main title - IATA

CARGO E-CHARTBOOK

Q4 2013

OVERVIEW  Airline cargo businesses are starting to see a slightly better demand environment and further improvement in forward looking indicators, but continued increases in capacity have kept downward pressure on yields and revenues. Air freight growth has improved in 2013 compared to 2012, in line with positive cyclical developments in business conditions. Business confidence has been on the rise since the start of Q3. Consumer confidence in Europe is at the highest levels since 2011, and stronger economic performance has stopped earlier declines in Chinese consumer confidence. These developments have supported a rise in demand for air-freighted commodities like semi-conductors. But expected gains have been limited by an onshoring of production, which has limited international trade growth. Moreover, continued increases in capacity have countered the modest improvements in demand, causing yields to decline. This trend could continue as new aircraft deliveries come into service in 2014. Cargo heads surveyed in October 2013 remain broadly optimistic, expecting yields to improve slightly over the next 12 months, supported by views of an increase in traffic growth.

 Economic Situation – the global economic growth in 2013 has been weak overall, but the outlook for 2014 is more positive, in both advanced and emerging economies (page 2)  Traffic Growth – has improved in 2013 compared to 2012, in line with positive cyclical developments in business conditions, but growth ahead could be dampened by trends in production which suggest a shift toward domestic activity (page 2)  Demand Environment – continues to show signs of improvement. Business confidence has been increasing since the start of Q3 and although world trade growth remains soft, expansion in emerging market trade volumes has picked up slightly over recent months (page 3)  Demand Drivers – also look more positive. Consumer confidence in Europe is now the highest it has been since 2011 and Chinese consumer optimism remains has stabilized. Capital investment intentions of Japanese companies remain positive. These developments have supported a rise in demand for air-freighted commodities like semi-conductors (page 3)  Capacity – freight load factors have bottomed out but remain low as capacity enters through the passenger fleet. No growth in freighters has contained further decline in asset utilization rates, but new aircraft deliveries are set to expand the existing widebody fleet by 7% in 2014. (page 4)  Competition – air freight rates remain in decline. At the same time, sea freight rates appear to be rebounding slightly as a result of strong ocean container demand, but still remain down on a year ago (page 4)  Revenue and Yields – air freight yields continue to weaken. Although there has been some improvement in air freight demand over recent months, capacity growth has kept load factors low (page 5)  Costs – jet fuel prices have risen slightly over recent weeks despite gains in supply. As a result, cargo profitability continues to face downward pressure, even with softness in nominal wage rates (page 5)  Profitability outlook – consistent with the improvement in the demand backdrop, the outlook for air freight more positive according to heads of cargo surveyed in October 2013. The expectation is for traffic volumes to increase over the next 12 months and for yields to rise slightly (page 5)

IATA Economics www.iata.org/economics

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Cargo eChartbook – Q4 2013

Economic Outlook & Traffic Growth  Global economic growth has been subdued throughout 2013 (1), but developments over recent months suggest a slightly better outlook for 2014. Conditions in both advanced and emerging economies are expected to improve. However, this growth has not generated the expansion of international trade that it would have done in the past, as production has been on-shored (6) – partly due to market factors such as rising wages in low cost economies and partly due to a recent rise in protectionist measures. The Bali trade deal on trade facilitation may help to improve this situation.  In the Euro area, improving economic performance since Q2 should carry into 2014 when growth is expected to be modestly positive. Tightening fiscal policy and bank lending standards (2 & 3) will likely contain US growth to below 3% in 2014, but this is an improvement on 2013. And in emerging market economies, after a moderation in growth in 2013, growth should pick-up again in 2014.  There has been a slight improvement in air freight growth in 2013 compared to 2012 (4), but rates of expansion are still little better than flat on major routes including those connected to the Far East (5). The modest pick-up in air freight demand is consistent with cyclical improvements in business conditions. 1. Forecasts for GDP growth

4. Freight Traffic Growth

Source: EIU 7

4 3 2 1

International Freight Volumes (ACI)

20

International FTKs (IATA)

