cargo chartbook - IATA

CARGO CHARTBOOK

Q4 2017

Demand for air cargo still strong, as yields continue to rise  Air freight tonne kilometres (FTKs) grew by a strong 8.8% year-on-year in the three months ended October, with industry reports indicating that demand has been strong in the key final months of the year too.  Stronger economic and trade conditions, including sharp rises in consumer confidence, are expected to support the demand into 2018, even as the boost to air freight from the inventory cycle wanes. Business surveys are consistent with annual FTK growth of just under 7% in Q1.

 More favorable supply and demand dynamics have helped to drive cargo yields upwards, and to offset some pressure from rising fuel costs. Meanwhile, freighter utilization is currently back at levels last seen in 2012.

Capacity, costs and yields  11,632 tonnes of additional cargo payload capacity are estimated to be added in 2017 – around 10% below that of last year. Additions from belly-capacity via wide-body passenger fleet deliveries still to dominate. The amount of cargo payload added from deliveries of freighter aircraft was the lowest since 2008, around 30% below that seen last year.  More favorable supply and demand dynamics are helping to drive cargo yields higher, and to offset upward pressure on breakeven loads from higher fuel prices. Cargo yields rose by 13.1% year-onyear in Oct 2017 – the fastest pace in seven years.  Daily utilization rates of large freighter aircraft have increased throughout 2017, and are currently at their highest level since 2012. Increased utilization will help to further reduce unit costs, and to reinforce the backdrop for financial performance.

Cargo Chartbook – Q4 2017

Chart 1 – IATA survey of heads of cargo Weighted score (50 = no change) 100 Cargo volumes next 12 months

90 80 70 60

50 40

Cargo yields next 12 months

30 20

10

Oct 2017

Oct 2016

Apr 2017

Oct 2015

Apr 2016

Oct 2014

Apr 2015

Oct 2013

Apr 2014

Oct 2012

Apr 2013

Oct 2011

Apr 2012

Oct 2010

Apr 2011

Oct 2009

Apr 2010

Oct 2008

Apr 2009

0

Oct 2007

Market drivers  There are further signs that the current FTK growth cycle peaked earlier in 2017, having been bolstered by the inventory re-stocking cycle. Nonetheless, the ongoing upturns in global economic and trade conditions, not least the strong gains in consumer confidence, are expected to remain supportive of air freight demand in the near term.  All told, business surveys remain consistent with annual FTK growth of just under 7% in Q1 2018.

Heads of cargo are increasingly upbeat over yields  When surveyed in early-October, nearly threequarters of airline heads of cargo expected volumes to rise over the next 12 months. The survey respondents were also increasingly confident about the outlook for yields over the period. (See Chart 1.)

Apr 2008

Market developments  Industry-wide FTKs grew by 8.8% in the three months ended October – a slowdown from the seven-year high seen in the previous three months, but still a strong pace by historical standards.  Annual growth in freight volumes remains robust on all of the major international market segments, broadly in the region of 10-15% year-on-year.  FTKs are still trending upwards in seasonally adjusted (SA) terms, although the quarterly pace of growth slowed in the most recent 3-month period.

*Quarterly data

Source: IATA Economics

Table 1 – Key data overview Key data overview - rolling 3 month periods Rolling 3 month periods % year(unless specified otherwise) on-year 1

Industry-wide FTKs North America-Asia 2 2 Asia-Europe Europe-North America2 2 Within Asia (int'l) 2

Industry-wide Freight Tonnes 2

World trade volumes

Additional widebody payload capacity (2017 calendar year) Freighters Belly Total Global PMI new export orders 1 2 3

% quarteron-quarter

8.8% 9.6% 10.5% 11.8% 15.1%

1.2% 2.9% -0.8% 3.7% 4.5%

12.6%

2.9%

5.1%

1.4%

Year-on-year change Tonnes % 1,978 -29.7% 9,654 -4.9% 11,632 -10.3% 3 5-yr avg Level 53.0 51.0

3m ended Oct 2017 3m ended Sep 2017 Average of 3m ended Nov 2017

David Oxley [email protected] 18th December 2017

1

Market developments 1. The seasonally adjusted (SA) upward trend in air freight tonne kilometres (FTKs) has remained robust throughout 2017. Reports indicate that demand has been strong in the key final months of the year too.

2. The quarterly and annual FTK growth rates both slowed in the 3-months ended October compared to the previous period. Nonetheless, at 8.8%, the annual growth rate remained strong by historical standards.

