International Air Freight 2009-2014: Riding the Rollercoaster - Seabury Cargo Advisory
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International Air Freight
2009–2014: Riding the
Rollercoaster
Seabury Cargo Advisory
Distributed by:Table of Contents
Section 1: Introduction..........................................................................................................................................................3
Section 2: Transpacific Turns Back to Growth...................................................................................................................6
> Chinese Exports............................................................................................................................................................6
> Mode Shift Trend...........................................................................................................................................................6
> U.S. Consumer Goods Imports ....................................................................................................................................8
> Westbound....................................................................................................................................................................8
Section 3: Transatlantic Shows Modest Rebound.............................................................................................................9
> Currency......................................................................................................................................................................10
Section 4: Niche Markets....................................................................................................................................................11
> MESA and Africa.........................................................................................................................................................11
> Latin America...............................................................................................................................................................11
2
Section 5: Will the Recovery Push Through?....................................................................................................................12
Ta b l e o f C o n t e n t s
> China...........................................................................................................................................................................12
> United States...............................................................................................................................................................13
> What Lies Ahead.........................................................................................................................................................15
Figures
F I G U R E 1 : U.S. international air trade growth, 2010 vs. 2009 (%)................................................................................4
F I G U R E 2 : U.S. international air trade growth, 2010-2014 (%).....................................................................................5
F I G U R E 3 : Mode shift key flows....................................................................................................................................7
F I G U R E 4 : Mode shift high tech—Air-share U.S. high-tech imports from Asia Pacific.................................................7
F I G U R E 5 : Impact exchange rate on air trade...............................................................................................................9
F I G U R E 6 : U.S. and China air trade growth Jan-Mar 2010.........................................................................................12
F I G U R E 7 : Inventory to Sales ratio..............................................................................................................................14
F I G U R E 8 : U.S. Sales and Inventories.........................................................................................................................14
F I G U R E 9 : Leading indicators.....................................................................................................................................15
International Air Freight 2009-2014: Riding the Rollercoaster | Seabury Cargo AdvisorySection 1: Introduction
Last year, U.S. air cargo was hit hard by the biggest recession in recent
history. It also surged back at a pace no one dared to think possible at
the depths of the downturn. It seems the recession, caused by a global
financial crisis, is fading and cargo volumes are almost reaching
pre-crash levels. Will the rollercoaster ride of 2009 continue climbing
upward in 2010 and beyond, or will air freight take a surprise turn?
Recent history tells us that U.S. air freight is leveraged against global
markets. In years of growth, freight excels more than other industries—
in bad times, however, it is among the hardest hit. Furthermore, the
cargo business quickly reacts to new economic realities. Cargo volumes
had already begun declining mid-2008, months before the global
financial crisis began in earnest.
3
2009 saw both U.S. import and export volumes plummeting 32 percent
SE C T I ON 1 : I N T R O D U C T I ON
in April compared to the year before, where in December they already
marked a double-digit year-on-year gain, respectively, to stem 2009 15
percent declines for both trade lanes. Early 2010 figures show a contin-
uation of that trend: at 342,000 metric tons inbound and 299,000 tons
outbound, March air cargo volume is almost back at its 2008 level.
All in all, Seabury Cargo Advisory predicts U.S. inbound air freight
will grow 9 percent year on year in 2010, with key lanes such as
China-to-U.S. poised to gain 13 percent. Outbound, Seabury sees
growth at 8 percent.
International Air Freight 2009-2014: Riding the Rollercoaster | Seabury Cargo AdvisoryFIGURE 1: U.S. international air trade growth, 2010 vs. 2009 (%)
U.S. faces healthy increases on all major trade lanes in 2010, with double digit growth on transpacific lanes
+7 +8
+10 +12
+4
+8
+4 +6
+6
+8
+8
+8 +6
+8
4
SE C T I ON 1 : I N T R O D U C T I ON
Total U.S. air trade 2010 vs. 2009: +8% Source: Seabury Air Trade Forecast Database
The Economist Intelligence Unit forecasts U.S. gross domestic product to
grow at 3.3 percent in 2010, to which government intervention is a major
contributor. Although higher than previously estimated, economic growth
still remains challenged in the years to come due to the anticipated with-
drawal of stimulus money. Furthermore, the U.S. consumer is not in a
structurally better shape compared to last year. These factors have a marked
influence on final consumer spending—and thus trade volumes.
