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Asian Air Freight Market Continues to Fly High – Can it continue in 2018?

The latest data from the Association of Asia-Pacific Airlines notes that through November 2017, freight-tonne-kilometers (FTKs) are up 10.0% year-over-year. Indeed, for the month of November, the association’s Director General noted that new orders and strong demand from advanced economies led the growth in the region’s airline volumes.

 

Asian airports including Hong Kong, Incheon and Changi are benefiting from this demand. Singapore’s Changi reported 10.7% year-over-year increase in cargo for November. Year-to-date through October, cargo is up 8.1%. Meanwhile, Korea’s Incheon airport reported total cargo up 7.6% for the 2017 12-month period through December. Arrivals increased 9.5% while departures increased 5.9% for the period. Lastly, Hong Kong’s airport reported cargo up 9.7% for the January –November period with unloads up 5.1% and loaded cargo up 12.4%.

Contributions to Cargo Growth

Much has been reported by industry analysts as well as in the press that e-commerce is a growing contributor to this growth. We agree it is playing a role and we believe it’s not necessarily just B2C traffic. As more businesses digitize, the way one conducts business with suppliers as well as with other supply chain partners is being done online more and more.

In addition, trade patterns are changing. In fact, the Director General of the Association of Asia-Pacific Airlines was quoted as saying, “the region’s airlines remain focused on effectively managing capacity in response to evolving patterns of market demand as well as improving operational efficiency.” A need for commodities, a means to lessen trade reliance with the US or maybe both as well as the improving health of emerging markets as a whole, as Asian carriers look towards emerging markets for growth.

Emerging Markets

Indeed, IATA has highlighted airlines from Africa in particular as growing in the double-digits during 2017, for 13 consecutive months. Albeit growth is based on a small-base compared to other regions, still it’s worth noting that air cargo trade between Africa and Asia grew 67% in the first ten months of the year.

According to the International Trade Centre, from 2006 until 2016, overall trade between Asia and Africa grew 75.4% to $292.9 billion. The main exports from Africa are hard and soft commodities, while Asia exports machinery and manufactured goods to Africa.

The top-three Asian countries trading with Africa in 2016 are China, India and South Korea. Trade with these three Asian countries represented 72% of the total Africa-Asia trade. Meanwhile, the top-three African exporters are South Africa, Angola and Egypt. Their combined exports represented 47.5% of the total African exports. As for imports from Asia, the top-three African importers are South Africa, Egypt and Algeria. They represent a combined 39.4% of the total African imports.

Not to be left out is Latin America. Spurred in part by economic recovery of the region’s largest country, Brazil, IATA noted November year-over-year FTKs increased 9.4%. Furthermore, seasonally-adjusted international freight volumes are now back to the levels seen at the end of 2014.

China and other major countries in Asia are the biggest trading partners for Peru, Brazil and Argentina. While commodities continue to take a leading role in terms of Latin American exports, Kevin Gallagher, professor of global development policy at Boston University indicated that there is now a focus on infrastructure, banking and some manufacturing. Over the first four months of 2017, Chinese investors invested $5.7 billion in Brazilian mergers and acquisitions, about 37.5% of total investments in Brazil, according to Dealogic.

Outlook

Can the Asian air freight market continue its spectacular performance into 2018? It’s likely that growth will continue for Asian airlines but year-over-year comparisons may be difficult to achieve. E-commerce, B2C and B2B, will play a major role in airfreight as will Emerging Markets. These countries, collectively, are expected to perform well in 2018. According to a Bloomberg survey, Brazil, Argentina and South Africa are among the top such countries expected to see strong economic growth.

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