Air cargo demand was weak through much of 2015, and this year the same sort of anemic traffic can be expected.
With international uncertainty following the U.S. decision to raise interest rates, a drop in commodity prices and the Chinese economy's slowdown, 2016 should bring more of the same in terms of light loads for air carriers, the International Air Transport Association (IATA) found. With the global economy unpredictable at the moment and trade demand around the world relatively weak, airlines are suffering. The average airfreight load factor, a metric that tracks cargo space filled, has tumbled to six-year lows as a result of the current trade environment and international economy.
A dark year ahead, with some silver linings
Despite the gloomy outlook for 2016, there has been at least one recent positive, though this could be the result of one-time events. Through the first 10 months of 2015, freight ton kilometers increased 2.6 percent, according to the IATA. However, this slight growth could be attributed to backlog at U.S. West Cost ports being redirected to air carriers and car recalls in the U.S. for auto-parts sourced from Japan.
With the decline in trade activity and a weaker global economy air carrier executives' sentiments about the industry have grown more negative. Projections for both freight volumes and yields have softened over the last 12 months as depressed demand in 2015 affected airlines' attitudes about the near future.
Though 2015 did not treat air freight carriers well, – besides the car part recalls and West Cost backlog – the industry's bottom line has been insulated by low fuel prices. Not having to pay as much for fuel has kept airlines afloat amid weak trade demand and excess capacity issues.
Air cargo activity particularly weak in Asia, where Boeing's plans may take a hit
Asian air cargo activity, in particular, has taken a hit, given China's economic slowdown. In November, air cargo demand declined 2.4 percent, according to the Journal of Commerce (JOC).
"The air cargo business is suffering from the effects of market weakness in major trading economies, signs of inventory overhang and excess capacity," Andrew Herdman, the Association of Asia Pacific Airlines' (AAPA) director general, told the JOC. "Overall, the region's airlines are focused on responding appropriately to evolving patterns of market demand, while making efforts to increase operational efficiency and boost profitability."
China Business News (CBN) reported that the slowdown in Asian air cargo activity could affect Boeing's plans in the region. The company came to an agreement with China's YTO airlines to furnish the latter with 737-800 planes converted for cargo use. The number of planes involved in the deal was not disclosed. Boeing also planned to open a manufacturing facility in China, where the airline is facing increasing competition from Airbus, which made a similar move in 2015. This competition, in addition to the weak trade demand in the region as well as globally, could impact Boeing's plans in China in the near future, CBN noted.
The media outlet went on to make suggestions regarding how Boeing could weather the soft market and come out of the air cargo industry's slump with it's China plans still intact. It explained that Boeing should plan for a continued downward trend in air cargo demand as it further develops its plans for the region. This, according to CBN, means making proactive moves against Airbus' efforts to take over the Chinese market while focusing more on expansion than gains.