Related to these macroeconomic issues are some specific challenges that
affect air trade. Unpredictable oil prices pressure freight managers to deal
with fuel costs. As supply outstrips demand and oil reserves are at record
highs, it begs the question whether current high prices are justified. On
the other hand, key oil exporters have expressed their goodwill at main-
taining current price levels, so any drop in price could potentially be met
by a subsequent artificial drop in global oil output.
Trade tariffs have been on the agenda for some time as a means to keep
competitive exporters at bay and thus stimulate domestic production of
goods. This has not materialized yet into far-reaching government policy.
A more pressing topic is the value of the Chinese yuan, which is locked
to the U.S. dollar. Over the past decade, China has devalued its currency
in order to compete with U.S. domestic production. Some politicians
have urged China to float its currency, potentially imperiling growth in
the eastbound transpacific trade.
International Air Freight 2009-2014: Riding the Rollercoaster | Seabury Cargo AdvisoryAt the same time, the global economic downturn has put carbon
emissions and their possible link to climate change on the back burner
as far as public opinion is concerned, not in the least because of a failed
climate conference and reluctance by the public to accept scientific
theories on the effect of emissions. Pressure on industries to reduce
carbon emissions has therefore eased.
Last but not least, the airline industry was reminded once again how
sensitive it is to external factors. In 2010, cabin crew strikes in the United
Kingdom, air traffic controller strikes in Greece and volcanic ash plumes
from Iceland have had a significant impact on air traffic and will remain
a risk factor for cargo managers for some time to come.
Seabury forecasts a more subdued growth in U.S. air freight in 2011, with
exports up 2 percent year-on-year and imports gaining 3 percent. For the
5
2010-2014 timeframe, the picture looks modestly brighter, with inbound
averaging at 4.2 percent growth and outbound 4.3 percent. Nevertheless
SE C T I ON 1 : I N T R O D U C T I ON
it will take until 2013 for exports to surpass their all-time high levels,
and imports will not reach 2007 volumes in the foreseeable future.
FIGURE 2: U.S. international air trade growth, 2010-2014 (%)
All U.S. air trade flows are expected to show a moderate recovery from 2010 onward, with
underperforming transatlantic trade
+2 +3
+5 +6
+4
+4
+3 +6 +3
+6
+4 +8
+6
+4
CAGR total U.S. air trade 2010-2014: +4% Source: Seabury Air Trade Forecast Database
International Air Freight 2009-2014: Riding the Rollercoaster | Seabury Cargo AdvisorySection 2: Transpacific Turns Back
to Growth
In the past decade, transpacific air freight has grown at an annual rate
of only 0.3 percent. This however includes the effect of two major
recessions. For the period of 2010 to 2014, Seabury forecasts 5.7 percent
average annual growth on the eastbound transpacific lane and 4.4
percent westbound.
Eastbound air freight flows averaged almost 1.8 million metric tons
per year from 2004 to 2008. A number of trends have influenced
these over time.
C H I NESE E X P O R T S
6
By far the biggest trend is the phenomenal multiyear growth of Chinese
exports to the United States, mostly driven by low production costs and
SE C T I N 2 : T R ANS P A C I F I C — BA C K T O G R O W T H
strong demand for consumer goods. From 2000 to 2007, this lane grew
15.3 percent annually. Excluding the wild swings occurring between
2007 and 2009—which saw volumes decline by an average 6.3 percent
each year—and a return to growth in 2010 of 13 percent, exports are
expected to grow at a slower, yet still impressive, average annual growth
rate of 8.3 percent from 2010 to 2014.
M O D E S H I F T T R EN D
Mode shift from air to ocean is a long-established industry trend,
particularly with regard to shipments of high-tech products where
product life cycles are short and previous-model products quickly lose
value. In turn, products become less attractive to be shipped by air.
Eastbound transpacific air cargo is susceptible to the trend, mainly
because the United States is such a large importer of high-tech goods.
