Global economic shock softens air freight demand

After enjoying its due of a strong cargo demand through the pandemic, the air cargo market in softening owing to the growing economic uncertainty, in part, fuelled by decades high inflation. This potential weakening of the air freight market is coming at a time when the aviation industry is witnessing a surging passenger traffic, raising concerns of airlines’ reduced reliance on cargo. 

According to the Baltic Air Freight Index BAI-TAC-INX, transactional rates for general cargo fell 8.7% last week, while the airlines group IATA said on Monday that freight revenue generated by carriers this year would fall by 6.4%.

Akbar Al Bakar, Chief Executive of Qatar Airways has also warned of weakening demand of air freight due to inflation. “There will be a downturn in business (activity) and when there is a downturn in business, people don’t buy stuff that we normally carry as cargo,” he told reporters at an industry meeting in Doha.

Edward Bell, an economist at Dubai lender Emirates NBD, said that consumers and corporates as facing a “kind of vortex of price pressures” that they would increasingly be sensitive to over the rest of the year. Korean Air Chief Executive Walter Cho agreed to the softening of the freight rates but said they were far higher than they were before the pandemic, when there was much more capacity. “Demand is weak especially since China is basically shut down right now. We expect it to come back soon. I expect the cargo market to be sustainable until next year at least,” he said.

Credit Agricole CIB’s Global Head of Asset Finance Group Jose Abramovici said the sector was likely to remain profitable for several more years given how high air freights are today. Cathay Pacific Chief Executive Augustus Tang told Reuters cargo load factors were not as high as they had been because more air freight capacity was being added to the market. “If there is any moderation it would be really small but the trend is still really positive,” he said.

Both air and ocean freight rates has been touching the sky since the pandemic amid huge capacity cuts that have left limited available space compared to cargo being shipped. However, now the outlook has completely turned in a mere time of six months, as the economic outlook has turned negative, with growth slowing in China, inflation rising globally and retailers trying to dispose of excess inventory.

This month, the World Bank slashed down its global economic growth forecast by 1.2 percentage points to 2.9% for 2022, warning many countries of recessions. While freight rates could moderate due to added capacity, the cargo demand is likely to stay robust due to supply chain challenges.

On the contrary many experts believe that the freight rates will remain constant at least for the next six to eight months given the surge in fuel prices, but demand was likely to still outstrip supply even as more capacity is being added. However, they warned that increased operating costs, including fuel and labour, were making some routes almost unviable to operate.

Emirates is adding more freight routes into China this month in anticipation of an increase in production which has taken a hit under Beijing’s zero-COVID policy.

Korean Air and Emirates are both evaluating Airbus AIR.PA and Boeing’s 777x freights for new orders.

Source: Reuters

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