The final quarter of 2018 featured slowing yet continued growth in cargo activity, which is likely to carry into 2019 despite questions surrounding global trade.
Demand in air and maritime cargo continued to expand in the fourth quarter of 2018, with most indicators suggesting similar progress extending into 2019. Yet possible changes in several factors affecting that activity -- including stuttering global economic growth – will be under careful watch as exporters update their freight planning.
Cargo transport enjoyed a healthy boost in both sectors as 2018 headed to a close, resulting in full-year increases of 3.9% in the skies and 3.8% on the seas. Specialists foresee expansion continuing in 2019 with respective gains of 3.7% and 3%.
Demand in Q4 and in early 2019 received a lift from the annual rush ahead of the Chinese New Year, which began February 5. Meanwhile, exporters wary of a worsening trade dispute between the US and China are seeking to deliver goods ahead of American tariffs threats scheduled to be imposed later this year.
“December saw a record surge of over 30% -- 9% higher than the same month in 2017 – so we ended the year with nice momentum” says Anne-Sophie Fribourg, Sea Freight Procurement Director for Bolloré Logistics in Paris. “Activity is expected to calm as usual after the Chinese New Year, but barring any negative developments we should see modest 3% growth against 6% capacity increases in 2019.”
US-China trade tensions are among those potential wild cards exporters will be watching. So, too, is slowing economic growth that could slacken further. The International Monetary Fund and United Nations both recently slightly lowered 2019 growth forecasts to 3.7% and around 3.1% respectively. Many observers fear the record expansion of the US economy is running out of steam and could reverse itself.
Signs of decelerating are also visible elsewhere.
Figures released in early February showed eurozone growth dropped to 1.8% in 2018 compared to 2.4% the previous year. While official statistics showed China’s economy still booming with a 6.6% advance, it was the smallest increase since 1990.
Yet despite that slowing, neither clients nor service providers in transport and logistics are particularly worried about 2019.
The International Air Transport Association has said slagging air cargo growth rates mirror previous slowdowns “at the end of global inventory restocking cycles,” and deemed the sector “still in good shape.” Claude Picciotto, Air Freight Procurement Director for Bolloré Logistics in Paris agrees.
“Activity in 2017, especially the last quarter, was exceptional, so in 2018 and 2019 we’re returning to normal but positive levels,” Mr. Picciotto comments. “Activity from Europe to the US remains strong, and e-commerce – while no longer the new boost it was – continues fueling growth.”
Mr. Picciotto notes that stabilizing capacity levels may well lead to some rate increases, as would rises in oil prices. Potential transport fallout from Brexit is also possible. “But while costs may increase moderately,” he says, “the outlook remains positive.”
In maritime activity, Ms. Fribourg says the major foreseeable effect on rates will come from application of environmental requirements to reduce sulfur emissions 85% by 2020 – an effort carrying an estimated $60 billion price tag.
“Carriers are already preparing supplemental charges of $120 to $160 per TEU to pass on that cost to customers,” Ms. Fribourg says. “Changes to pricing structures that will respond to fuel fluctuations will also affect final cost to customers. As always, just how those are applied will be shaped by supply and demand factors, and whether carriers prioritize margins or volumes.”
Another area to watch, Ms. Fribourg continues, is how Chinese companies react to possible tightening of US-China trade relations. For now, some are redirecting exports to North America via Southeast Asian ports – or, as Mr. Picciotto notes, by using air routes through Europe. Should all exporting – or even industrial production – by large Chinese companies be relocated to Southeast Asia, the consequences could be significant.
“Not all ports in the region have the kind of capacity and equipment to handle the volumes and services required,” Ms. Fribourg says. “That kind of shift would mean major adaptations.”