US air trade in 2021 is looking good

U.S. first-quarter air exports and imports were up 3.1% and 7.5%, respectively, compared with 2019, and even more so compared with 2020, although comparisons with 2020 are largely meaningless. While 2020 air freight volumes benefited from shipments of personal protective equipment (PPE), the numbers in 2021 point to gains across multiple product groups. Figure 1 - USD Air Trade Performance - Jan 2020 - Mar 2021 Compared to 2019

The figure below shows year-to-date and month-on-month growth to March 2020 and March 2021, respectively. While most product groups declined during the first months of 2020, they are seeing growth in the first months of 2021. Figure 2 - US Air Trade Performance March 2020 and March 2021

Below is an interactive dashboard that allows a look at performance by market and period. Users can select area, year and month to view tonnage growth or decline by commodity group. Figure 3 - Interactive US Trade Dashboard

So, what are the underlying factors driving this growth?

On the demand side, overall retail trade in the first quarter of 2021 was about 16% higher than in 2019. Incidentally, 2019 and 2020 were at similar levels. E-commerce is not the only driver; in fact, only about 20% of the growth is attributable to nonstore retail. Industrial production around the world, not just in the U.S., has been humming along since the middle of 2020, and industrial production and global supply chains continue to be the main driver of international airfreight volumes. In the U.S., the manufacturing purchasing managers index (PMI) has been expanding for ten months straight, with the rate of expansion picking up since November (see Figure 4). However, the rate of expansion is forecast to decline during the coming quarters.

Figure 4 - Interactive Map - Manufacturing PMI - April 2021 and Months of Uninterrupted Growth

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However, the increase in demand so far has not transferred into lower inventory to shipment ratios overall; for manufacturing, the IS ratio is currently higher than in the pre-pandemic months, and 4% higher than the most recent low point around August and September 2018. Falling inventory-to-shipment ratios are generally seen as a leading indicator for airfreight demand. When the rate of inventory coverage dips, this increases the probability of stock-outs, which in turn leads to more airfreight since it takes several weeks for additional ocean inventory to arrive. However, the correlation between inventory shipment ratios and airfreight on an individual market level is not always high. For example, U.S. domestic airfreight shows no correlation with U.S. inventory-to-sales ratios, although the reasoning is sound. Forward predictions in the current environment are a precarious endeavor. The pandemic-induced downturn is unlike any other in that much of the slowdown in economic activity is artificial, a consequence of government-mandated lockdowns and movement restrictions. Some parts of the economy are functioning more or less normally: freight transportation, production, some aspects of retail, and agriculture, albeit with labor shortages in areas where harvests require migrant workers. E-commerce is operating at elevated levels, while hospitality, tourism and other services are hardly operating at all. Services account for two-thirds of global economic output, and in the U.S. it is around 75%. At the same time, the level of government stimulus has been unprecedented. Around a quarter of GDP in the U.S. and higher in some European countries, such as Germany, where wage subsidy schemes have hidden the real level of unemployment and underemployment. From the perspective of airfreight and economics, however, it is encouraging to see that the growth in air exports and imports has been broad-based and not limited to a few commodity groups. Also, the successful vaccination campaign that was pushed through at warp speed is definitely helping, both in terms of confidence and opening economies. Meanwhile, Europe continues to devise increasingly complex restrictions and exceptions to the restrictions that will surely stifle any recovery.

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Airfreight in 2021 and 2022 should do well, despite uncertainties

100 narrowbody redeliveries expected in 2021

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