Cargo Growth Positive but Weaker in Q1 2019

May 5th, 2019

Though lower Q1 levels in freight growth had been forecast, slumps in Asia reduced expansion more than expected -- with full-year advances also likely to slow.

Global cargo volumes increased again during the first quarter of 2019 in both air and sea sectors, though rates of growth were lower compared to recent periods. Mid-term outlook for stronger flows remains positive, however macro-economic factors and lingering concerns about trade policies have created some doubt in exporter planning.

That early-2019 slackening led the International Airline Transport Association (IATA) to cut estimated expansion from 3.7% to 2% for the year, compared to 3.4% in 2018. IATA reported activity in the three months ending January down 0.9% vis-a-vis the same period a year earlier – the weakest rise since 2016. The slowing in February was 4.7% in year-to-year terms.

Similarly, shipping consultancy Drewry foresees maritime volumes scaling down from 4.3% in 2018 to 3.9% this year, with cargo levels in the first quarter significantly reduced relative to previous periods. As a result, sea transporters -- much like their counterparts in the skies – have withdrawn capacity to maintain rates amid the lull.

Despite the moderated outlook for this year, Drewry sees 2020-2023 activity hovering between healthy 4.5% to 4.9% levels. IATA, meanwhile, expects an average 4.4% annual increase from 2020 to 2025.

Most observers anticipated the Q1 slowing as a major global re-stocking cycle ended, and exporters finished making deliveries ahead of threatened trade sanctions between the U.S. and China. Yet whether the envisaged rebound occurs will in part depend on improvement of underlying factors affecting declining freight growth.

Estimates for renewed vigor in cargo are based on assumptions a U.S.-China trade war will be averted – a wish thus far fulfilled, but still a threat in today's unpredictable political climate. They also count on current 2.5% global economic expansion rising above 3% once again, thereby reinvigorating world trade growth that fell from 4% in mid-2017 to under 2% late last year.

While a macro-economic surge would likely contribute to strengthened freight activity, the contrasting and confounding nature of recent slowing makes it unsure any single remedy will cure all ills.

"Volumes out of China were down even before Chinese New Year -- including flows to elsewhere in Asia that were expected to serve as relay positions for goods destined for the U.S.," explains Claude Picciotto, Air Freight Procurement Director for Bolloré Logistics in Paris. "China tapering off was not a complete surprise. But China remaining flat after March, even as volumes on all other routes slumped, wasn't expected."

Mr. Picciotto says carriers have cut capacity across the board to maintain price and yield levels, despite vast fluctuation in flows according to routes.

"While China may be down 15% and Asia-Europe off 13%, Europe-Asia is up 4% and Europe-North America is still healthy," he says of the contrast. "But everyone has reduced capacity, and long-term planning is still important to assure exporters have space when they need it."

Maritime transporters are also pulling capacity amid weakening demand, says Anne-Sophie Fribourg, Sea Freight Procurement Director for Bolloré Logistics in Paris. But in addition to propping up rates, that reaction by shipping lines is also aiming to take necessary environmental action ahead of looming International Maritime Organization rules to reduce sulfur emissions.

Those IMO 2020 regulations taking effect in January are expected to cost ship owners some $15 billion – a charge giving exporters additional pause in making future transport plans.

"Exporters are already unsatisfied with the procedures and transparency of surcharges and fees added above contracted rates, so they want to know how much of this price tag will be passed on to them," Ms. Fribourg explains.

Indeed, a recent European Shippers' Council survey asked nearly 300 client and freight forwarding companies to rate maritime transporter service. The poll found harshest judgment reserved for price clarity and the application of surcharges. Consequently, the study urged cargo carriers to use the imposed changes and costs of IMO 2020 as a catalyst to create revamped, transparent rate scales.

"This is an enormous expense to factor in, and dealing with it is going to have very important consequences for the entire sector," Ms. Fribourg says. "Exporters can't effectively plan if they don't know what costs they'll be facing. This is especially true in situations of flux and change."

Key Figures
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    of growth for Indian GDP in 2014

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

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    transported by the MSC Oscar, the largest container ship in the world

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