IATA: Sluggish trade, Brexit and weak demand all risks to air cargo

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Cathay Pacific freighter being loaded

Airfreight’s momentum is at risk from a sluggish trade outlook, the aftermath of Brexit and weak demand, though strong consumer confidence and low oil prices could reenergise growth, the International Air Transport Association (IATA) says.

In its Q2 2016 Cargo Chartbook, IATA says air cargo continues to outperform the global merchandised trade but growth remains weak. The association says it remains to be seen whether the UK leaving the European Union, dubbed ‘Brexit’ will impact world trade though decreasing semi-conductor shipments points to weaker demand.

IATA says: “The confluence of a sluggish world trade outlook, “Brexit” aftermath and weak demand drivers suggest that the positive momentum observed in FTKs over the past three months may be paused.”

The association warns that overcapacity, weak trade, lower yields and rising fuel prices could result in falling profits. IATA says new widebody freighter deliveries have outpaced retirements by 17 per cent since 2008.

Most of the retirements have been Boeing 747s, particularly -200s, along with DC-10s and MD-11s, with 747-400s, 767s and 777s the favourite replacements.

Available freight tonne kilometres increased by five per cent in the second quarter of 2016, further exacerbated by widebody passenger aircraft with bellyhold capacity.

Yields have continued to suffer, with IATA saying the latest deterioration likely to severely damage profits. Fuel prices have risen 43 per cent between January and June 2016 from a relatively low base.

IATA says: “Although rising fuel prices have abated in July, a challenging yield environment is expected to persist. Flooding-in of capacity amid a weak global trade backdrop can lead to taking a bite out of air cargo profitability.”