China-US trade war’s downward pressure on air cargo intensifies in August 

The International Air Transport Association (IATA) released data indicating that cargo traffic, measured in freight tonne kilometers (FTKs), decreased by 3.9% year-over-year in August. Year-to-date traffic is down 3.3% y-o-y. The further decline in traffic from last month suggests that downward pressure on air cargo intensified in August, despite the modest uptick seen in July.  

Freight capacity rose 2.0% y-o-y in August and 1.9% for the first eight months of 2019. Capacity growth has now “outstripped” growth in demand for the 16th consecutive month, according to IATA. 

With this decline in demand, freight load factor has also eased and is currently down 2.7 percentage points for August and 2.5 percentage points for the first eight months of 2019, compared to the same respective periods the year prior.   

IATA cites strong headwinds from the U.S.-China trade dispute, rising political uncertainty and weakness in some key economic indicators, such as the new export orders component of the manufacturing Purchasing Managers’ Index (PMI), as impacting global volumes.  

“The impact of the U.S.-China trade war on airfreight volumes was the clearest yet in August,” said Alexandre de Juniac, IATA’s director general and CEO. “Not since the global financial crisis in 2008 has demand fallen for 10 consecutive months. This is deeply concerning. And with no signs of a détente on trade, we can expect the tough business environment for air cargo to continue. Trade generates prosperity. Trade wars don’t. That’s something governments should not forget.” 

As was the case for July, IATA credited the Asia-Pacific region as the main contributor to declines in global air cargo volumes, accounting for almost half of the overall decline. Freight demand contracted across the largest routes between Asia and North America, where seasonally adjusted volumes are down nearly 5% compared to their levels in August 2018.  

“With the latest wave of trade tariffs between the U.S. and China coming into effect in early September, the outlook for air freight remains downbeat in the near term,” IATA said. 

Even though the Asia-Pacific and North America regions account for most of the FTK contraction seen in August, IATA recognizes weakness in air cargo more broadly. FTKs are also lower on routes to and from Europe and the Middle East, compared to the same period the year prior, according to the report.   

Airlines in the Middle East, Asia-Pacific, Europe and North America regions were the weakest performers for the month. Their total FTKs fell 6.7%, 5.0%, 3.3% and 2.4% y-o-y, respectively. Meanwhile total capacity for the Asia-Pacific, Europe and North America increased by 2.3%, 3.3% and 1.3%, respectively. Capacity for the Middle East decreased 6.7%. Year-to-date, airlines in these regions saw varied results: Middle Eastern carriers saw a 4.1% y-o-y decrease in FTKs and 1.2% increase in capacity; airlines in the Asia-Pacific region saw a decrease of 6.4% y-o-y in cargo traffic and 0.3% increase in available capacity; North American airlines saw a slight decrease of 0.6% in demand, while available capacity increased by 0.8%; and European airlines saw a 2.1% y-o-y decrease in freight demand y-o-y, and a 4.0% increase in available capacity.  

Meanwhile, Latin American airlines saw a 0.1% y-o-y increase in its overall August freight demand and a 2.9% decrease in overall capacity. Year-to-date demand and capacity in the region are up 1.2% and 7.0%, respectively. International FTKs for Latin American airlines, however, declined by 2.1% y-o-y for the month. This return to weakness after a modest 0.7% growth in July comes against a backdrop of low economic growth, compounded by the China-U.S. trade war. In some cases, regional political and geopolitical instability and currency volatility in key economies have also contributed to challenges in Latin America’s current business environment, according to IATA. 

Africa saw the strongest performance for the sixth month in a row, with airfreight demand increasing 8.0% y-o-y, continuing an upwards trend that became evident in mid-2018. Capacity grew 17.1% y-o-y, despite the small size of the region’s market, which makes up only 1.6% of the world’s share of airfreight. Year-to-date, demand and capacity are up by 5.3% y-o-y and 14.1%, respectively.  

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