Wednesday, October 5

Cargo performance faces various challanges

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KUCHING: Although air freight volumes continue to show solid gains since the last 12 months, supported by economic improvements in some regions, the International Air Transport Association (IATA) has highlighted that high jet fuel prices and overall weakness in yields kept cargo financial performance from improving so far this year.

According to IATA, emerging Asia trade volumes have rebounded after weakness in the first quarter (1Q) and consumers in the US are more optimistic about future economic performance.

“These developments have supported growth in demand for air-freighted commodities like semi-conductors,” the association observed.

However, it noted that in Europe, consumer confidence and trade activity have weakened due to the Russia-Ukraine crisis, which could weaken air freight demand in months ahead.

“Demand drivers remain positive overall, but are also showing signs of regional divergence. In China, consumer confidence remains stable, and there has been further increase in optimism about the economic outlook in the US.

“By contrast, European consumers have become more pessimistic over recent months, reflecting the adverse impacts of the Russia-Ukraine crisis,” IATA explained.

As for business confidence, IATA noted that it continues to point to expansion, but rates of improvements are still weaker than 2013 year-end.

It added that there has been no change in inventory to sales ratios suggesting businesses still have no immediate need to reduce their reliance on quick transportation of cargo.

Nonetheless, the association reiterated that demand drivers remain improved on a year ago, and this continues to support stronger demand for air-freighted commodities, as indicated by expansion in semi-conductor shipments.

As for capital expenditure intentions of companies in the UK and Japan, IATA pointed out that they remain positive on balance, but have declined slightly in Japan.

In terms of air freight yields, the association noted that they appear to have stabilised, and are showing slight improvement on a year ago.

“This could help reduce downward pressure on profitability, but cargo business financial performance remains weak,” it said.

Regarding jet fuel prices, IATA pointed out that they have eased slightly since the most recent mid-year peak. It further noted that although there has been concern over supply disruptions, the demand outlook has also weakened, particularly in Europe, and that has caused crude oil prices to slip.

“Nonetheless, jet fuel prices remain high at around US$120 per barrel (bbl). While nominal wage rates have stabilised in Europe and China, they are showing some increase in the US as a result of improving employment conditions,” it added.

Overall, IATA highlighted that consistent with some improvement in demand conditions in 3Q compared to the first half (1H), heads of cargo surveyed in July 2014 expect stronger growth in traffic volumes over the next 12 months as well as some increase in cargo yields.