Editor's Note: This story is part of a weekly analysis of the logistics industry's latest statistics. See an overview in our data hub.
- The spike in air freight demand may be nearing an end, according to the International Air Transport Association's (IATA) April 2017 Air Freight Market Analysis.
- Global freight ton kilometers (FTKs) grew by 8.5% in April on a year-over-year basis, down from March's 13.4%, or 4% when adjusted for seasonality. While a dip, these levels remain well above the average growth over the past five years.
- Supply, meanwhile, has kept roughly the same pace with Available FTK growth of just 3.9%, 0.3 points lower than the March figures. The IATA attributes the fall in demand to slower global production indices since February, and a lower inventory-to-sales ratio this year, which leads to a decreased "rush to restock."
The dip in air freight demand should not take away from a visible spike in air freight growth over the past year. A look at the subsector's data over the past two years reveals a clear upward trend for air cargo since February 2016, leading demand to begin outpacing supply growth rates since last August. In fact, even with last month's dip in growth, April's growth figures ranks among the highest since January 2015.
Three main factors explain this growth, according to Neel Jones Shah, Senior Vice President and Global Head of Airfreight at Flexport.
First, the global rise of e-commerce has led to a general growth in consumer spending, and a shift in consumer expectations that benefits air freight by requiring faster shipments. Second, the ocean shipping industry's consolidation, resulting in "tightened capacity" led to a higher rate of ocean to air conversions, according to Shah; tightened capacity on Asia-U.S. sea routes, for example, led to a "mini peak" in air freight during the February-March period.
Third, "airlines are being a lot more constrained in terms of adding capacity" and prioritizing yields. Shah notes how a few years ago, air carriers decided to "dramatically reduce" their fleet size, with various mergers, exits and moves to restructure. Although demand is high, carriers have opted to retain supply at a steady pace to avoid reducing rates. The trends chart supports this perspective; though demand clearly outpaced supply starting August 2016, there is no evidence of similar supply growth.
These trends are unlikely to change much over the course of the year, so shippers should expect 2017 to "be more expensive than the past year." In turn, shippers should ensure they are communicating their forecasts accurately with their forwarders to secure sustainable growth. "The ones that are planning and the ones that are extremely deliberate about how they plan," Shah says, "are the ones that are going to have the least disruptions."
"That will be my biggest word of advice to shippers this year: develop your forecast; be very communicative; and partner with the right forwarder," Shah concluded.