Cargo Growth Slowing to Zero

November 5th, 2015 - Disappointing economic activity in major regions and ever-expanding capacity amid lower demand puts pricing pressure on transport and logistics specialists.

Disappointing economic performance in key regions combined with rising capacity levels are putting the brakes on global cargo traffic.

The result has been generally flattening or declining worldwide activity in the third quarter, which should lead to similarly modest sea and air freight figures for both Q4 and the full year.

The main factor in slowing demand has been largely macro-economic, with China’s once red-hot growth decreasing to more sustainable rates. That slowing, along with depressed commodity markets and crises-hit economies in emerging nations, has led governments and business put many planned projects that help drive logistics activity on hold.

“Apart from the US and Middle East, every other region is really slowing, which has been a big drag on demand,” says Anne-Sophie Fribourg, sea freight procurement manager for Bolloré Logistics in Paris, France. “None of the BRICs countries are delivering as expected, and security and economic trouble in Africa have similarly complicated demand there.”

Though volume between China and North America and from Asia to some European ports has resisted the slump, she says, cargo between China-Russia fell 30%, China-UK has flat-lined, and China-Germany shrunk 4%. Intra trades volumes are on the contrary increasing particularly intra-Americas and intra-Asia.

Consequentially, Anne-Sophie Fribourg expects sea cargo demand that has steadily fallen from over 5% early this year to nearly zero in August to register a 3% decrease in Q4. She foresees full-year shipping results ending flat, with that slowing continuing through 2016.

The reason, Anne-Sophie Fribourg notes, is that spiking over-capacity levels that became cause for concern this year aren’t expected to be resolved any time soon. She says initial forecasts for 2015 saw demand increasing by 3.9%, and supply by 8.8% as new larger vessels came into operation. But she says the demand/supply differential is now closer to 6%, and probably won’t begin evening out until 2017.

“Spot rates from China are the lowest they’ve been since 2008, against weaker cargo volumes and low utilization rates,” Anne-Sophie Fribourg says.

But she notes that while that’s bad news for ship owners, it provides an opportunity for companies like Bolloré to anticipate economic activity picking up, and capacity levels stabilizing.

“Increasing capacities present real opportunities for those who move early to seize new capacity coming on the market, and acquire new business to use it,” Anne-Sophie Fribourg says. “Now is the time to put ourselves in the position to fill that new capacity when demand rises again, and take the risks that produce benefits for us and our customers later on.”

A similar, though less severe trend has been underway in the air sector, driven by the same economic and capacity factors.

Industry figures show that while air cargo activity expanded 3.2% in the first half of the year, it has experienced significant slowing since dipping into the red in July. Expectations are for third quarter sluggishness to continue through to the end of 2015, producing small or flat growth figures for the full year.

Claude Picciotto, air freight procurement manager for Bolloré Logistics in Paris says demand has varied greatly by route, with the same macro-economic concerns affecting sea freight being responsible. Globally, activity has slackened, with some significant bright spots.

“Despite its slowing economy, China is still the driving force in Asia-Europe, Asia-North America and Asia-Africa routes,” he says. “Even though Africa has been flat or perhaps down – especially from Europe – Chinese exporters like telecom manufacturers have picked up the slack to African destinations.

“The advantageous euro/dollar rate has also allowed Europe to add activities, especially with the US,” Claude Picciotto continues. “Bolloré’s business has seen considerable increases in industrial cargo on Far East routes to Europe and North America, and to European destinations from US cities like New York, Atlanta, Chicago, Los Angeles and San Francisco.”

He notes that increased capacity and changes in cargo pricing – both largely driven by Middle East carriers – have both put pressure on margins. Led by Qatar Airways, Emirates, Etihad and freight specialists Air Bridge Cargo and Saudia, moves to increase capacity levels have multiplied across the sector, far outpacing demand.

Their adoption of all-in pricing, Claude Picciotto adds, “Makes measuring the impact of record-low oil prices difficult, because savings in one area are rolled into a package rate that remains fixed. So Middle East competition is prompting change in lots of ways.”

Key Figures
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    of growth for Indian GDP in 2014

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    of growth for African GDP in 2016

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    of growth for East Asian GDP in 2015, the world’s fastest-growing region

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