Since the beginning of the trade war between the United States of America and China, the largest economies in the world, crises have started in many sectors, which significantly affected many of the world trade exchanges between countries.
The imposition of mutual tariffs between the two countries present significant repercussions on the air cargo sector where fears a global recession is expected in the coming months and has put severe pressure on airline companies.
Since the beginning of this year, the air cargo sector has witnessed in the past months a sharp decline that caused some panic about the worsening of crises between the world’s largest economic powers and the trade war that broke out between them at the beginning of 2018.
Air Freight Defined
The term air freight is defined as the transport of goods by a fleet of aircraft for cargo operations from one place to another and from one country to another in different parts of the world, through common international agreements which includes the actual transport of aircraft, equipment, warehouses, handling of equipment and packaging.
In addition to the speed of mutual international shipping and maintenance of the package, air cargo has one of the most rapid and effective means in the trade of goods, whether agricultural or even heavy commodities such as cars and other economic goods exchanged. Air cargo is also characterized by the possibility of rapid response to meet the emergency transport required in the event of major disasters in addition to the transport of perishable goods and medical materials and others.
An All-out Economic Warfare Between US and China
The escalating trade war between the United States and China has already evolved into an all-out economic warfare. For the eighth consecutive month, global air cago demand has continued to decline and is close to being on its worst performance for the past three years.
The International Air Transport Association (IATA) which represents 260 airlines around the world and contributes to 83 percent of global air traffic released data on global air freight markets and revealed this significant decline.
Demand levels (measured in tonnes of freight per kilometer) were down by 4.8% in June 2019 compared with the same period last year. Market analysts have been easy to point that the tariff increases caused by the US-China trade tensions have contributed to this decline.
According to the IATA June 2019 data, the demand for air cargo in the Asia-Pacific region saw a 5.4 percent decline. The Asian market saw a 10 percent decline over the past year, while air cargo capacity increased 1.8 percent over the same time period. North American airlines recorded a 4.6 percent drop in air freight rates during the same period. This is in comparison with the same period last year which was accompanied by a 1.9 percent increase in cargo capacity compared to last year.
The recent data also revealed that the demand levels for routes to and from Europe, South America and the Middle East were also low, with Latin American carriers also declining in numbers. Demand for air cargo in the same month increased by 1.0 percent compared to the same period last year, while capacity grew by 4.6 percent. Airlines in the Middle East also saw a 7 percent drop in air cargo volumes compared to the same period last year coupled with a 2 percent increase in cargo capacity.
On the other hand, African airlines succeeded individually amid the successive crises. For the same month this year, the sector recorded some growth with an increase in demand by 3.8 percent compared to the same period last year. This is the strongest performance for the fourth consecutive month with a capacity growth of 16.6 percent year on year.
On May 29, IATA released its April data on air freight demand which fell by 4.7 percent year-on-year as demand for air cargo in Asia and the Pacific shrank by 7.4 percent. Air freight demand in Europe fell 6.2 percent year-on-year and in the Middle East showed the same decline at 6.2 percent.
Freight demand in April in North America rose 0.1 percent year-on-year while Latin America and Africa sectors were down by 5 percent and 4.4 percent, respectively.
Data from the IATA released in February showed a 4.7 percent drop in demand levels compared to the same period a year earlier. This makes it the twelfth month in a row that cargo capacity is growing more than passenger demand while demand for air cargo still faces a number of constraints in trade tensions between economic powers.
This data translated to year-on-year contraction in demand for all regions in February with the exclusion of Latin America. Airlines in the Middle East reported a 1.6 percent drop in air cargo volumes compared to the same period last year while airlines in the Asia-Pacific region recorded a decline of 11.6 percent due to poor manufacturing conditions for exporters in the region.
In the same context, airlines in North America revealed the state of contraction in the region in February by 0.7 percent compared with the same period last year. This reflects the sharp slowdown in business activities with China.
With the same pace of contraction in February this year, airlines in Africa recorded a 8.5 percent drop in demand for air cargo compared to the same period last year. Despite this sharp decline, it is still 25% higher than its lowest level that was recorded in late 2015, with freight capacity growing by 6.8%, year on year.
No-Deal Brexit also a Factor
While the decline can be attributed to the trade tensions between US and China, it is not the only reason why the demand for this sector is slowing down. Fears of a no-deal Brexit is also to blame for the disappointing numbers and this has been observed since the beginning of this year.
According to Alexandre de Juniac, Director General and Chief Executive Officer of the International Air Transport Association (IATA), the sharp drop in air freight growth in April shows a negative trend. However, trade tensions between the two countries are affecting confidence, pointing to weak global trade for the rest of the year, highlighting that airlines are adjusting their capacity in an effort to match this. And since the sector has landed a sharp decline in global trade since the end of 2018, they are expecting the next year to be full of challenges for the shipping industry and have appealed to governments to deal with these sharp declines by easing trade barriers in order to boost business activity.