Air cargo makes a soft start to 2023 – decline across all regions except Latin America in Jan-2023

Summary

• The feared decline in passenger growth that usually follows one in the cargo segment has mercifully not yet materialised.
• But global trade statistics, and those for airline freight capacity and demand, do not make for confident future predictions.
• An IATA report on regional air cargo performance for Jan-2023 shows a reduction in cargo-tonne kilometres for all regions except Latin America, which has a minuscule global share.
• At the same time, capacity is being added in half of the six world regions as larger aircraft are returned to service.
• This passenger bellyhold increase prompted a small increase in international cargo capacity of 1.4%, but dedicated freighters aren't playing much of a part in it.
• One positive outlook is an increase in global new export orders.
• But weighed against that is worsening political relationships between the major powers, the continuing war in Ukraine, and now - growing fears of bank collapses.
• There is no real precedent for everything that is happening in the world right now; the economics rule book continues to be rewritten, and we have entered an era where a guess is as good as a calculation.

Continuing cargo volume decline yet to manifest itself in a comparable passenger decline

In Global air cargo decline could again be an unwelcome portent for passenger demand, a Jun-2022 CAPA report, it was suggested that a decline in air cargo volume, which was evident at the time globally, has foreshadowed one in the passenger segment in the past.

Fortunately, such a passenger decline has not manifested itself yet, and most of the world is still embroiled in a protracted recovery from the COVID-19 pandemic and from the initial economic problems thrown up by the war in Ukraine.

However, where air cargo is concerned it is very much a case of 'plus ça change, plus c'est la même chose', as IATA has reported regional air cargo performance for Jan-2023 that does not make for encouraging reading. Air cargo demand has declined as economic headwinds have persisted.

That the two factors lack any correlation must bring about a collective sigh of relief throughout the air transport industry, but the combination of circumstances that exist presently: a no-man's-land between pandemic and endemic status for COVID-19; a war in Europe that could potentially last for years; possible conflict in the Asia-Pacific region; high levels of inflation; and a weak bank sector.

All that means that the economic textbook is having to be rewritten frequently. The old adages of "Two economists, three opinions" and "Economics is the only field in which two people can share a Nobel Prize for saying opposing things" have been replaced by 'pure guesswork.'

Looking at the matter globally to begin with: demand, measured in cargo tonne-kilometres (CTKs), fell by 14.9% compared to Jan-2022 (-16.2% for international operations).

But capacity (as measured in available cargo tonne-kilometres, or ACTK) was up by 3.9% compared to Jan- 2022.

This was the first year-on-year growth in capacity since Oct-2022.

Bellyhold capacity up; dedicated freighter capacity down

International cargo capacity increased by 1.4% compared to Jan-2022.

This uptick in ACTKs reflects the strong recovery of belly capacity in passenger airline markets offsetting a decline in international capacity offered by dedicated freighters.

Global new export orders increase for first time in three months

IATA notes several important factors in the operating environment:

The 'global new export orders' component of the manufacturing Purchase Managers Index (PMI), a leading indicator of cargo demand, increased in Jan-2023 for the first time since Oct-2022. For major economies, new export orders are growing, and in China and the US PMI levels are close to the critical 50-mark, indicating that demand for manufactured goods from the world's two largest economies is stabilising.

The IATA report does not take into account growing tensions between the US and China, which have worsened since Jan-2023 and could impact on global trade; nor the potential for another financial crisis, which has presented itself in the first half of Mar-2023, with several actual or projected bank failures.

Global goods trade (the actual shipment of goods) decreased by 3.0% in Dec-2022 - this was the second monthly decline in a row.

The Consumer Price Index (CPI) for the G7 countries (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States, plus the European Union as a non-enumerated member) decreased from 7.4% in Nov-2022 to 6.7% in Jan-2023.

Inflation in producer (input) prices reduced by 2.2 percentage points, to 9.6%, in Dec-2022.

Inflation creeping back up in some countries - a blip or a portent?

IATA interprets this as a sign that inflation generally is falling, and with it the price of goods in the future. However, as this report is written several countries have reported inflation to be on the rise again, including the US (+6% CPI in Feb-2022 vs. Feb-2021 and critically +0.4% month-on-month, the first for many months); Ireland (an unexpected annual increase from 7.8% to 8.5% between Jan- and Feb-2023); and Argentina (annual inflation 102% in Feb-2023, which is the worst for 30 years).

The CPI is an index of the price of a weighted average market basket of consumer goods and services purchased by households; a measure in use across the world.