Industry-wide FTKs (billions per rolling 3m period) 62

Industry-wide FTKs (% growth rate) 12%

60

10%

58

Actual

56

8% Year-on-year 6%

54 4%

Quarter-onquarter

52 Seasonally adjusted

50

2% 0%

48

-2%

44

-4%

*Rolling 3 month periods

Sources: IATA Economics, IATA Monthly Statistics

3. Every region made a positive contribution to annual FTK growth in the three months to October. The slowdown compared to the previous period was driven mainly by airlines based in Europe and Asia Pacific. Contributions to industry FTK growth (percentage points, by region of registration) 12% Africa Latin America Middle East North America 10% Europe Asia Pacific Industry total 8% 6% 4% 2%

Jan'12 Apr'12 Jul'12 Oct'12 Jan'13 Apr'13 Jul'13 Oct'13 Jan'14 Apr'14 Jul'14 Oct'14 Jan'15 Apr'15 Jul'15 Oct'15 Jan'16 Apr'16 Jul'16 Oct'16 Jan'17 Apr'17 Jul'17 Oct'17


46



4. Air freight has outperformed wider goods trade since the start of 2016. This is consistent with the typical pattern seen during upturns in the economic cycle, although the growing importance of e-commerce may also be a factor at play. Indices (SA, 3m ended Jan 2012 =100) 140 130 120 110 100 90 80 70 60

0%

110

-2%

105

Global FTKs World trade volumes

Increasing FTK share

100 Ratio of industry FTKs to world trade volumes

95



5. Traffic demand has continued to be robust on the four major segment-based trade lanes. Year-on-year FTK growth rates have remained broadly in the region of 10-15%, led by international freight traffic flown within Asia. Int'l FTK by route (segment-basis, billion) 11 Europe-Asia

10

seaport disruption

Asia - North America

10.9%

Europe - North America

5 4

5%

Dubai (DXB)**

0%

Singapore (SIN)*

-10%

Sources: IATA Economics, IATA Monthly Statistics route


Los Angeles (LAX)* Sep'12 Mar'13 Sep'13 Mar'14 Sep'14 Mar'15 Sep'15 Mar'16 Sep'16 Mar'17 Sep'17

Sep'17

Sep'16

Mar'17

Sep'15

Mar'16

Sep'14

Mar'15

Mar'14

5.0% 4.7% 2.3%

Tokyo (NRT)*

-15%

Sep'13

5.8%

Hong Kong (HKG)*

3

Sep'12

7.1%

Frankfurt (FRA)

-5%

Within Asia

Mar'13

8.3%

Seoul (ICN)

7

6

2017

6. There is a wide range in cargo throughput performance at an airport level in recent months, with no clear geographic pattern evident. Shanghai posted the fastest growth (10.9%), but Los Angeles and Abu Dhabi are both in negative territory.

Shanghai (PVG)

10%

8

2016


Miami (MIA)*

9

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2003

2002

2001


Tonnes of cargo throughput (% year-on-year, Nov 2017 unless specified) -6% -4% -2% 0% 2% 4% 6% 8% 10% 12%

(% year-on-year) 20% US west coast 15%

90

2000


-6%

2004

-4%


Abu Dhabi (AUH)*** Source: Individual airport websites

1.0% -1.3% -2.6%

*Oct 2017 **Sep 2017 **Aug 2017

2

Market drivers 7. Global business confidence has trended upwards in recent months, driven by increases in advanced markets. Developments in the so-called emerging markets have been more volatile, but are still consistent with rising activity.

8. Consumer confidence has risen sharply, and is helping to support demand for air freighted goods. This has particularly been the case in major emerging markets, which fits in with reports of more balanced cargo flows on key trade lanes. Long-run average = 100 102.5

Composite PMIs (50 = no change) 57

Consumer confidence

102.0

56 55

OECD + 6 major emerging economies*

OECD

101.5

Advanced markets

101.0

54

100.5

100.0

53

99.5

52

Global

99.0 98.5

51

98.0

50

97.5

49

97.0

Emerging markets

48 2012

2013

2014

2015

2016

96.5 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

2017 *Monthly data

Sources: IATA Economics, Markit

9. The pick-up in global trade conditions has continued: world trade volumes grew by 5.1% year-on-year in Q3 2017 – the fastest pace since early-2011. This has been supported by stronger trade for both advanced and emerging economies.

