Air cargo volumes indicate worldwide trade slowdown

WorldACD reports that the enduring downward slide of air cargo volumes continued last month.
The first month of 2019 confirmed the trend we have seen for a number of months now: another volume drop, this time of 2% YoY, coupled with a yield drop (in USD) of 2.5%.
The smaller regions of Africa and Central & South America (C&S Am) again managed a YoY increase in outgoing business (by 3.8% resp. 0.6%), in the case of C&S Am accompanied by a YoY yield increase (in USD) of almost 5%.
All other origin regions were down YoY. For the origins Europe and North America, the drop hovered around 4%, but even more telling was the drop in incoming business in Asia Pacific (-6% in total, -8% from the origin North America, and -9.5% from the origin Europe).
Origin China grew by 5% YoY, but the destination China fell by more than 10%. We observed this trend also in the past two months, but it was more pronounced in January due to the early Chinese New Year (Feb 5 in 2019).
As we see it, the period preceding this day seems to have a small positive effect on outgoing business from Asia Pacific, but a more serious negative effect on incoming business.
The countries doing well in January were Morocco and Egypt in Africa, and Ecuador and Costa Rica in C&S Am. And what to say about the United Kingdom? Whilst all individual countries in Western Europe saw a YoY drop (- 5.5% in total), the UK grew by 5%…. Do we witness a pre-Brexit stocking up of goods made in Britain? Germany fared worst in Europe, with a YoY drop in outgoing air cargo of 8.7% (-14.5% to Asia Pacific).
On the product front, January 2019 was a good month for certain specific cargo categories. Apart from general cargo, valuables and dangerous goods, all categories improved YoY. The big categories of perishables and high tech grew by 6% resp. 4%, pharmaceuticals by 5% and the much smaller group of live animals by 9%.
Trying to find out which (groups of) companies may have best positioned themselves for a good performance in 2019, we looked who did relatively well in the ‘downturn’ of 2018, compared with the bumper year 2017.
In spite of an overall growth between the two years of 2%, most airline groups hardly grew: airlines from Asia Pacific reported 0.7% growth, whilst those from Africa, MESA and C&S Am languished around the no-growth point. Only the airlines from North America (+6.3%) and Europe (+3.8%) beat the worldwide average growth. Remarkably, the Europeans improved their share everywhere, except in Europe itself.
The world’s top-20 forwarders went from a 43.2% to a 43% market share. But within this elite group, differences were noticeable. The 13 forwarders with a European origin grew by 0.5% only, whilst the 4 MESA and North American forwarders did just a bit better (+1.5%). The real winners in 2018 were the Japanese forwarders, growing their business by 7.2%, mainly driven by growth in Asia Pacific and North America. Leading forwarders in perishables, such as Kuehne + Nagel, Panalpina, DB Schenker and Newport, recorded double digit growth (between 13% and 16%) in this category.
Lastly, GSA’s grew their business by 5.2%. The two groups dominating the GSA-field (ECS and WFC), representing around 30% of the total volume sold by GSAs, together grew by 3.7% i.e. less than the GSA-market as a whole. Their individual performances differed quite a bit.
January 2019 at a glance:

  • Total Chargeable Weight: -2.0% year-over-year (YoY); -6.2% month-over-month (MoM).
  • General cargo -5% YoY, special cargo +4.6% YoY.
  • Direct Ton Kilometers (DTK’s): -1.9% YoY. (Given the -2% change in volume, this means that average distance per shipment hardly changed).
  • Yield dropped to USD 1.84 (-2.5% YoY, -8.0% MoM).
  • The cargo load factor dropped by 1.9%-points YoY and by 4%-points MoM.
  • Revenues (USD) from the smallest shipments (0-50 kg) suffered least (-2.1% YoY), those from the largest shipments (>5000 kg) suffered most (-6.4% YoY).

(See www.worldacd.com/yields for more yield developments.)

Troubled times ahead

Australia’s business executives are anticipating a bleak September quarter as high fuel prices, continued inflationary pressures and slowing consumer spending hurt sales and profit margins.

The latest Dun & Bradstreet (D&B) Business Expectations Survey reveals that businesses are expecting a steep decline in sales, profits, employment growth and capital investment, with all of these indexes now in negative territory.

This comes on the back of an increase in the number of executives reporting negative impacts on their business due to soaring fuel prices (climbing 21% since March to 82%) and more organisations being hit by a slowdown in consumer spending (up 2% in one month to 38%).

Supporting expectations that inflationary pressure will continue throughout the year, the selling prices indicator has risen five per cent to an index of fifty. Despite the increase, the index remains lower than four of the last five quarters, now fifty seven per cent of executives expect to raise selling prices in the September quarter.

Reflecting poor results in the March quarter, expectations for sales growth have dropped 33 points from December quarter highs. Forty per cent of firms saw a decrease in sales in the March quarter and the same percentage of executives anticipate a fall in sales in the coming quarter. Nondurables manufactures have been particularly hard hit, with the actual sales index falling 45 points from the December to the March quarter. Despite being the only industry with a positive actual sales index for the March quarter, durables manufacturers have also reported a negative outlook for September quarter sales.

Profits expectations have also fallen sharply, down 29 points since the December 2007 quarter. This decline in expectations is a reflection of poor March quarter results, particularly for nondurables manufacturers and retailers.

The employment indicator has hit its lowest level in 17 years. Twenty per cent of executives expect to have fewer staff in the quarter ahead than they did a year ago while just 10 per cent expect to increase employee numbers.