14 8 2 -4

-10 -16

0

-22 -28

-1

US

Japan

Euro Area

ASPAC Latin excl Japan America

Middle SubEast North Saharan Africa Africa

World

5. International Freight growth by major routes Source: IATA ODS

Source: IMF 4

60% 50%

2011

2013

1

0

% change over year

2

-1 -2

20%

10% 0% -10%

-30%

North Atlantic Europe - Far East

-40%

United States

Euro Area

Japan

China

India

Russia

Brazil

3. Bank credit conditions 1.2

Source: ECB, Federal Reserve

80

European Banks

6. Ratio of World Trade to domestic Industrial Production Source: Netherlands CPB

80

1.1

60

40

1

40

20

20

0

0

Looser Credit Standards

-40

-20 -40

% banks

Tighter Credit Standards

US Banks

-20

North and Mid Pacific

30%

-20%

-3

60

Within Far East

40%

Tightening

3

2012

Loosening

Difference in % GDP over previous year

2. Goverment Cyclically Adjusted Fiscal Balance

% banks

Domestic Freight Volumes (ACI)

26

% change over year

5

% change over year

32

2012 2013 2014

6

Source: IATA, ACI

38

0.9

0.8

0.7

0.6

0.5

IATA Economics: www.iata.org/economics

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Demand Environment & Drivers  The demand environment for air cargo continues to improve slowly. Business confidence, a key indicator of air freight growth, has been increasing since the start of Q3 (8). World trade growth remains soft (7) but there has been a slight pick-up in emerging market import and export volumes. There is still no sign of an inventory overhang, suggesting businesses have no immediate need to reduce their reliance on quick transportation of cargo (9).  Demand drivers are also looking more positive. European consumer confidence has improved significantly throughout 2013, now at the highest levels since 2011 (11). The US consumer economic outlook was dampened slightly by the recent Government shutdown, but confidence levels remain solid. In China, consumer confidence has stabilized as a result of better economic performance in Q3, following some decline earlier in the year. These developments have supported a pick-up in demand for air-freighted commodities, as indicated by expansion in semi-conductor shipments (10). Monetary policy stimulus in Japan has encouraged intentions for capital expenditure. Capital investment intentions of UK companies remain broadly stable (12). 10. Semi-Conductor Shipments and Air Freight Source: IATA, SIA

Source: Netherlands CPB and IATA (Seasonally Adjusted)

12

World goods trade volumes (right scale)

11

110

100 10

90

9

% Growth YoY

JP Morgan Manufactuerers PMI (+2 months)

40 International FTKs

20 0 -20

Balance expecting improvement, index

60

-40

9. Total Business inventories to sales ratio and FTKs

12 FTKs 1 10

0.8


8

Net balance intending to increase investment

16

FTKs (billion)

Inventories to sales ratio

18 Inventories to sales ratio

14

14 6 -2 -10 -18 -26 -34

120

0

100

-5 -10

China

80

-15 60

-20 40

-25 US

20

-30

Europe (right scale)

0

70

Source: US Census Bureau and IATA

1.2

22

Source: Haver Analytics

Source: IATA, Markit/JP Morgan

1.4

Semi-Conductor Shipments

30

11. Consumer confidence

8. Purchasing Managers confidence survey and Air Freight Demand

1.6

International FTKs

38

-35

12. Capital spending intentions Source: Haver Analytics

50

Japan business (right scale)

15 10

30 5 10 0 -10 -5 -30

UK business (left scale)

Balance expecteting improvement, net %

Billion FTKs

120

13

46

38 34 30 26 22 18 14 10 6 2 -2 -6 -10 -14 -18 -22 -26

-50

-10

-70

-15

Net balance intending to increase investment

130

% Growth, Semi-Conductor Shipments

International FTKs (left scale)

14

index of world trade, 2005=100

15

54

% growth - International FTKs

7. World trade in goods and air FTKs

3


Capacity & Competition  Freight load factors and aircraft utilization rates have bottomed out after decline during much of 2013 (14). The modest improvements in demand have buoyed load factors despite increases in capacity through the passenger fleet, but levels remain low. Stability in the freighter fleet has helped sustain aircraft utilization rates (13). Looking ahead, however, the expected increase (16%) in 2014 of deliveries of new twin-aisle aircraft with belly hold capacity could place downward pressure on aircraft utilization rates, adding 7% to the existing widebody fleet.  Air freight rates continue to contract (17). Sea freight rates appear to be rebounding as a result of improvements in sea transport demand, but remain in contraction. Demand for container shipping is showing stronger growth in the Americas and in the Far East (18).  Despite some growth in the Eurozone economy over recent months, demand for Asian goods moved by air has remained stable; there have been no growth on this key air freight market when compared to the precrisis peak (16). 16. EU Trade with Asia

