Air cargo is cheaper than in 2010, carriers could benefit from falling oil prices, but there are long term trends that are troubling, the International Air Transport Association’s (IATA) chief economist states at its cargo media day, held on 9 December.
On-shoring, near production and the rise of rail and sea freight from Asia to Europe are all long term trends being driven by higher Asian incomes and the relative price of consumer electronics. With factories being moved from China to Mexico, for example, to benefit from relative cheaper labour costs, the trans-oceanic freighter flight is facing possible less demand.
IATA’s chief economist, Brian Pearce, tells the cargo media day: “We are seeing some on-shoring of production for good economic reasons. Former very low cost producer areas, and China, have gone through a period of sharply rising labour costs, labour costs have more than doubled in the last decade, so relatively cost advantages are less.”
An airfreight trend that Pearce pointed to is the fact that the average cargo rate is 15 per cent cheaper than in 2010, but this year’s 40 per cent fall in the oil price could help carrier’s margins. “Fifty per cent of [airline’s] fuel is hedged, so they are locked into the price. The impact of the lower [oil] spot prices will take a little time to come through,” says Pearce, adding that he expects airfreight to get cheaper. While cargo is getting cheaper, IATA’s October 2014 airlines financial monitor states that as a whole, airlines made net, post tax, profits of $7.1 billion in the third quarter of 2014, down from $7.3 billion during the same period of 2013.
In the association’s Economic Performance of the Air Transport Industry report, published last week, it is predicting, that for 2015 a net industry profit of $25 billion will be achieved, thanks to the falling oil price.
Another trend Pearce identified as confronting airfreight is the fall in price of consumer electronics. As they become cheaper manufacturers are ready to send the products using rail freight. The IATA cargo media day heard of the example of consumer electronics firm HP of it sending its printers by rail from China to Europe.
The modal shift to sea freight has been a debated topic for years now, but IATA and advisory service company Seabury Group have concluded the move is real. A joint study found that sea freight has been taking a larger share.
Pearce presented data at the cargo media day that identified a minus 1.5 per cent annual decline in airfreight’s share of world trade every year since 2000, with a brief pause in 2010 before the decline resumed until stabilising in the last 18 months. Pearce also blamed increase government protectionism, using standards and government rules around domestic sourcing, as slowing the world recovery.
