Putzger perspective: Air cargo’s descent to normal

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Economic turmoil is emerging worldwide and both airfreight rates and demand are feeling the strain, writes Ian Putzger.

The music is still playing, but the party is drawing to a close. Now the question is if a hangover lies ahead.

According to CLIVE Data Services (now part of Xenata), airfreight volumes and demand both contracted 7% year on year in July. Predictably this decline sent pricing down.

Rates have been sliding since March and are bound to retreat further. CLIVE founder Niall van de Wouw warned that “there are many dark clouds hanging over the air cargo industry”.

Economic indicators are dismal. China, the biggest engine of global trade, registered a paltry 0.4% growth in GDP in the second quarter and is now certain to miss its target of 5% growth for this year.

Lockdowns are still in place in multiple locations, and the country is facing a debt crisis triggered by the all-important housing market.

China’s investment in its Belt & Road scheme is also slowing as more client nations are in danger of following Sri Lanka into default.

Europe is struggling, which has forced the European Union to scale back its growth forecast for 2023 to 1.5% from from 2.3% previously.

The Bank of England has predicted the UK economy to fall into a recession in the fourth quarter of this year.

The US economy shrank 0.9% in the second quarter, following a contraction of 1.6% in the first three months of the year.

After a 5.9% drop in containerised imports in June, the National Retail Federation now projects US imports to sink 1.5% in the second half of the year, with further deterioration in 2023.

All this points to faltering demand in the months ahead, with continuing downward pressure on rates and yield.

It was always only a matter of time before rates and demand would retreat from the lofty heights of the past two years.

The question is how steep the descent is going to be. Nobody predicts a drop to pre-Covid rate and yield levels, but a lot of indicators point to a bumpy ride.

One stabilising factor is the state of supply chains. While abating congestion should allow shippers who were forced to shift to airfreight to return to the slower mode with more capacity available, brittle supply chains will cause many cargo owners to stick with airfreight.

Several recent studies suggest that supply chain disruptions will continue through 2023.

Putzger perspective: Cargo hub headaches

Putzger perspective: Alignment headaches

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