A significant weakening in capital investment expectations has resulted in the overall index dropping to minus six however durables manufacturers remain just inside positive territory at an index of two.

According to Christine Christian, Dun & Bradstreet’s CEO, the impacts of a slowing economy combined with high petrol prices are impacting executive expectations for the September quarter.

“Poor results in the March quarter combined with continued pressures from inflation, the credit market, high fuel prices and slowing consumer spending have led the steep decline in executive expectations for the September quarter,” said Ms Christian.

“The business community is now anticipating a rapid slowdown in activity in the coming months.

“Adding to the list of challenges, better than expected GDP results for the March quarter have fuelled speculation regarding the need for a further rate rise. Any further increase in the cost of credit will likely add pressure to a number of businesses, with SMEs likely to feel the greatest burden.”

Up nine per cent since the previous survey, credit market turmoil continues to represent a significant concern. Two thirds (67%) of firms surveyed indicated that a tightening credit market will have a negative impact on operations in the coming quarter. Ten per cent anticipate a very negative impact.

Despite the RBA keeping interest rates on hold for the past three months suggestions that rates may need to rise again to contain inflation are evident in executive concerns, particularly in the retail sector. Almost half of firms surveyed (47%) rank interest rates as the most important influence on operations in the new financial year, this jumps to 57% for retail executives.

Fuel price concerns have increased as petrol prices have continued to rise. Twenty five per cent of executives now rate the cost of fuel as the most important influence on the business in the year ahead. Meanwhile wages growth concerns have risen nine per cent to be on par with fuel prices.

According to Dr Duncan Ironmonger, Dun & Bradstreet’s economic consultant, the Australian economy has started to slow.

“Last week’s March quarter GDP numbers confirm the start of an economic slowdown. Although income tax cuts in the Federal Budget will provide some stimulus, interest rates and credit will remain tight for the remainder of 2008,” said Dr Ironmonger.

“The Reserve Bank left the cash rate unchanged at its last three meetings however it could make a further increase if demand does not continue to moderate or if expectations of continued high inflation begin to affect wage and price setting.

“Tight monetary conditions, high petrol prices and low consumer sentiment should continue to dampen consumer spending and housing construction through the next few quarters.”

The D&B index for expected sales is down 28 points to -13, with 27% of executives expecting an increase in sales and 40% expecting a decrease. The profits index is down 20 points to -17, with 23% of executives expecting profits to rise and 40% expecting a fall.

Employment expectations are down 14 points to an index of -10, with 10% of executives expecting an increase in staff and 20% expecting a reduction. Capital investment expectations are down 12 points to an index of minus six, with 9% of executives expecting an increase and 15% expecting to cut spending. Inventories expectations are down 10 points to an index of -10.

The selling prices index is up five points to an index of 50, with 57% of firms expecting to raise prices and 7% expecting to decrease them.

 

More bad news for business

D&B expected sales and profits indexes (yello line: profits; blue line: sales)

Australian executives predict business conditions will further deteriorate in the September quarter affected by a slowing economy, spiralling fuel prices and toughened credit conditions, a survey shows.
 
According to the latest Dun & Bradsheet (D&B) Business Expectations Survey, fuel prices have hit businesses hard with almost 90 per cent of participants indicating they have had a detrimental impact on operations, a 28% increase in three months. 32 per cent of firms have noticed a downturn in consumer spending in the past three months and 21 per cent have been negatively affected by the strong Australian dollar.
 
Credit market conditions represented another significant concern. Two-thirds of firms participated indicated that a tightening credit market will have a negative impact on operations, with 11% anticipating a very negative impact.
 
The September quarter is also expected to bring a steep decline in sales, profits, employment growth and capital investment, with all of these indexes now in negative territory.

Sales and profits growth expectations have fallen sharply, down 36 and 33 points respectively from December quarter highs. Capital investment expectations have dropped 13 points to an index of minus seven, with employment growth expectations at the lowest point since June 1991.

 

As an exception to the deteriorating conditions, selling price expectations have climbed six points to an index of 51.

 
D&B CEO Christine Christian said continually escalating costs are eating away the profit margins of Australian businesses.
 
“Fuel prices are continuing to soar, interest rates remain steady but high and consumer spending is dropping away – all of these factors are squeezing the profit margins of Australian businesses," she said.
 
“Executives face challenging decisions about how to manage these costs. Moves to increase prices will likely be met by customer backlash however as costs continue to rise and margins get thinner, failure to pass on these costs will have detrimental impacts on profitability.”
 
The company’s economic consultant Dr Duncan Ironmonger said the economic slowdown in Australia is happening quickly.
 
Bureau of Statistics data for May reveal very weak growth in retail sales and a further decline in the number of new dwelling approvals. The small boost from income tax cuts starting this month will do little to boost consumer sentiment and spending in an environment of high food and petrol prices and high interest rates," he said.
 
  • The D&B index for expected sales is down 31 points to -16, with 25% of executives expecting an increase in sales and 41% expecting a decrease.
  • The profits index is down 24 points to -21, with 22% of executives expecting profits to rise and 43% expecting a fall.
  • Employment expectations are down 15 points to an index of -11, with 10% of executives expecting an increase in staff and 21% expecting a reduction.
  • Capital investment expectations are down 13 points to an index of minus seven, with 8% of executives expecting an increase and 15% expecting to cut spending. Inventories expectations are down nine points to an index of minus nine.
  • The selling prices index is up six points to an index of 51, with 58% of firms expecting to raise prices and 7% expecting to decrease them.
 

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