Unresolved trade war dents air cargo industry

Fearsof further damage to world trade are seen with global air cargo demandfalling 3.4% in May from a year earlier, caused by the ongoing US-Chinatrade war. Weak global trade volumes and tensions betweengovernments have contributed to a decline in new export orders anddented 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.Airfreight companies have already seen a revenue fall due to decliningshipments of high-tech goods such as semiconductor chips and productsused in ‘just-in-time manufacturing’.The world’s top two economieshave been locked in a trade war since last year, swapping tit-for-tattariff on goods worth hundreds of billions of dollars, sending marketsinto 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.Demandhas suffered due to very weak global trade volumes and US-Chinatensions, which has contributed to a decline in new export orders, dataprovided by the International Air Transport Association show.China’strade volumes may contract between June and August this year as ongoingtrade disputes weigh down ocean trade imports and air exports, a reportshowed.The trade war has had a huge impact on supply and demandwithin the US truckload market. Companies scrambling to beat thedeadline of the proposed tariff increases on Chinese-made goods pushedmajor ocean container volumes into the ports, and left US warehousespacked full of imported goods that were not meant to ship until afterChinese New Year in 2019. As inventories grew, many US importersreportedly ran out of available warehouse space, so they were leftlooking for options close-by US ocean ports to temporarily store theircargo while they waited for the 2019 retail season to kick off. Allthis happened simultaneously with what was already set to be a recordyear in peak season volumes as US retailers prepared to meetholiday-driven demand. So, the impact on the truckload market wasdescribed as “immediate”, and  truckload carriers were quick to respondby repositioning themselves to major US port markets where volumes haveremained elevated ever since.Meanwhile, freight operators seemed tobe bracing for more disruption as tensions between Washington andBeijing 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 AirTransport Association shows that demand — measured in freight tonnekilometers (FTKs) — fell by 3.4% year-on-year, a slender improvement onthe 5.6% decrease felt in April.IATA anticipates this sector will beflat this year with cargo volumes of 63.1mn tonnes (63.3mn tonnes in2018) because of the impact of higher tariffs on trade. Cargo yields areexpected to be flat in 2019 after a 12.3% improvement in 2018, explainsIATA, as cargo load factors fall further, and supply-demand conditionsweaken.Despite the slight progress, IATA director-general and CEOAlexandre de Juniac said trade tensions around the world will continueto affect air cargo unless something changes.“The impact of theUS-China trade war on air freight volumes in May was clear. Year-on-yeardemand fell by 3.4%. It’s evidence of the economic damage that is donewhen barriers to trade are erected. “Renewed efforts to ease thetrade tensions coming on the sidelines of the G20 meeting are welcome,but even if those efforts are successful in the short-term, restoringbusiness confidence and growing trade will take time. And we can expectthe tough business environment for air cargo to continue.”Already,the global trade body of airlines issued a warning that the effects ofthe US-China trade war and high fuel prices will wipe $7.5bn offexpected airline profits in 2019.Carriers worldwide willcollectively generate a profit of $28bn, down a fifth on estimates madeat the end of last year, according to the International Air TransportAssociation forecast, $2bn less than in 2018.Brian Pearce, chiefeconomist at the IATA, forecast “zero growth at best” for air cargotraffic this year, noting the impact of the trade tariffs imposed in thefirst half of 2018.The Asia-Pacific region, which accounts for around 40% of global air cargo traffic, was “clearly under pressure”, he noted.“Cargois such an important feature that the weakness in trade and the risksurrounding it will mean profitability will be weaker in this region,”Pearce added.* Pratap John is Business Editor at Gulf Times.