Unresolved trade war dents air cargo industry

Fears of further damage to world trade are seen with global air cargo demand falling 3.4% in May from a year earlier, caused by the ongoing US-China trade war.
Weak global trade volumes and tensions between governments have contributed to a decline in new export orders and dented the air freight segment.
Goods valued at $6tn are exported by aircraft each year, according to IATA, accounting for 35% of the value of world trade.
Air freight companies have already seen a revenue fall due to declining shipments of high-tech goods such as semiconductor chips and products used in ‘just-in-time manufacturing’.
The world’s top two economies have been locked in a trade war since last year, swapping tit-for-tat tariff on goods worth hundreds of billions of dollars, sending markets into a tailspin.
The fallout has gone far beyond their shores, with manufacturing in many export-dependent Asian economies taking a hit.
Undoubtedly, the trade war will have consequences on both the United States and China, the world’s two largest economies.
But collectively, they can bring the global economy crashing down.
Demand has suffered due to very weak global trade volumes and US-China tensions, which has contributed to a decline in new export orders, data provided by the International Air Transport Association show.
China’s trade volumes may contract between June and August this year as ongoing trade disputes weigh down ocean trade imports and air exports, a report showed.
The trade war has had a huge impact on supply and demand within the US truckload market. Companies scrambling to beat the deadline of the proposed tariff increases on Chinese-made goods pushed major ocean container volumes into the ports, and left US warehouses packed full of imported goods that were not meant to ship until after Chinese New Year in 2019.
As inventories grew, many US importers reportedly ran out of available warehouse space, so they were left looking for options close-by US ocean ports to temporarily store their cargo while they waited for the 2019 retail season to kick off.
All this happened simultaneously with what was already set to be a record year in peak season volumes as US retailers prepared to meet holiday-driven demand.
So, the impact on the truckload market was described as “immediate”, and  truckload carriers were quick to respond by repositioning themselves to major US port markets where volumes have remained elevated ever since.
Meanwhile, freight operators seemed to be bracing for more disruption as tensions between Washington and Beijing ratchet up, and trade experts warn that declining shipments — worsened by Brexit jitters and simmering tensions in the Middle East — indicate a slowdown in global growth.
Data from the International Air Transport Association shows that demand — measured in freight tonne kilometers (FTKs) — fell by 3.4% year-on-year, a slender improvement on the 5.6% decrease felt in April.
IATA anticipates this sector will be flat this year with cargo volumes of 63.1mn tonnes (63.3mn tonnes in 2018) because of the impact of higher tariffs on trade. Cargo yields are expected to be flat in 2019 after a 12.3% improvement in 2018, explains IATA, as cargo load factors fall further, and supply-demand conditions weaken.
Despite the slight progress, IATA director-general and CEO Alexandre de Juniac said trade tensions around the world will continue to affect air cargo unless something changes.
“The impact of the US-China trade war on air freight volumes in May was clear. Year-on-year demand fell by 3.4%. It’s evidence of the economic damage that is done when barriers to trade are erected.
“Renewed efforts to ease the trade tensions coming on the sidelines of the G20 meeting are welcome, but even if those efforts are successful in the short-term, restoring business confidence and growing trade will take time. And we can expect the tough business environment for air cargo to continue.”
Already, the global trade body of airlines issued a warning that the effects of the US-China trade war and high fuel prices will wipe $7.5bn off expected airline profits in 2019.
Carriers worldwide will collectively generate a profit of $28bn, down a fifth on estimates made at the end of last year, according to the International Air Transport Association forecast, $2bn less than in 2018.
Brian Pearce, chief economist at the IATA, forecast “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% of global air cargo traffic, was “clearly under pressure”, he noted.
“Cargo is such an important feature that the weakness in trade and the risk surrounding it will mean profitability will be weaker in this region,” Pearce added.

* Pratap John is Business Editor at Gulf Times.