IATA: Global Air Freight Volumes to Increase 17 Percent

IATA: Global Air Freight Volumes to Increase 17 Percent

American Airlines Cargo

The International Air Transport Association has forecast that international freight volumes will increase 17 percent over the next five years, a deceleration from the 21 percent growth over the past five years.

Assuming there is a conservative recovery in global economic activity and world trade volumes continues in coming years, IATA’s Airline Industry Forecast 2013-2017 showed that global freight volumes are expected to grow at a five-year compound rate of 3.2 percent.

Brandon Fried, executive director of the Airforwarders Association, believes that air freight capacity will keep up with this demand. That news is not necessarily positive though, as recent increases in capacity have kept yields and revenues down. Continued increases in capacity in 2013 countered the modest improvements in demand, causing yields to decline – a trend that could continue into 2014 as new aircraft deliveries come into service, IATA said.

Global capacity growth in comparison with global cargo growth since 2008.

“Large numbers of wide-body passenger aircraft entering the fleet with ample belly capacity for cargo have resulted in an imbalance between freight demand and capacity,” said Perry Flint, head of corporate communications of the Americas at IATA, in an email with the JOC. “For example, through the first 10 months of 2013, international freight capacity rose 2.2 percent, while traffic rose just 0.6 percent over the year-ago period. Freight [metric tons] carried in 2013 will be barely above 2011 levels and revenues from cargo in 2013 are forecast to be $60 billion, below 2008 levels of $63 billion.”

For some airlines, the lack of a designated freight fleet is a significant advantage. American Airlines, which does not own any freighters and moves cargo by carrying it on passenger flights, is less exposed to overcapacity problems in the freight industry, said Roger Samways, managing director of global accounts and sales strategy at American Airlines Cargo, in an interview with the JOC.

By 2017, the U.S. and mainland China, the air freight industry’s largest and third largest markets respectively, will likely add more than 1 million additional metric tons each, IATA forecast. As a result, China will replace Germany as the second largest air freight market in the next five years, driven by China’s larger and increasingly skilled labor pool, competitive labor costs and a focus on consumer rather than industrial goods, according to Fried. Hong Kong and the United Arab Emirates are expected to contribute more than 700,000 metric tons each during the five-year period.

However, Africa is predicted to be the fastest growing region over the forecast period, with a CAGR of 4.0, followed by the Middle East and Latin America, both with CAGRs of 3.8 percent, and the Asia-Pacific region with 3.5 percent per annum, according to the forecast report. North America and Europe are expected to show CAGRs of 2.7 percent and 2.4 percent respectively.

“Africa is predicted to be the fastest growing region because several nations in the continent are experiencing some of the fastest rates of economic expansion seen in the world, including Nigeria, Ghana and Ethiopia,” Julie Perovic, IATA’s senior economist, told the JOC via email.

By country, Vietnam is expected to record the fastest growth for air freight volume in the next five years with a CAGR of 6.6 percent per annum, followed by Bangladesh, Brazil, Ethiopia and Peru.

“Vietnam is an attractive low cost location for manufacturers, so this will help boost demand for air freight for that nation over the next five years,” Perovic explained.

In terms of air freight trade lanes, the largest freight traffic shares in 2012 were within Asia-Pacific with 25.3 percent, Europe-to-Asia-Pacific with 12.1 percent, north and mid-Pacific with 10.5 percent and North Atlantic with 10.1 percent. Looking ahead to 2017, the Asia-Pacific route is expected to increase by around 1 percentage point, as it is a key manufacturing center, according to Perovic. Smaller gains are expected in both North America-to-Latin America and Middle East-to-Asia-Pacific lanes, while traffic shares within Europe and in the North Atlantic, Europe-to-Asia-Pacific and north and mid-Pacific lanes are expected to decrease.

The Association of Asia-Pacific Airlines recently released an optimistic view of the Asia-Pacific region’s long-term outlook, saying there are signs that the worst of the air cargo demand slump is now over. Fried further explained that the Asia-Pacific region in particular has become lucrative by catering to the consumer electronics and auto parts manufacturing fields. American Airlines Cargo is also seeing growth in Asia on the horizon, and plans to continue targeting that region in the future, according to Samways.

However, the expected slowdown in air cargo growth in the next five years is due to an ongoing modal switch by shippers from air to ocean transportation, according to IATA. Recently, air freight rates have been contracting, while sea freight rates appear to be rebounding, as a result of improvements in sea transportation demand. Regardless, air freight “will certainly grow,” despite the slower rate compared with the last five years, when interest rates return to historic norms and the carrying cost of goods in transit is again a significant factor in the mode decision, Fried said.

“Less than 5 percent of freight volume flies, but that small amount constitutes 35 percent of overall shipment value,” Fried explained. “Regardless of the global economic situation, the speed of air cargo will always trump slower transit times when getting goods to market quickly.”

In the future, the big challenges on the horizon for the air cargo industry will be increasing trade barriers and rising “on-shoring” manufacturing, according to Flint. On the other hand, mounting interest in e-freight, which would streamline customs procedures and promote paperless transportation processes, thereby reducing wait times and costs, has the potential to transform the air freight industry, Samways said.

“The successful conclusion of the World Trade Organization talks in Bali potentially could be very important in kick-starting trade growth,” noted Tony Tyler, IATA’s Director General and CEO, in a published remark.

Contact Grace M. Lavigne at glavigne@joc.com.