10. The new export orders component of the global PMI has increased in recent months, taking it to highest level since March 2011. The indicator is currently consistent with yearon-year FTK growth of 6.9% in Q1 2018. R² = 0.8491

25% 20% 15% 10%

5% 0% -5%

Latest PMI outcomes consistent with year-on-year FTK growth of 6.9% in Q1 2018

-10% -15%

Ratio of trade volumes to industrial production

-20%

2017

2016

2015

2014

2013

-25% 2012

2017

2016

2015

2014

2013

2012

2011

2010

Industrial production

*Monthly data

Sources: Thomson Reuters Datastream

Industry FTKs (% year-on-year) 30%

Emerging economies

2010

100 95 90 85 106 104 102 100 98 96 94

120 115 110 105 100 95 90 85 106 104 102 100 98 96 94

2011

Indices (SA, 3m ended Mar 2012 = 100) 120 Advanced economies 115 110 Trade volumes 105

*Brazil, Russia, India, China, Indonesia, and South Africa


Sources: IATA Economics, CPB

11. The quantity of silicon material shipments increased by 9.8% year-on-year in Q3 2017 – well above its ten-year average growth rate (6.0%). This driver has traditionally been a very strong coincident indicator for FTK demand. % year-on-year 40%

% year-on-year 80%

30%

60% Global FTKs (LHS)

20%

-20

20%

0%

0%

*Quarterly data

Sources: IATA Economics, IATA Monthly Statistics, Markit

12. The decline in the inventory-to-sales ratio seen during 2016 is illustrative of the restocking cycle that has helped to drive recent robust FTK growth. That said, the ratio is no longer falling, and in fact has trended sideways since May. Year-on-year change in level -0.15

% year-on-year 40%

Fall in inventory to sales ratio, increase in FTK growth

-0.10

40%

10%

-15 -10 -5 0 5 10 15 20 25 Year-on-year change in global man. PMI new export orders (adv. 1 quarter)

30%

US Inventory-to-sales ratio (LHS, inverted scale)

-0.05

20%

Global FTKs (RHS)

10%

0.00 0%

Sources: IATA Economics, IATA Monthly Statistics, SEMI


*Quarterly data

Implied path if the inventoryto-sales ratio simply remains flat at its October 2017 level

0.10

-10% -20%


2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

-30%

2008

0.15

2007

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

-80%

2005

-40%

2004

-60%

2003

-30%

2002

-40%

2001

-20%

0.05

2006

-20%

Silicon material shipments (RHS)

2005

-10%


3

Capacity, costs, and yields 13. 1,978 tonnes of payload capacity are estimated to be added to the freighter fleet in 2017 – the smallest increase since 2008. Additions from belly capacity via deliveries to the wide-body passenger fleet have continued to dominate.

14. Large widebody freighter aircraft utilization is trending upwards and is now back to levels last seen in 2012. At the same time, airlines are managing to maintain the SA freight load factor at levels last seen in late-2014.

Tonnes 12,000

Average flight hours per day 11.5

10,000

Widebody payload capacity added each year (2017 data include deliveries due to be made before year-end): Belly Freighter

% of AFTKs (SA) 47% Industry-wide freight load factor (RHS)

46%

11.0 45%

8,000 10.5

6,000

44% 43%

4,000 10.0

2,000 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

9.5 2012

41% 2013

2014

2015

2016

2017 *Monthly data

Sources: Boeing, IATA Monthly Statistics

Sources: IATA Economics, Ascend

15. Brent oil prices have increased through H2 2017, partly in anticipation of OPEC’s recent decision to extend oil production cuts until end-2018. At the time of writing, prices are around US$63/bbl – the highest level since mid-2015.

16. More favorable supply and demand dynamics are helping to drive yields upwards. The cargo yield, both including and excluding fuel and other surcharges, rose by 13.1% year-onyear in October – its fastest annual pace in seven years.

US$/bbl 160

US$ per kilo 2.6

140

2.4 Jet fuel (LHS)

% of AFTKs (SA) 47% Industry-wide freight load factor (RHS)

46%

2.2

120

2.0

100

42%

Large widebody freighter aircraft utilization (LHS)

Brent crude oil (LHS)

45% Global air freight yield (LHS, incl. fuel and other surcharges)

44%

1.8

43%

80 1.6

60

1.4

40 20 2012

42%

Dotted lines are seasonally adjusted

1.2

2013

2014

2015

Sources: Platts, Thomson Reuters Datastream

2016

1.0 2012

2017 *Monthly data

41% 40%

Global air freight yield excl. fuel and other surcharges (LHS)

39% 2013

2014

Source: IATA CASS, IATA Monthly Statistics

2015

2016

2017 *Monthly data

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