Air Cargo industry falling prey to protectionist measures

Global companies reconfiguring their supply chains

USA and China have been locked in a trade war since last year, swapping tit-for-tat duties on goods sending markets into a tailspin. The fallout has reached far beyond their shores, with air cargo industry taking a severe blow.

As the US President Donald Trump is pushing the tariffs high the global cargo demand is consecutively falling. As per a report of the International Air Transport Association (IATA), global air cargo demand declined by 4.7 per cent in April from last year. IATA said the worst decline is coming from manufacturing units in Asia and Europe.

“If we see further deterioration and tariff increases, there will be further damage to world trade. It will clearly be a difficult year for world cargo”, said IATA Director-General Alexandre de Juniac.

The decline in shipments has forced freight operators to brace for more disruptions, aided by Brexit effect and brewing tension in the Middle East- a phenomenon over which experts have already warned a global economic slowdown.

The USA in May imposed 25 per cent tariff of $200 billion on Beijing. The 25 per cent tariff was another blow by Trump administration to China as last year imposed heavy tariffs on steel and aluminium made in China.

USA cargo shipping major FedEx is already being probed by China after some Huawei packages were reportedly diverted to the US without authorization. China has been bracing for economic slow-down that has even crossed the prediction of economy experts. At the same time, US retail sales have also declined in April while factory production fell consecutively for the third time in four months.

IATA estimates goods valued at $6 trillion are expected by aircraft each year, accounting for 35 per cent of world trade. Transport of semiconductor chips and just in time goods have also reduced.

“zero growth at best” for air cargo traffic this year, noting the impact of the trade tariffs imposed in the first half of 2018. The Asia-Pacific region, which accounts for around 40 per cent of global air cargo traffic, is hit.

Brian Pearce, Chief Economist, IATA

Air freight companies have already seen revenue shrinking due to declining shipments of high-tech goods such as semiconductor chips and products used in just-in-time manufacturing. German airport operators and Deutsche Lufthansa AG reported that freight volumes weakening this year, and the carrier said it will trim cargo flights to protect viability.

Chip makers including Advanced Micro Devices Inc., Micron Technology Inc. and Nvidia Corp. have reported slowing shipments of semiconductors. The declines have been aggravated by USA’s blacklisting of Huawei, a top purchaser of chips. Samsung Electronics Co., the world’s largest chipmaker, called out tepid demand for memory chips and displays, two key air-cargo items.

Host of reasons

The industry continues to grapple with US-China tensions, cargo carriers face a host of other concerns. Britain’s exit from the European Union has pushed some companies to shift or slow production and stockpile goods. Economic turmoil in Turkey and tensions in Iran have cut into regional trade. Asian freight operators say failed harvests in the US have reduced air shipments of high-value foods that have become a growing part of their business.

As the tariff war drudges on, companies are revamping operations in ways that threaten to permanently shift trade flows. And even if the US-China conflict settles down, carriers with a big presence in Europe and Japan worry that Trump will then turn his fire on automakers like Volkswagen and Toyota hitting shipments of lightweight, air-transportable parts.

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