.2% in US dollars and a yield increase of 6.6% when measured in euros. It notes that the origin region Central and South America stood out for its 11% volume increase in the first three quarters, and Europe was the fastest-growing destination market, with inbound tonnages to Europe increasing 5.4% in the first nine months of 2018.
In an analysis of the first eight months of 2018, WorldACD identifies the top 10 origin countries with the largest year-on-year volume increases as: Germany (+4%); USA (+5%); Australia (+7%); Thailand ( +7%); Belgium ( +11%); Ecuador ( +12%); Japan ( +14%); Bangladesh ( +18%); Brazil ( +18%); Chile (+26%). WorldACD also highlights the top 10 origin countries with the largest year-on-year volume decreases: Egypt (-22%); Jordan (-18%); Portugal (-11%); Austria (-8%); Sweden (-7%); Kenya (-6%); Taiwan (-5%); Italy (-3%); the Netherlands (-2%); and China (-1%).
Underlining the increasing importance of the transport of specific products, WorldACD said all special product categories outperformed general cargo in terms of growth in the first nine months of 2018, with pharmaceuticals, express and live animals still recording double-digit growth. On the basis of the first eight months of 2018, WorldACD estimates that general cargo grew just 1.9%, perishables by 2.5%, valuables by 4.8%, human remains by 5%, dangerous goods by 8.3%, vulnerable/high-tech goods by 9.6%, express products by 11.2%, live animals by 11.7%, and temperature-controlled pharmaceutical products by 15.3%.

Read the full article in the printed or digital editions of the publication.