Improved worldwide economic growth and accompanying increases in trade generate higher volumes, rates and profits in Q4 for strengthening air and sea cargo transporters.
The final quarter of 2017 brought resumed growth in both volume and profit for air and maritime cargo transporters, closing out a generally upbeat year. And with underlying economic and trade factors appearing to favor continued freight activity, operators in the skies and on the seas are hopeful initially robust business in early 2018 will carry through the remainder of the year.
Though full-year data is still not available, the global economy appears to have fulfilled forecasts of over 3.5% growth in 2017, with key regions like the US, Europe and big Asian economies finishing the year with surges. That worldwide expansion drove increased international trade; both are expected to rise further in 2018.
That translates to good news for air and maritime freight operators.
Though their fortunes tended to evolve opposite one another in recent years, air and sea transporters generally – and similarly -- saw their results improve in Q4, much as they did in the second quarter. Volumes increased, past over-capacity problems were kept in check, operating costs were reduced while rates were nudged upwards to enhance bottom lines. Sector analysts say over two-thirds of big maritime operators reported increased profits in Q3, with air cargo carriers also ascending.
"The last quarter was exceptional, especially in volumes, which with earlier activity made 2017 a good year financially for most transporters," says Claude Picciotto, Air Freight Procurement Director for Bolloré Logistics in Paris. "That's quite a contrast from two or three years ago, when fluctuations in volumes, capacities and rates had left most carriers in less enviable financial shape."
Central to improvement in both sectors was resumed macro-economic growth that enhanced demand. In air transport, third quarter volume increases of 8.8% carried into Q4. Asia-Europe flows were particularly strong, with Europe-US activity even higher as American retailers reinforced insufficient stock levels ahead of Black Friday and Christmas. Forecasts for the first quarter of 2018 anticipate nearly 7% expansion.
"With volumes rising amid tightened capacity, transporters that were charging €6 per kilo earlier were getting as much as €15 per kilo in December, and around €8 on average in Q4," says Mr. Picciotto. "Against those dynamics, most carriers are now cutting back on hard price volumes and increasing spot capacity, where rates are 15% to 22% higher."
A similar combination of increased demand and better management of excess capacity resulted in considerably improved fortunes for sea transporters, too. Dramatic consolidation across the sector provoked by several years of severe financial crisis also produced fruit in terms of rationalization and reduced operating costs.
"Volumes were steady, operations consolidated and transporters responded to 90% capacity levels by increasing rates," says Anne-Sophie Fribourg, Bolloré Logistics' Sea Freight Procurement Director. She notes in particular how the beneficial 6.5% rise in demand in 2017 outstripping the 4% uptick in capacity marks a reversal of catastrophic capacity/volume imbalances of recent years.
However, despite sustained demand in both air and sea cargo in early 2018, both Ms. Fribourg and Mr. Picciotto warn it's too early for transporters to bank on next year being as good as 2017.
With air rates inflated by carriers reserving spot capacity over harder long-term contracts, a significant slide in demand could force transporters to make steep cuts to maintain volumes. A similar question mark hangs over maritime demand, where peak activity ahead of the Chinese New Year has helped absorb newly added capacity.
"Seven new 19,000 to 21,000 TEUs ships were delivered in January, with others scheduled later on, so maintaining current demand-capacity balances will hinge on volumes remaining strong as the year progresses," Ms. Fribourg says. "Around March, we should be getting a clearer view of how activity is likely to evolve."