Until 2008, high-tech’s share of air cargo trade was growing despite
the natural mode shift trend. By that year, new technology products
such as games and home theater systems helped high-tech to account
for 40 percent of U.S. imports from Asia Pacific. This share seemed
to drop in 2007 and in 2008, but is back on the rise in 2009.
The mode shift in general seems to have bucked a negative trend, with
mostly the United States benefiting: around 35 percent of the shift back
into air happens on just 3 U.S.-bound lanes. This could be caused by
sudden inventory restocking, which usually happens when sales start to
pick up again and businesses are in immediate demand of goods to keep
from selling out.
International Air Freight 2009-2014: Riding the Rollercoaster | Seabury Cargo AdvisoryFIGURE 3: Mode shift key flows
In 2009, trade shifted from sea back into air, of which 35% was attributable to just three North American lanes
Mode shift 2009 (tons x 1,000)
Destination Africa APac Eur LatAm ME&SA NA Total
Origin Negative Mode shift
Africa
APac 80
Positive mode shift
Eur
LatAm 106 35%
7
ME&SA
SE C T I N 2 : T R ANS P A C I F I C — BA C K T O G R O W T H
NA 133
Total 621
Note: For more info please contact Seabury Cargo Advisory Source: Seabury Trade Database; Seabury analysis
FIGURE 4: Mode shift high tech—Air-share U.S. high-tech imports from Asia Pacific
Air share of high-tech imported from Asia Pacific has risen from 2004 onward, resuming its pace after
a short pullback in 2008
Air share (%)
30%
Air share (%)
Trendline
27%
24%
21%
18%
15%
Source: Seabury
2004 2005 2006 2007 2008 2009 Jan- Trade Database;
Mar 2010 Seabury analysis
International Air Freight 2009-2014: Riding the Rollercoaster | Seabury Cargo AdvisoryU . S . C ONS U M E R G OO D S I M P O R T S
The third trend influencing transpacific eastbound air freight is declining
U.S. consumer goods imports. Historically, more than 60 percent of
consumer goods that are flown in originate in the Asia Pacific region.
Consumer goods imports by air from Asia Pacific have been hit hard
by the economic downturn, declining 15 percent from 2008 to 2009.
In the 2007-to-2009 timeframe, imports from China dropped 22
percent and those from Indonesia fell 19 percent. The only exception
is Vietnam, with a decline of only 5 percent during the downturn years.
An expected uptick of 8 percent in 2010 is in the books for inbound
consumer goods, followed by a 5.5 percent compound annual growth
rate (CAGR) over the four consecutive years.
8
Crucial to a recovery in U.S. air freight is consumer spending, which
accounts for around 70 percent of U.S. gross domestic product. Spending
is off its 2009 lows but the American consumer still hasn’t recovered from
SE C T I N 2 : T R ANS P A C I F I C — BA C K T O G R O W T H
the onslaught of recession, as seen in high unemployment, stagnant wages
and declining credit availability. The ability to use mortgage refinancing
as a source of cash is long gone, and government incentives currently in
place to increase spending—subsidies on big ticket purchases such as
homes and cars, as well as extended unemployment benefits—will run
out sooner or later.
W ES T BO U N D
The westbound routes across the Pacific—dominated by industrial
goods and machinery—show a mixed picture. After dropping 12 percent
in 2008 and 15 percent in 2009, U.S. air exports to Japan are forecast
to grow a modest 8 percent in 2010 and a tepid 1.9 percent beyond
that. The other two big lanes—U.S. air freight exports to China and
Singapore—are set to grow in 2010 by 12 and 10 percent, respectively.
Overall, Seabury expects westbound transpacific air freight volume
to reach 1.27 million metric tons in 2014 compared to 980,000 tons
in 2009. In the same timeframe, industrial goods are forecast to grow
5.6 percent annually. Machinery parts and components will improve
a comparable 6 percent, and high-tech goods will lag, increasing
3.7 percent.
