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Global Air Freight Sinks into Longest Recession since 2008

Summary:
US-China trade war, falling business confidence, slowdown in China, German exports, and new: the temporary shutdown of Hong Kong’s airport, the largest cargo hub in the world. Demand for global air freight, domestic and international, as measured in freight tonne kilometers (FTKs), fell by 3.9% in August compared to August last year, the 10th month in a row of year-over-year declines, the longest such period of declines since 2008 during the Global Financial Crisis, according to the International Air Transport Association (IATA). But there have been steeper year-over-year drops more recently, including in February 2016, when air freight demand fell by nearly 7%. In the largest region, Asia Pacific, which accounts for 35% of total air freight, demand fell by 5.0%, accounting for just

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US-China trade war, falling business confidence, slowdown in China, German exports, and new: the temporary shutdown of Hong Kong’s airport, the largest cargo hub in the world.

Demand for global air freight, domestic and international, as measured in freight tonne kilometers (FTKs), fell by 3.9% in August compared to August last year, the 10th month in a row of year-over-year declines, the longest such period of declines since 2008 during the Global Financial Crisis, according to the International Air Transport Association (IATA). But there have been steeper year-over-year drops more recently, including in February 2016, when air freight demand fell by nearly 7%.

In the largest region, Asia Pacific, which accounts for 35% of total air freight, demand fell by 5.0%, accounting for just under half the global decline (blue). In North America (purple) and Europe (yellow), each accounting for just under 24% of global air freight, demand fell respectively by 2.4% and 3.3% (chart: © International Air Transport Association, 2019. Air Freight Market Analysis August 2019. All Rights Reserved. Available on IATA Economics page).

Global Air Freight Sinks into Longest Recession since 2008

“Shrinking global trade, political uncertainties, and weakness in some of the key macroeconomic indicators – particularly the new export orders component of the manufacturing PMI – continue to weigh on this month’s outcome,” the IATA report said.

Demand in August ticked down a little from July, after having ticked up a little in July from June, thus continuing the sideways movement since April, but at a level that was 4.4% lower than in mid-2018.

The chart below (© International Air Transport Association, 2019. Air Freight Market Analysis August 2019. All Rights Reserved. Available on IATA Economics page) shows billion freight tonne kilometers per month, not seasonally adjusted (red line) and seasonally adjusted (blue line):

Global Air Freight Sinks into Longest Recession since 2008

Capacity across the industry increased by 2% in August, compared to a year ago. With declining demand and rising capacity, the industry-wide freight load factor fell 2.7%, and is now at 44.6%. This means that 44.6% of the available freight tonne kilometers were used. This is a sign of “overcapacity, the structural challenge” of the industry, as the IATA has been pointing out, including in a report last year.

During the freight recession in 2016, the freight load factor (FLF) fell as low as 41%. Then it began climbing steadily, powered by rising demand, and despite increases in capacity reached 46% in 2018 and looked to be heading higher. But recently, under declining demand and still rising capacity, the FLF has been falling again.

Region Market share Change in Demand Change in Capacity
Total Market 100.0% -3.9% 2.0%
Asia Pacific 35.3% -5.0% 2.3%
North America 23.7% -2.4% 1.3%
Europe 23.4% -3.3% 3.3%
Middle East 13.3% -6.7% 0.8%
Latin America 2.7% 0.1% -2.9%
Africa 1.7% 8.0% 17.1%

International demand

Demand for just international air cargo – the above is for combined domestic and international air cargo – fell more steeply, with freight tonne kilometers down 4.6% in August, compared to a year ago.

For Asia Pacific, international FTKs fell 5.8%, the 10th month in a row of year-over-year declines. The IATA pointed out:

Mounting trade tensions along with the slowdown in the Chinese economy continue to be the main drivers behind the contraction.

Additional pressure this month came from the temporary shutdown of Hong Kong International Airport – the largest cargo hub in the world – which affected both passengers and belly cargo.

Demand in North America for international air cargo has also come under pressure, particularly the Asia-North America routes, where volume dropped 5%, as “carriers continue to face headwinds from the US-China trade war and falling business confidence.”

In Europe, the decline in demand for international air cargo “has reflected softer regional economic outcomes and weaker support from new export orders in some of the key countries, notably Germany.”

In recent months, demand has stabilized on the largest international trade lanes for North America and Europe, the IATA said – but “well below” the levels a year ago.

“Fleets are nervous. The latest manufacturing and construction numbers are concerning. The trade issue with China looms.” Read…  Orders of Heavy Trucks Collapse, Layoffs Start

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Global Air Freight Sinks into Longest Recession since 2008

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Wolf Richter
Founder, Wolf Street Corp. In his cynical, tongue-in-cheek manner, he muses on WOLF STREET about economic, business, and financial issues, Wall Street shenanigans, complex entanglements, and other things, debacles, and opportunities that catch his eye in the US, Europe, Japan, and occasionally China.

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