The trade war between the United States and China is ongoing. This trade war has made a name for itself as it impacted shipping lanes, but now the impact is reaching to the sky. The trade war between the US and China has started to drag air cargo down with it. Economies are slowing down, and the Asia-Pacific market is dealing with the majority of diminished demand.
This August was the 10th straight month of decline in terms of volume for air cargo. The International Air Transportation Association has monitored global demand for air cargo and seen a drop of 4% as of August compared with the same month in 2018. While all economies are dealing with a diminished demand for air cargo, the Asia-Pacific trade lanes have been particularly impacted. Data from the Air Transport Association has revealed that air freight between the Asia Pacific trading partners, in particular, has contracted by 5%, higher than the global average.
This US-China trade war has brought with it economic impacts, the likes of which haven’t been seen since the global financial crisis in 2008. It has not been since 2008, over a decade ago, when demand for air freight volume has fallen for ten months in a row. This is not something that is just impacting shippers. This is having its reach throughout the entire supply chain from
customers to business owners, and people should take notice. There is no sign that this trade war will diminish anytime soon, which means that we aren’t through the worst of it just yet. The business environment for air cargo is only going to get worse. Trade wars severely inhibit prosperity, so as governments are continuing to be combative, they’re underpinning the performance of not only air cargo but the entire trade market.
Global Exports
Global exports are suffering most severely. This ongoing issue within the market has impacted air cargo to such a degree that global export orders are falling. Since September of 2018, manufacturing export orders have been tracked. Theoretically, this would pave the way for better monitoring of exports and trade throughout multiple nations. While this has proved to be the case, the unfortunate truth is that it has also revealed the extent to which the trade war between China and the US has severely hampered air cargo. For the second month in a row, all major trading countries have reported a significant decrease in orders.
Performance by Region
China saw a four-point decline between June and September. DHL data has shown that this decline was in large part due to the eight-point decline in overall air cargo demand. This diminishing of air cargo is something that is seen across International supply and demand factors. Air freight capacity has outstripped demand for 16 months in a row, which means that air cargo rates are dropping and in fact, have reached their lowest point in four years. Not since 2015 when movements were recorded for air shipping rates have they been this low. This is also not something to be praised even though most people would associate low prices with business savings. These low prices are having a severe impact on regions throughout Asia-Pacific. The decline in Asia-Pacific volume in August was 6%, which means that chargeable weight dropped 7% and produced a decrease in demand of 9.4%. This brought about a worldwide revenue drop for air cargo of 16%. Revenue for air cargo coming out of Europe dropped 15.3%, and air cargo originating in Asia-Pacific dropped 11.6%.
What Shippers Should Know
Shippers now need to know that this is not something that is going to end anytime soon. As politicians continue to debate and the trade war continues, it will restrict the economy and business dealings to a more significant degree than we see now. Consider that what we see now is particularly important and very problematic. August demand has fallen 6.4%, and as this weakness in the market continues, the demand for intermediate goods is going to drop further. When this demand diminishes, it will contribute to a decline in overall air cargo.
As such, shippers need to account for this potential change. If things don’t get better anytime soon, it’s going to have an impact on what is being shipped, where, and who is making money. Those involved in the shipping industry need to be mindful that the impact of air cargo demand fluctuates by region. Those trading in Asia-Pacific may very well face severe constrictions of their company budgets and demand concurrently. Prices for industry members will continue to shift and bring with it more instability and lower demand. As this happens, the availability of air cargo shipments will diminish, companies will no longer be able to rely upon overlapping and regular air cargo schedules. The lack of demand and the decrease in air cargo means that shipments will be delayed, and businesses need to adjust for that. Consumers need to be prepared for that all the same.
Wrapping Up
Overall, trade wars are never good. In this case, the ability to monitor data for different aspects of the global trading environment has revealed that the current conflict between the United States and China is having an unexpectedly severe impact on all elements of trade but particularly on air cargo. As the political environment shows no signs of changing anytime soon, the negative impact is something that companies need to be prepared for long-term. This is not something that is going to get better in the immediate future. All companies involved in logistics, particularly in the Asia-Pacific region, will need to have backup plans for the potential long-term impact on air cargo demand decline that could manifest as a result of the continuing trade war between the United States and China.
