Air freight prices surged to a new 2016 high in October and are expected to climb higher in November as the build up to the holiday season peaks and industry confidence jerks upwards. However, analysts warn that the recent U.S. election will weigh heavily on global trade and could undermine the latest improvements in Asian exports.

Price Index Soars

     Drewry’s East-West Airfreight Price Index soared to 97 points in October, the equivalent of an average rate of USD$3.15 per kg. This was the first time the index—a weighted average of all-in airfreight “buy rates” forwarders paid to airlines for standard deferred airport-to-airport airfreight services on 21 major East-West routes for cargoes above 1,000 kg—had averaged more than $3 per kg in any month during 2016, although the performance last month was still lower than the 99.7 ($3.24 per kg) recorded in October 2015.
      Although the Stifel Logistics Confidence Index notched up its 14th consecutive month of negative confidence in November, the analyst’s Air Freight Index reached 49.3, up 0.4 compared to a year earlier. Moreover, Stifel’s Air Freight Logistics Expectations Index remained above the neutral 50-point mark this month at 51.1. While U.S. to Europe trade was the sole lane to improve month-on-month in November with a 0.1-point gain that took it to 56.1, the key Asia to Europe lane remained in expansionary territory at 50.9 points despite losing 3.6 points month-on-month.

Airports Council Positive

     The positive October figures and November forecasts followed similarly upbeat numbers for September. Airports Council International (ACI) said global air cargo volumes climbed 5.9 percent year-on-year in September, with international freight traffic up 7 percent compared to the same month of 2015.

Chorus Up & Running

     According to ACI, all regions except Africa observed improvements in air freight traffic in September. Europe had the highest growth (+7.6 percent), followed by Asia-Pacific and North America with robust increases of 6.7 percent and 5.5 percent respectively.
      Out of the top 20 air freight hubs, 15 airports reported growth rates of over 5.0 percent and only two experienced slight losses. “Because air freight is highly concentrated, with the top 20 air freight hubs occupying almost half of global air freight volumes, the strong growth among the major airports increased the global growth figure,” said ACI.

The Asia Report

     In the Asia-Pacific region, India, Korea, and China were the main contributors to September’s growth (9.3 percent, 7.2 percent, and 6.7 percent respectively). The top three airports with the highest volume increases were Hong-Kong (HKG, +7.2 percent or +26,000 tons), Shanghai- Pudong (PVG, +7.4 percent or +20,000 tons), and Seoul-Incheon (ICN, +8.1 percent or +17,000 tons). The surge in volumes coincided with the release and replacement of mobile devices such as the Galaxy Note 7 and iPhone 7, which boost exports out of Asia, said ACI.
      Early numbers out of Asia for October suggested that many of the September gains were maintained. The Association of Asia Pacific Airlines, for example, saw a continuation in the pick-up in volumes that began in the middle of the year. October demand, measured in freight ton kilometres, was up 7.1 percent year-on-year and uplift growth also outpaced the 3.9 percent year-on-year expansion in offered freight capacity in the month.
      Shanghai Pudong Int’l Airport Cargo Terminal Co., Ltd. (PACTL) handled record monthly tonnage in October of 153,607 tons, up 8.9 percent year-on-year. “We managed to significantly grow our international imports and domestic exports in the last couple of months,” said PACTL Vice President Lutz Grzegorz (left).
      “This is mainly due to the fact that the demand for high-value consumer goods picked up again. We noted that long term but also new customers increasingly request our new cool chain facility, continuously developing their range of products in collaboration with PACTL. In line with this positive trend we are confident to achieve another annual record by the end of 2016.”

Hong Kong Strong

     Hong Kong International Airport (HKIA) handled 420,000 tons of cargo in October, up 7.1 percent from the same period last year. The strong growth was mainly attributed to robust 13 percent year-on-year growth in transshipments. Amongst the key trading regions, traffic to and from Europe and Southeast Asia increased most significantly during the month. HKIA’s volumes were up 1.9 percent year-on-year in the first ten months of 2016.
      The outlook through November is also positive, but thereafter a downturn seems likely. “Drewry’s East West Airfreight Price Index moved to its highest point of the year in October to 97.0, a rise of 5.1 points on September’s reading, but the index remains some way off the 99.7 it was in the same month one year ago,” said Drewry analysis in the company’s Sea & Air Shipper Insight publication. “We expect to see prices strengthen further in November before easing off in December and early 2017.”
      ACI also said recent volumes gains may not last once the traditional peak holiday season is over. “While the increase in volumes is cause for optimism, it is still too early to identify a sustained recovery,” read a statement.

AAPA Protectionist Watch

     AAPA Director General Andrew Herdman (right) welcomed the recent upswing in air cargo demand, but pointed out that over the first ten months of the year demand was only up 0.7 percent year-on-year, and confidence remained “fragile amidst still weak global trade conditions and signs that protectionist sentiments are likely to shape the political agenda.”
      Herdman was of course referencing the U.S. Presidential election while also casting a glance at Brexit and forthcoming European elections in which right wing protectionist parties are expected to find favor.
      Although more policy clarity is awaited from President-elect Trump, most analysts have turned bearish on globalization since his election earlier this month.

Asia Revival On Hold

     Frederic Neumann, (below) Co-Head of Asian Economic Research at HSBC, said the post Trump trading environment meant the challenges for Asia, the world’s key exporter, were likely to be the most difficult the continent has faced since 2009, with exports “already struggling and little prospect for a policy-driven rebound.”
      He said Asia in general had struggled to increase exports in recent years. “Exports have struggled for some time now,” he said. “A combination of factors is to blame, including weak capex the world over, the commodity investment slump, creeping protectionism (or at least the absence of major trade liberalization over the past decade), supply chain disintegration, and an expenditure shift towards services.
      “The question for 2017 is whether exports will at last rebound. We have our doubts. Acceleration in U.S. growth should help. Yet this may be offset by continued sluggish demand elsewhere in the world, not least in emerging markets.
      “At the same time, a Trump administration may adopt a more protectionist stance.
      “True, details aren’t available yet, apart from some vague talk about punitive action and the promise to shelve the Trans Pacific Partnership (TPP). This, no doubt, will restrain exports, even if the impact will likely be more industry specific.
      “But note that uncertainty over trade policy in itself will promptly weigh on growth in Asia by curtailing investment—why invest in further capacity if it remains unclear that the resulting goods can be sold? In this sense, a pick-up in U.S. capex would partly come at the expense of investment spending in Asia.
      “It's hard to see, therefore, a meaningful revival in Asia trade for the foreseeable future.”
Sky King