Air Cargo Confidence to be Strong in First Half of 2017

The confidence that key industry professionals display, concerning their firms’ growth potential, can be an indicator of their sector’s overall fortunes. Things are looking bright for the air freight industry, a new report indicates, as air cargo confidence levels will be strong in the opening half of 2017.

Confidence is strong.

Confidence boost

The global air freight industry has expanded significantly in the past few years, thanks largely to the rise of cross-border e-commerce. This provides consumers with more convenience than ever, as they can buy products and services via handheld devices on the go, incentivising them to execute more purchases. Therefore, this supplies more cargo for carriers to transports by plane across the world.

In a recent report, German logistics firm DHL Express found that cross-border e-commerce volumes are predicted to expand by an annual rate of 25%, from 2015 to 2020. This could provide more business for air cargo services and this sector itself is expected to expand at a Compound Annual Growth Rate of 3.2% between 2016 and 2021, according to a study recently carried out by MarketLine, a research company. Combined with China’s recent fiscal stimulus and new US President Donald Trump’s pledge to lower taxes and regulation, this is inspiring optimism in the air cargo sector.

Talking recently to Loadster, an industry site, Zahra Ward, the Global Equity Strategist for research institute Absolute Strategy Research (ASR) noted that air cargo industry confidence rose towards the end of 2016. This optimism is projected to remain robust in the first six months of this year. Expanding, she noted: “There is a reported pick-up in airfreight confidence… [global aviation body] the International Air Transport Association says this is a lot to do with carriers improving efficiency.”

Market conditions

Ward noted that confidence will be especially robust in Asia, where air cargo volumes are currently believed to be expanding by roughly 10%. This reflected data gathered by Drewry, a maritime research consultancy, concerning the Asian market’s progress in December 2016. In its December purchasing index, Drewry registered 11% and 11% increases at Hong Kong Airport and Incheon Airport respectively. In Incheon’s case, Ward argued, the collapse of Hanjin has benefited air cargo services.

Turning to Europe, ASR noted that here, air freight volumes expanded by 5.4% in October, but stalled in November 2016, due partially to Germany’s recent pilot strike. But Spain experience a 13% expansion for the fourth month in a row at the same time, which Ward argued shows that the rise in European air cargo confidence registered at the end of 2016 will continue. Drewry’s purchasing index showed that compared to December 2015, some European airports experienced growth in the last month of 2016. London Heathrow, where ASC Cargo operates, saw a 5% uptick in December.

Compared to November 2016, European rates on Drewry’s purchasing index declined by 6% in December, but even this was good news. Commenting, Drewry noted: “As December traditionally sees a drop off in rates the latest slide was not unexpected… It is testament to the growing strength of the market, that the rate decrease from November to December was smallest of its kind since 2012… We expect to see a further seasonal decrease to the index in January, once again smaller than usual.”

Spotlight on America

This picture appears to be far murkier, when it come to the US – the world’s largest economy. Both ASR and Drewry agreed that the American air cargo market is pretty flat right now and Ward added that the relevant January purchasing index for the US air cargo sector still looks positive. It is hard, however, to give a complete assessment of the US sector, due to the lack of information that is expected to come out of China, upon which the US heavily relies, between now and February.

However, Ward argued, it is likely that the US air freight industry will record a somewhat positive performance in the opening six months of 2017. Expanding on this point, she noted: “Whether we see 10% growth until June remains to be seen, but the base level from last year is poor. Furthermore, there is the boost from China and businesses seem to be getting more confident about Trump.”

Yet Ward suggested that the US may serve as a threat, to the fortunes of the international air cargo market. Continuing, she said: “I don’t know how it will play out, but it doesn’t seem as if he [Trump] has thought through the massive cost increases US consumers will face if he begins imposing tariffs. But with Asia showing the first signs of growth in June that led to this run of good form, I would say look to there as a bellwether for any potential slowdown” for the worldwide air freight sector.

Ignazio Coraci’s comments

There are various reasons why air cargo confidence is currently robust. The rapid advancement of the global digital economy, coupled with rising consumer trust in e-commerce, is facilitating various new opportunities. But air cargo firms face a lacklustre worldwide economy and a growing anti-globalist movement across the Western World, which could impose new trade costs. It is crucial that air cargo services target key markets with established transport infrastructure like London, whose Heathrow airport is one of the busiest air export hubs on earth, to turn strong confidence into real growth.

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