International Air Freight 2009-2014: Riding the Rollercoaster | Seabury Cargo AdvisorySection 3: Transatlantic Shows
Modest Rebound
Compared to 2008, transatlantic air freight flows did not fare well: U.S.
imports were down 19 percent while exports declined 20 percent. Averaged
over the 2010-2014 period, Seabury expects eastbound flows to grow
annually at 3.1 percent versus 1.7 percent westbound after correcting in
2010; this year, 2009 losses will be partially erased by an 8 percent gain
on exports and 7 percent on imports.
Most of this growth will come from areas outside Western Europe. For
2010 to 2014, Seabury forecasts trade from the U.S. to Central Europe
and Russia to increase 9.6 percent year-on-year on average, while transat-
lantic westbound flows from Central Europe and the Balkans will see
an 8.6 percent CAGR in the same period. 9
SE C T I ON 3 : T R ANSA T LAN T I C : M O D ES T R EBO U N D
FIGURE 5: Impact exchange rate on air trade
Exchange rates can have a significant impact on air trade, as—in this example—of the
air trade balance between the U.S. and Europe.
US imports from Europe
EUR/USD
exchange rate US exports to Europe
1.4 1.4
1.2 1.2
1.0 1.06 1.0
0.8 0.89 0.8
0.80 0.80 0.80
0.73 0.72
0.68 0.6
0.6
0.4 0.4
0.2 0.2
0.0 0.0
2002 2003 2004 2005 2006 2007 2008 2009
EUR/USD Air trade to/from Europe
exchange rate (Tons x 1,000,000)
Source: www.oanda.com; Seabury Trade Database; Seabury analysis
International Air Freight 2009-2014: Riding the Rollercoaster | Seabury Cargo AdvisoryC U R R EN C Y
Not surprisingly, foreign exchange fluctuations have a marked
influence on air freight’s fortunes, particularly across the Atlantic.
As the U.S. dollar appreciated against the euro from 2000 to 2002,
U.S. consumers bought more from Europe. The currency-led trend
saw 1.36 tons imported into the United States from Europe for every
ton shipped in the opposite direction. But by 2009, seven years of
the dollar’s depreciation left European exporters struggling to sell
to American customers and saw the transatlantic trade imbalance
plummet to under parity: 0.96 tons.
Recently, in light of financial troubles in the Eurozone, the euro has
tumbled against the U.S. dollar. The currency—used in 16 European
countries—went from around $1.50 in December 2009 to $1.25 in
10 May 2010. Likewise, the euro has declined compared to the Japanese
yen: mid-2008, one euro bought 170 yen compared to 120 yen in
SE C T I ON 3 : T R ANSA T LAN T I C : M O D ES T R EBO U N D
May 2010. A weak currency makes European exports cheap and lead
to an export advantage for its constituents, thus making the westbound
transatlantic trade more lucrative. It might even compete with eastbound
transpacific flows as the yen is expensive and the Chinese yuan cannot
decrease in value—compared to the dollar—for geopolitical reasons.
However, foreign exchange rates are unpredictable and high volatility
is still on the table. Central banks have reasonable power over the value
of a currency and will engage in the markets if necessary to influence
exchange rates. For shippers and logistics providers, currency swings
demand close attention more than ever as they can make or break a
trade lane.
International Air Freight 2009-2014: Riding the Rollercoaster | Seabury Cargo AdvisorySection 4: Niche Markets
Outside the major global air freight flows, two niche markets remain
a source of growth over the coming years.
Air trade between the United States and the Middle East and South
Asia (MESA) and between the United States and Africa will be strong
in the forecast period after 2010 growth cancels out the loss made in
2009. Air freight growth from Latin America to the United States,
made up primarily of perishable and climate-controlled goods, will
be positive but not as strong as before as this lane has matured.
M ESA AN D AF R I C A
Seabury forecasts U.S. imports from MESA and Africa to show reason-
able growth in 2010, reaching 8 percent and 4 percent, respectively. 11
In the four years beyond, MESA will outperform Africa on the U.S.
inbound flow by averaging 5.9 percent per year against 4.4 percent.
