The dramatic rebound in freight traffic witnessed since the end of September 2009 is returning to “more normal rates” in most areas of the world, according to the International Air Transport Association (IATA), which has adopted a new agenda that aims to enlighten governments on the cargo sector’s importance to world trade.
While traffic is still growing, in the past two months, that growth has experienced “a bit of a pause,” says IATA Chief Economist Brian Pearce. “This tells us it is about the business inventory cycle.” As post-recession businesses were ordering goods, traffic was growing at 20%. But now that warehouse and company shelves have been restocked, cargo traffic is flattening out. “But it will increase again,” says Pearce, due to strong industries that are main shippers, such as the semi-conductor business.
Pearce was speaking to reporters in Geneva at IATA's first-ever cargo forum, preceding the group's annual media day, where it releases its overall forecast, which this year highlights the impact of cargo on world economies.
Cargo is a leading indicator of trade, which drives business travel, which drives worldwide economies. “When we bounced out of the economic recession, it was the cargo statistics that signaled the recession was coming to an end,” says Des Vertannes, IATA global head of cargo. “That’s what makes me feel we in the industry need to do a heck of a lot more to boost cargo’s profile.” He says that government representatives, investors and shippers need to be at the table at many air cargo forums to get the message, and IATA has a strategy to try to make that happen. “It falls upon us—not just IATA, but the entire industry—to make sure we do more.”
The industry can expect to see a tougher environment for freight in 2011, says Pearce, and “we are seeing that in yields,” because there is more competition for business now that there is an excess of capacity.
This is true not only for aviation. Ocean freight rates are coming down as well, indicating that shipments from suppliers are slowing. This comes at a time when fuel costs are again on the rise after being relatively stable for the past 12 months.
Perhaps under the most pressure are the European economies, Pearce says. After countries such as Germany, Greece, Ireland, Spain, the U.K., and Portugal used tax breaks and other measures to boost their GDP, those countries are now expected to tighten their fiscal belts over the next five years. “Our worry is that the situation is not over yet,” Pearce says, and if banks default on debt, governments will look to aviation as an easy target for more taxation. This is more of a threat on the passenger side, “but cargo is still at risk. This will mean Europe will remain weak” in terms of freight growth, he says.
The impending aviation tax in Germany is one example that will damage travel, IATA says. IATA wants the industry to get involved and make sure that governments, such as Germany, understand how the cargo sector sustains economic growth.
But this is not the same story in other parts of the world. Asia-Pacific and Latin America are poised for “very strong growth,” as are emerging markets, such as North Africa. Although that is a bit of a mixed message, given the fact that Asia’s growth is slowing, which is bringing the rest of the world’s cargo traffic more into balance.
The reason the outlook for the Latin American cargo business is so positive is that countries in the region are much more stable now than they were a decade ago. “An additional element is [that] many of those economies have strong commodities businesses, like the food business, and Asia drives some of that” as trade flows between those two regions.
But investing in the cargo sector is a complex subject, not only because investments need to be made in everything from access roads to airports to better warehouses, but also because of the heightened need for cargo security. There is also a pressing need for more collaboration and partnerships, Vertannes says
IATA has been participating with International Civil Aviation Organization initiatives, especially on the security front, to help countries and airlines grappling with issues ranging from a secure supply chain and declaration documents needed by governments to a paperless document system. More is expected to come shortly from ICAO-led meetings in early December that will address many of these processes and look at programs that could be adopted or promoted as new industry standards.
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