Air freight demand begins to wane amid global economic shocks
2022.06.20 17:30
Labourers work inside and around a passenger plane as they convert it into a cargo plane at Israel Aerospace Industries site in Ben Gurion International Airport, Lod, Israel December 10, 2020. Picture taken December 10, 2020 REUTERS/ Ronen Zvulun
DUBAI (Reuters) – The strong air cargo demand that has helped passenger-deprived airlines stay afloat over the past two years is showing signs of softening amid decades-high inflation that is pushing up costs.
The Baltic Air Freight Index, which shows weekly transactional rates for general cargo, fell 8.7% last week, while the airlines group IATA predicted on Monday that freight revenue generated by carriers this year would fall by 6.4%.
“There will be a downturn in business, and when there is a downturn in business, people don’t buy stuff that we normally carry as cargo,” Qatar Airways Chief Executive Akbar Al Baker told reporters on Monday at an airline industry meet in Doha.
With capacity able to meet current demand, a drop in bookings will create downward pressure on yields when the recession starts, he said.
The freight market – both air and ocean – has recorded sky-rocketing rates since the pandemic, in part due to deep capacity cuts that have left limited space for shippers.
But with Russia’s invasion of Ukraine compounding the economic damage from the pandemic, a vaulting U.S. dollar and decades-high inflation tightening financial conditions, the global economy is now heading towards slowdown.
The World Bank this month slashed its global growth forecast by 1.2 percentage points to 2.9% for 2022 and warned many countries were likely to face recessions.
Credit Agricole (OTC:CRARY) CIB’s Global Head of Asset Finance Group Jose Abramovici told Reuters that air freight rates were nonetheless so high today that the sector would remain profitable for several more years.
Emirates cargo boss Nabil Sultan said in an interview that rates would stay high for at least another six to eight months in part due to surging fuel prices, but also because demand would still continue to outmatch air freight capacity.
However, he warned that margins were tightening because of fuel and other rising costs, which were almost making certain routes unviable to operate.