SE C T I ON 4 : N I C H E M A R K E T S
Additionally it should be noted that the relatively small Africa-to-U.S.
lane dropped 29 percent whereas MESA-to-U.S. air freight volumes
in 2010 are back to 2008 levels. American exports to these regions are
stronger with respective average annual growth rates of 8.1 percent and
5.8 percent from 2010 to 2014. That means overall air trade between
United States and MESA and Africa is expected to be significantly
higher in 2014 than before the global crisis.
LA T I N A M E R I C A
Most U.S. air imports from Latin America are climate-controlled and
perishable goods, which accounted for 73 percent in terms of weight
in 2009. Seasonal peaks in demand for roses on Valentine’s Day and flowers
in general on Mother’s Day are responsible, as well as year-round consump-
tion of fresh fruits and vegetables. Perishables were the commodity least
affected by the 2009 slump but, as January 2010 figures show, have not
snapped back. Seabury ultimately forecasts a 3 percent growth in perishable
air imports for 2010 with a CAGR of 1.3 percent for the rest of the
forecast period, indicating that perishable imports from Latin America
have matured. The future for the second-biggest inbound flow—foods—
is markedly brighter, running at an 11 percent annual growth from 2010
to 2014. In all the northbound air freight business is set to expand by a
CAGR of 3.6 percent during that period.
Southbound, the forecast gives grounds for cautious optimism as this
lane is in for an average growth of 3.4 percent over the next four years.
International Air Freight 2009-2014: Riding the Rollercoaster | Seabury Cargo AdvisorySection 5: Will the Recovery Push Through?
Clearly, world economies took a beating in 2009 after the U.S. financial
crisis of 2008. Consequently, world trade has been hit hard, especially
world air freight. Ten out of 12 months saw double-digit volume
declines compared to the previous year, five month dropped more than
20 percent. However, the economic decline has been met by a stellar
worldwide bounce back, with the U.S. GDP growing at an annualized
5.6 percent in the last quarter of 2009, and China’s economy posting
an 11.9 percent gain in the first quarter of 2010.
C H I NA
Needless to say, air trade has, in the span of a few months, switched
from double-digit loss to double-digit—and in some cases triple-digit—
12
growth. Case in point is the remarkable rise of Chinese imports, which
have seen early 2009 losses more than erased. March numbers are up 78
SE C T I ON 5 : W I LL T H E R E C O V E R Y P U S H T H R O U G H ?
percent compared to 2009, and—even more spectacularly—first quarter
imports are up 43 percent from 2008. So far this year, Chinese air trade
volumes are setting record levels.
FIGURE 6: U.S. and China air trade growth Jan-Mar 2010
U.S. and China air trade are showing encouraging improvement in the first quarter of 2010, countering last
year’s declines; China Q1’10 imports are 43% above Q1‘08
U.S. YoY air trade growth (%) China YoY air trade growth (%)
40 120
Exports
115%
35
100 Imports
35%
30 33%
30%
80
25
78%
20 22% 60
56%
15 53%
16% 40
15% 45%
10 36%
20
5
0 0
January February March January February March
Source: Seabury Global Trade Database
International Air Freight 2009-2014: Riding the Rollercoaster | Seabury Cargo AdvisoryImports into China have been fueled by massive bank lending, stimu-
lating investment and, subsequently, demand in goods. However, a
few questions arise:
• Will this surge in activity last?
• Has the Chinese credit boom sparked speculative investments?
Already, major cities in China have experienced a tremendous rise
in housing prices not too different from those seen during the U.S.
housing bubble last decade. The Shanghai Stock Exchange index is
almost 60 percent below its 2007 high, indicating that investors have
found better places to let their money work. Finally, credit expansion
causes inflation that will impact labor costs, sparking manufacturers
to look for lower-wage countries such as Vietnam or Indonesia.
13
U N I T E D S T A T ES
SE C T I ON 5 : W I LL T H E R E C O V E R Y P U S H T H R O U G H ?
Interestingly, recent U.S. GDP growth was mainly attributable to
restocking of business inventories, as a reaction to a turnaround in sales
and indicating faith in future sales growth. Monthly inventory and sales
data confirms this: in February 2010, sales are up 9 percent off their
2009 lows in absolute terms, with inventories only up 1 percent.
