Despite forecasted growth, air cargo traffic in 2020 should remain lackluster

This was not a good year for air cargo. Globally, 2019 air cargo traffic has fallen, with IATA expecting full year air cargo traffic to decline by about 3.3%. But while IATA is forecasting growth of 2% in 2020, Cargo Facts Consulting’s expectations are more pessimistic, although there is upside for companies operating in the right business segments and markets. General Airfreight Growth will be Slow or Non-Existent Our pessimism comes from the outlook for world trade. This month, the In October, the International Monetary Fund said it expected 2019 World GDP growth to hit 3% and about 3.4% in 2020. Those are relatively strong numbers, but the growth the IMF is expecting will not be evenly spread, with most of the big economies across Europe, the Americas and Japan finding scant trade expansion. It is the world's 10 fastest-growing economies in 2020 that will propel the world economy, and as pointed out in Economist World in 2020 , they will all be in Asia and Africa. Most of the weakness in airfreight will come on the big intercontinental lanes: Europe to Asia, Transpacific and Transatlantic. This is not just linked to ongoing trade tensions which even after the latest deal are far from resolved. The US, now in the 11 th year of an economic expansion that is already the longest since 1945, will be heading into a presidential election that creates uncertainty, and that may inhibit business investment. Germany, meanwhile is dealing with a slump in manufacturing. Seasonally adjusted October industrial production was down 6.3%, while overall EU industrial production figures were down 0.5% compared to a month earlier and 1.7% compared to October 2018. While some parts of the EU have been doing well, the trend has been on a downward slope since the beginning of 2018. International Express and Mail are Expected to Perform Well We recently took a detailed look at the growth prospects in the air express business as well as opportunities for e-commerce logistics . In our medium-term outlook for international express for 2019, we forecasted international express shipments to grow by 3.3% and by 5% per year for the next five years. This is also driving growth in some regional express networks such as Europe. Much of this growth is driven by increased business to consumer traffic. This type of traffic has and will also continue to be beneficial for global air mail volumes and cross border e-commerce consolidations. US domestic express has recently shown extremely high shipment growth for what used to be a mature market. Average annual growth between 2013 and 2018 has been 3.4% and we expect 2019 growth to come in at just over 9%. In the near term we see these levels coming back down to earth as Amazon in-sources more of its shipment volumes. The downside of additional e-commerce driven growth has been declining yields. This is harder to stomach for express carriers than postal companies, which operate at lower yields. As Alibaba and Jd.com expand their international operations, this will provide more e-commerce logistics growth, but only for operators with competitive unit costs. Regional platforms such as Jumia (Africa) and Mercado Libre (Latin America) will require capacity to facilitate their expansion plans, but for the moment both platforms are losing money. International Express has been hitherto dominated by DHL, FedEx and UPS, but SF Express is expanding its international operations. We also note that regional express operator Aramex continues to post strong growth and that that profit margins have been steadily increasing over the years. Pharmaceuticals, perishables and telecommunications equipment – unlike automotive parts and industrial equipment -- will do well. Automotive parts and auto industry are in for another tough year as car sales again decline. In the medium term, production of new electric vehicle models will give a boost to airfreight in this segment, but this requires investment in charging networks and aggressive government policy to make it happen. Predictably, pharmaceuticals and perishables will stay strong, as long as US government healthcare policy remains unchanged and consumer spending in countries within the Organization for Economic Co-operation and Development (OECD) holds up. The roll out of 5G networks over the coming years will create further opportunities for telecommunication equipment makers such as Ericsson and Nokia, and to a lesser extent Huawei, which is being blocked from providing infrastructure in a number of key markets. But in general, shipments of industrial equipment and machinery are expected to be weak, a consequence of a softer investment climate. How to make money in 2020 As always in the air freight business, other than in rare double-digit boom years, profitability will be a challenge. Those companies able to capitalize on new revenue and product opportunities as well as embrace new cost-saving technologies quickly will do well. On the revenue side, this includes initiatives such as Delta Dash Door to Door product or the cross-border e-commerce products from postal companies such as the Luxembourg Post, Belgian Post, and the Asendia tie up between the French La Poste and Swiss Post. We also think there is potential for air cargo carriers to benefit from the growth in e-commerce traffic, if they focus on developing the right kind of value-added services that leverage their geographical footprint and network. 2020 will be the year of regional and niche market opportunities. While the main trade lanes will continue to be soft, there is increased potential in secondary lanes such as Asia to Latin America and Africa, as well as some "new" lanes that take advantage of the ever-shifting sands of trade policy.

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Despite forecasted growth, air cargo traffic in 2020 should remain lackluster

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Estimating the US inbound cross-border e-commerce market size

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