It is suggested by some analysts that US inflation remains high on account of a delayed hit from housing prices, which saw a 'post-pandemic boom' in 2022 that is only now registering in a measure known as OER (Owners' Equivalent Rent, or the opportunity cost of not renting out your home). Likewise, a recent cooling in house prices will not reflect in the OER until 2024.

IATA's Willie Walsh - "solid ground for cautious optimism"

Willie Walsh, IATA's Director General, said: "With Jan-2023 cargo demand down 14.9% and capacity up 3.9%, 2023 began under some challenging business conditions. That was accompanied by persistent uncertainties, including war in Ukraine, inflation, and labour shortages.

"But there is solid ground for some cautious optimism about air cargo. Yields remain higher than pre-pandemic. And China's much faster than expected shift from its zero COVID policy is stabilising production conditions in air cargo's largest source market. That will give a much-needed demand boost as companies increase their engagement with China."

(Mr Walsh's observation was made before China reopened its borders widely to foreign visitors in Mar-2023, for the first time since Jan-2020.)

Looking in more detail at the individual regions...

Looking in more detail at the individual regions, in Asia Pacific cargo volumes decreased 19% in Jan-2023 year-on-year, marking at least an improvement from the 21.2% decline in Dec-2022.

Airlines in the region continue to be impacted by lower levels of trade and manufacturing activity and disruptions in supply chains due to the residual effects of COVID-19 restrictions that were imposed by China (and despite their removal, which began in Nov-2022).

The positioning of the Lunar New Year also impacted cargo volumes in Jan-2023.

On the positive side, available capacity in the region increased by 8.8% compared to Jan-2022, but that capacity remains unused and will continue to do so for the immediate future.

Both volume and capacity decrease in Europe

European airlines saw the weakest performance of all regions, with a 20.4% decrease in cargo volumes in Jan-2023 compared to the same month in 2022. This was also a decrease in performance compared to Dec-2022 (-19.4%).

Airlines in the region continue to be the most affected by the war in Ukraine. Capacity also decreased, by 9.3% in Jan-2023 compared to Jan-2022.

Volume capacity decrease in North America

Of even more concern is a cargo volume capacity decrease of -8.7% in North America in Jan-2023 compared to the same month in 2022, as there were hopes that the economic downturn there (technically a recession after two successive quarters of 'negative growth') was showing signs of abating.

This was a further slight decrease in performance compared to Dec-2022 (-8.5%).

Capacity did increase though, by 2.3%, compared to Jan-2022.

Latin America has the best performance - capacity up by 1/3rd but the region's global share is small

Latin American airlines reported a 4.6% increase in cargo volumes in Jan-2023 compared to Jan-2022. This was the strongest performance of all regions, and a significant improvement in performance compared to Dec-2022, in which there was no growth.

Capacity in Jan-2023 was up by an impressive 34.4% compared to the same month in 2022.

That said, as the below table reveals, Latin America accounts for only 3% of global production of air cargo, so perhaps not too much should be read into this statistic.

Middle East capacity boosted by widebody return; Africa capacity and volumes decline year-on-year

Middle Eastern airlines experienced an 11.8% year-on-year decrease in cargo volumes in Jan-2023 but it was an improvement on the previous month (-14.4%).

Capacity increased by 9.6% compared to Jan-2022, possibly as a result of larger wide body aircraft being returned to service.

There was a decrease of 9.5% in cargo volumes operated by African airlines in Jan-2023 compared to Jan-2022. This was a slight improvement in performance compared to the previous month (-10%).

Capacity was 1.8% below Jan-2022 levels.

The table below summarises the position by region and in the total global market in Jan-2023 vs. Jan-2022, noting the increase/decrease in CTKs (demand), ACTKs (capacity), the percentage year-on-year change in cargo load factor (CLF%) and the actual cargo load factor level (CLFL).

IATA regional summary: cargo, CTK/ACTK and world share, Cargo Load Factor (change year-on-year)

Region	World share	CTK	ACTK	CLF%	CLFL
Total Market	100%	-14.9%	-3.9%	-9.9%	44.8%
Africa	2.0%	-9.5%	-1.8%	-3.8%	43.9%
Asia Pacific	32.4%	-19.0%	+8.8%	-15.5%	45.2%
Europe	21.8%	-20.4%	-9.3%	-7.5%	54.1%
Latin America	2.7%	+4.6%	+34.4%	-9.3%	32.5%
Middle East	13.0%	-11.8%	+9.6%	-10.0%	41.1%
North America	28.1%	-8.7%	-2.3%	-5.1%	42.3%

Source: IATA

The sad fact is that, apart from Latin America at a pinch, no region can take much comfort from these figures.