This, in turn, has a direct effect on air freight growth. Although February
2010 imports are below 2006 levels, they are up 33 percent over last year.
Nevertheless, there are bears on the road. Financial problems that origi-
nated with sky-high consumer debt—caused by the housing bubble—were
eventually absorbed by the U.S. government. But nagging unemployment,
mortgage delinquencies, depressed housing prices, unprecedented levels of
private and public debt and relentless budget deficits may ultimately press
hard on the U.S. consumer’s ability to keep up demand. Moreover, an
expensive U.S. dollar makes U.S. exports less lucrative.
International Air Freight 2009-2014: Riding the Rollercoaster | Seabury Cargo AdvisoryFIGURE 7: Inventory to Sales ratio
Sales are already 9% above their 2009 lows, while inventories are up only 1%, showing an imminent
restocking of inventory
U.S. Inventories
U.S. Sales
(Trillion US$ per month) Inventory to Sales ratio
1.6 1.5
1.4 1.4
+1%
1.2 1.3
1.0 +9%
14 1.2
SE C T I ON 5 : W I LL T H E R E C O V E R Y P U S H T H R O U G H ?
0.8
1.1
0.0 1.0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Jan-
Feb 2010
Source: U.S. Census Bureau; Seabury analysis
FIGURE 8: U.S. Sales and Inventories
Year-on-year growth rates show sales lead inventories by a couple of months
US Total Inventories and Sales Inventories
(YoY growth %) Sales
15
10
5
0
-5
-10
-15
-20
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Jan-
Feb 2010
Source: U.S. Census Bureau; Seabury analysis
International Air Freight 2009-2014: Riding the Rollercoaster | Seabury Cargo AdvisoryW H A T L I ES A H EA D
So what will the near future bring for U.S. air freight? Two answers
come to mind.
First, we turn to inventories and sales once more. At the end of 2008,
sales growth jumped off a cliff and went negative. Inventory growth
followed that move, but only in 2009. When inventory growth bottomed
in the second half of 2009, sales growth was already climbing out of
negative territory fast. Historically we see this interplay between sales
and inventory growth is a well-established phenomenon. So as long
as year-on-year sales are still growing on the short term, a—lagging—
growth in inventories is in the cards.
A second answer may lie in the Composite Leading Indicator. The CLI,
a derivative of key economic indicators published by the Organization 15
for Economic Co-operation and Development (OECD), is developed
to predict economic turning points and is available for several countries.
SE C T I ON 5 : W I LL T H E R E C O V E R Y P U S H T H R O U G H ?
As it turns out, CLI growth is highly correlated to air trade growth, and
it appears to lead by about four months. This makes the CLI an excellent
predictor of near-term developments in the air freight business.
FIGURE 9: Leading indicators
OECD’s Composite Leading Indicator (CLI) shows high correlations with air trade, and leads U.S. air trade
development by 4 months; freight has yet to achieve maximum growth
U.S. air trade YoY growth (%) U.S. CLI YoY growth (%)
40 15
30
10
20
5
10
0
0
-5
-10
-10
-20
-30 -15
2001 2002 2003 2004 2005 2006 2007 2008 2009 Jan-
Mar 2010
Source: OECD; Seabury Global Trade Database; Seabury analysis
International Air Freight 2009-2014: Riding the Rollercoaster | Seabury Cargo AdvisoryFirst off, the CLI picture for Europe and China is worrisome: Europe’s
CLI growth has reached a clear peak, and China’s is almost halfway
down to zero growth.
The U.S. outlook is better. Its CLI already troughed at the end of 2008
in terms of growth, followed shortly after by U.S. air trade. Its return
to growth in 2009 has been matched by a similar growth in air trade;
so far, this trend shows no sign of abating soon, although CLI growth
is tapering off.
The rollercoaster is bound for a turn someday, but in the mean time
it will keep on climbing upwards.
16
SE C T I ON 5 : W I LL T H E R E C O V E R Y P U S H T H R O U G H ?
Giel van de Wiel is analyst at Seabury Cargo Advisory. For
more information please e-mail: gvdwiel@seaburygroup.com
© Copyright 2010 Seabury Group. All Rights Reserved
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