Air cargo demand becomes harder to predict as retail evolves

ANALYSTS have sounded a warning that the lack of data on cross-border e-commerce shipments is making it harder to predict air freight demand.

They even warn of a slight slowdown in demand, although, its forecast to stay strong in the short term and the peaks are here to stay.

IATA chief economist Brian Pearce told delegates at the World Cargo Symposium in Dallas the strong cyclical upturn seen 12 months ago was partly due to low inventory levels, UK's The Loadstar reported.

"Businesses were caught out, facing a run down in their inventories. They needed to re-stock, and quickly. They hadn't anticipated the strength of consumer demand.

"But inventory restocking cycles don't last forever and businesses will turn back to cheaper modes of transport."

However, the low inventory levels could instead be related to the growing e-commerce sector, with, Logistics Capital & Strategy managing director Brian Clancey pointing to the changing shape of retail cycles and decreasing reliance on holding stock.

Unlike the conventional retail supply chain's 125-day cycle the e-commerce retail supply chain runs on a weekly cycle, meaning that stock is built to order and there is no need to hold inventory, suggesting that the inventory:sales ratio could now be a less useful indicator.

Said IATA's Mr Pearce: "Up to last year, you could explain the changes by the sales inventory. But for the current upturn we have only been able to explain about half of it," he said. "There are other things happening such as e-commerce and a rise in pharma.

"Inventory cycles are getting shorter, there are lower inventories for retailers and manufacturers and Amazon and others can get stuff moved around very quickly, so there is no need for high inventory levels.

"We are starting to see things changing that are unexplained. One big problem is the lack of data in e-commerce. There is more uncertainty, but we do take that into account."

Along with the rise in e-commerce volumes has been the lack of growth in capacity, triggered by the slowdown in air freight demand. However, demand growth significantly exceeded capacity growth in 2017.

Meanwhile, belly capacity is increasingly gaining share over scheduled freighter capacity, accounting for 67 per cent of the market in 2017 against 62 per cent in 2010.

Of future freighter deliveries, 78 per cent will be for the integrators. By 2021, 100 per cent of orders will be for the integrators, noted Seabury senior vice president Marco Bloemen.

He added that the peaks, some of which were attributable to particular commodities and regions, would remain and cause further challenges for balancing supply and demand.

Machinery parts, raw materials and hi-tech contributed most to air cargo volume growth, he said. International mail parcels grew 10 per cent between 2006 and 2016, and express grew 5.4 per cent. Air express average shipment sizes have decreased 16 per cent since 2010, an indication of growing e-commerce.

Regionally, while Chinese exports were "spearheaded" by east and south China, imports were centred around Shanghai. Germany, which saw 16 per cent air freight growth, accounted for 32 per cent of western European growth last year, while Vietnam accounted for 54 per cent of Southeast Asia's growth.