Cargo Ends 2019 Quietly As Economies Slow and Questions Arise

February 7th, 2020

Volume growth in fourth quarter air and sea freight reflected weakness seen earlier in 2019, with hopes for improvement in 2020 clouded by unpredictable factors.

Air and sea cargo volumes in the last quarter of 2019 largely mirrored disappointing levels witnessed earlier in the year. Slowing global economic expansion, geo-political uncertainties, and reaction to the coronavirus threat contributed to slumping freight flows. While forecasts call for improvement in 2020 and beyond, those same, largely uncontrollable factors will condition whether resurgence indeed occurs.

Given the surge of exports in the fourth quarter of 2018 – stoked by a rush to deliver goods ahead of tariffs scheduled for 2019 – few observers had expected Q4 of this year to match that performance. That caution proved wise. Unexpectedly sluggish global growth, rising US-China trade tensions, turmoil in the Middle East, and disruption from the coronavirus scare further accentuated Q4 shrinkage in year-to-year terms.

The result was a modest 2.3% gain in Q4 maritime volumes, down from over 3% the same period in 2018. Air freight was also lower, with monthly payloads anywhere from 1.1% to over 4% smaller than the year before. That final quarter was slightly better than Q3, experts say, but failed to pull 2019 out of its doldrums.

"For a week in November there was a promising rise in volumes, but that fizzled out quickly," says Claude Picciotto, Air Freight Procurement Director for Bolloré Logistics in Paris. "With economies slowing and consumption down, there weren't many big product launches or other large pushes by exporters. They're waiting for signs of improvement."

They didn't get that in Q4. The US economy expanded a mere 2.1% – compared to 2.6% a year before – as consumption sagged. The Eurozone posted 0.1% growth, due in part to contraction amid ongoing strikes in France. Disruption from China's spreading corona virus added to the worries.

Forecasts suggest some of that should improve in 2020, however. The International Monetary Fund and United Nations are predicting global economic growth of between 2.5% to 3.3% in 2020, and from 2.7% to 3.4% in 2021.

Exporters may also be seeing reasons for optimism elsewhere. In December, for example, the US and China agreed to a phase one trade accord scrapping billions of dollars in planned tariffs and creating a framework to resolve underlying disputes. In Europe, meanwhile, the three-year Brexit psychodrama is winding down, with negotiators seeking an amicable divorce agreement by year's end.

"As weak as fourth quarter and full-year 2019 activity were, there's a feeling the worst may be over," comments Anne-Sophie Fribourg, Sea Freight Procurement Director for Bolloré Logistics in Paris. "And even in Q4, there were examples of considerable opportunities remaining for companies prepared and willing to take advantage of them."

Ms. Fribourg cites the 7% surge in volumes on Europe-Asia trades, driven in part by the pork crisis in China and resulting import demand. In the skies, meanwhile, European carriers captured a whopping 23% of the world's FTK growth in November, despite stagnating rates elsewhere. "Some of that was fueled by exports of wine and other goods targeted by looming US tariffs," Mr. Picciotto explains.

Expected 2020 improvement notwithstanding, wild card elements will still shape export activity. For starters, Mr. Picciotto notes, renewed clashes between the US and Iran – and the volatile situation in the Middle East generally – will continue generating concerns about the reliable flow and price of oil.

The same applies to maritime transporters. They not only operate using oil-based fuels, but are also just starting to pass on costs of buying cleaner gas and modernizing engines under IMO 2020 regulations reducing carbon emissions. Those surcharges – in addition to recent blank sailings to maintain rates via cutting capacity – have led maritime consultancy Drewry to forecast a 7% rise for all-in cargo clients in 2020 alone.

"And we're only at the beginning, because IMO 2020 is just the first step towards the ultimate objective of decarbonizing sea shipping," Ms. Fribourg says.

Meanwhile, she notes increased use of blank sailing in response to the coronavirus scare – and decreased Chinese factory output and export that provoked – could expand if the health threat widens.

"In macro terms there's reason to expect general improvement in 2020," Ms. Fribourg says. "But variables will keep changing, and we need to watch how the unpredictable factors evolve."

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