13. Cargo fleet composition

% change from pre-crisis peak June 2008 Seasonally adjusted monthly data in tonne (Source: International Transport Forum)

Source: IATA, Ascend 3700

Freighter fleet in service

Widebody pax fleet in service

50%

Number of aircraft

Asia to EU by sea EU to Asia by sea Asia to EU by air EU to Asia by air

40%

3500

30%

3300

20% 3100

10% 0%

2900

-10%

2700

-20% 2500

-30% -40% End of month totals

End of year totals

14. Freight load factor and freighter aircraft utilization Freight aircraft utilization

51% 49%

9.5

47%

9.0

45% 8.5

43%

8.0

41%

Freight Load Factor

7.5

39%

7.0

37%

100% 80%

40% 20% 0% -20% -40%

Air freight

-60%

15. Twin Aisle Aircraft Deliveries by Airline Region

18. Container Shipping Volume Growth by Region

Source: Ascend

450

Ocean container

60%

% change over year

53%

% available freight tonne capacity

Average daily hours flown

10.0

17. Ocean container and air freight rate growth Source: Drewry, CASS

(Seasonally adjusted)

10.5

Source: Drewry

400

Middle East

350

North America Europe

300

Aug-12

8 % Growth, Year-on-Year

Number of Aircraft

Other

Asia Pacific

250

200 150

Jul-13 Aug-13

6

4 2 0

100

-2

50 0

2007

2008

2009

2010

2011

2012


2013

2014

-4 North America

North Europe

Far East

Middle East

Latin America

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Revenues, Costs & Profits  Air freight yields continue to weaken (19). Although the decline in load factors has stabilized over recent months, levels remain low.  Jet fuel prices are up slightly in November, continuing to trend in the range of the past three years (20) despite recent gains in supply. And although nominal wage rates appear to be softening (21), high fuel costs continue to place downward pressure on profits (22).  Looking ahead, however, the outlook for air freight is becoming more positive. Consistent with the improvement in the demand backdrop, heads of cargo surveyed in October 2013 expect an increase in traffic volumes over the next 12 months as well as a small improvement in yields (24). 22. Profitability of US Cargo Only Airlines

19. Air Freight Yields (US$ per kilo)

Source: US BTS

4.8

12%

4.4

2.1

4.0

10%

3.6

8%

1.8

3.2

1.5

2.8 2.4

1.2 0.9

0.6 0.3

2.0 SE Asia-Europe

1.6

SE Asia - Europe (incl. Other charges)

1.2

Global total - LHS

0.8

Global (incl. Other charges) - LHS

0.4

0.0

200

% of Revenues

2.4

US$ per kilo

US$ per kilo

Source: IATA CASS

Operating Profit Margin Net Profit Margin

6% 4% 2% 0%

-2% -4%

0.0

23. Global Airline Industry Cargo Revenues

20. Jet Fuel and Crude Oil Price ($/barrel) (Source: Platts, RBS)

Source: ICAO, IATA

75

40%

180

Jet fuel price

Cargo Revenues

60

160

30%

% Growth

120 100 80

Crude oil price (Brent)

60

20% 45 10% 30 0%

15

-10% 0

-20%

-15

-30%

2014F

2013F

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2000

2001

40 20

% Growth

Revenues (US$ billion)

140

24. IATA survey of heads of cargo

21. Nominal Wage Growth 21 18

5

15

4

12

3

9

2

6

1

3

0

0


100 90 80 70 60 50 40 30 20 10 0

Volumes - next 12 months Increase

USA European Union China P.R.

Yields - next 12 months

Decrease

6

Weighted Score

% Growth y-o-y in nominal wages

7

% Growth y-o-y in nominal wages (China)

Source: Haver Analytics

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Air Freight Routes and Direction Table 1. International Freight Volume Growth by Route Area (Source: IATA ODS statistics)

% Growth in Freight Tonnes, year-on-year Route Area

Apr-13

May-13

Jun-13

Jul-13

Aug-13

Sep-13

Africa - Middle East

0.0% -3.0% 4.6% 1.8% 0.0% 5.5% -1.4% 12.5% -1.8% -24.2% -5.0% 16.4% 5.3% 1.0% 4.1% -1.3%

0.0% -4.7% 8.8% 1.2% 0.0% 5.3% 3.2% 12.3% 0.6% -20.2% -6.1% 9.5% -4.5% 4.8% -3.6% -3.7%

0.0% -2.0% 8.8% -0.4% 0.0% -5.0% 7.9% 11.8% 1.7% -13.6% -7.7% 18.3% -8.1% 0.7% -8.1% -1.0%

0.0% -0.6% -3.7% -0.9% 0.0% -5.9% -4.8% 8.8% -3.2% -18.0% -8.4% 22.3% -8.3% -1.5% -12.9% -0.8%

0.0% 1.5% -3.5% 0.0% 0.0% -8.3% 0.0% 5.0% -1.2% -0.5% -8.6% 22.9% -6.6% 2.8% -5.5% -3.6%

0.0% -0.5% -3.2% -1.4% 0.0% -3.0% -0.4% 11.1% 0.7% -7.7% -5.5% 18.2% -3.3% -0.4% -6.7% -5.7%

Europe - Far East Europe - Middle East Within Far East Within Middle East Within South America Mid Atlantic Middle East - Far East North Atlantic North America-Central America Europe - Africa North America– South America Far East - Southwest Pacific North and Mid Pacific South Atlantic Within Europe

Table 2. Outbound CASS Market Revenues (incl. fuel and other surcharges)

% Growth in Air Freight Revenues, year-on-year

US$m Q3 2013

2012 Q2

2012 Q3

2012 Q4

2013 Q1

2013 Q2

2013 Q3

Caribbean

91.1 11.3

-19.9 26.8

-1.8 43.5

5.9 26.0

0.2 -0.3

19.8 -16.6

5.6 -9.4

Central America

85.8

-0.8

-1.2

-3.9

-1.3

-6.3

-13.2

2767.1 780.9 122.4 1229.6 296.1 1923.6

-12.2 -18.8 4.1 -7.3 -6.1 -6.5

-6.9 -18.6 10.9 -8.7 4.6 -4.2

-0.7 -19.6 17.2 -6.7 -0.9 5.5

2.0 -25.9 18.6 -6.7 1.7 -7.2

1.8 -27.1 20.1 -10.1 -0.2 -1.7

-1.2 -23.2 16.4 -7.8 -12.9 4.1

Origin Region Africa

Europe Japan & Korea Middle East North America South America South East Asia

Table 3. Inbound CASS Market Revenues (incl. fuel and other surcharges)

% Growth in Air Freight Revenues, year-on-year

US$m Q3 2013

2012 Q2

2012 Q3

2012 Q4

2013 Q1

2013 Q2

2013 Q3

Caribbean

505.1 39.7

-4.0 -8.7

-5.7 -10.5

-2.4 -5.5

-2.6 -2.3

-2.4 -2.8

-3.3 -0.3

Central America

163.0

-11.7

-7.8

-3.7

-10.1

0.6

-1.0

Europe

1567.4

-17.5

-15.7

-7.3

-9.7

-9.4

-1.5

Japan & Korea

592.5 565.2 1440.6 625.7 1353.9

-8.2 -1.7 -14.8 -5.6 -7.1

-8.4 -2.9 -7.5 -6.8 -6.2

-3.4 3.1 2.9 -5.0 -0.8

-6.3 1.5 -7.3 -1.4 -1.1

-7.3 0.5 -3.1 1.0 -3.7

-3.0 1.7 -2.0 -3.9 -3.5

Destination Region Africa

Middle East North America South America South East Asia


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Glossary 

ACI: Airports Council International



AFTK: Available Freight Tonne Kilometers



European CB: European Central Bank



EIU: Economist Intelligence Unit



CASS: Cargo Accounts Settlement System



FT: Financial Times



FTK: Freight Tonne Kilometers



PMI: Purchasing Managers Index



Netherlands CPB: Netherlands Bureau for Economic Policy Analysis



ODS: Origin-Destination Statistics



SIA: Semiconductors Industry Association



US BTS: US Bureau of Transportation Statistics



M-o-m Month over month percentage change



Y-o-y Year over year percentage change

IATA Economics 11th December 2013


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