Air freight market hits rock bottom

The double-whammy of high inventory levels and low sales that has had such a
disastrous impact on air freight traffic could be beginning to ease.

Brian Pearce, chief economist at Iata, told Iata’s 2009 World Cargo Symposium:
“The slump we are seeing now is one we have really not seen in a long time.

“We would have to go back to the 1930s to see world trade contracting as it did
last year.

“Even in the oil crisis of the 1970s, air freight did not suffer so badly.”

Bulk and container shipping had also suffered, but not as much as the 25% decline
air freight had experienced over the last five months.

“One key thing has been an extraordinary build-up of inventory in the fourth
quarter [of 2008].

“Sales fell off sharply and companies have been left with inventory they don’t
want.

“This has been a double-whammy – it is not just that consumers have cut down
their demands, but manufacturers are also going through a very serious inventory
re-adjustment.

“Shippers of components have reduced their volumes by a quarter or more.”

Japanese exports of automotive components were down 50% in January, for example.

“The positive thing is that this should be a temporary effect, ” said Pearce.

“Once manufacturers get stocks down to levels they are comfortable with, we are
then just left with the weakness caused by a recession on the consumer side.

“That is one small light at the end of the tunnel.

“JP Morgan’s output index does suggest that we may have reached rock bottom in
January, with signs of output increases, but it may be too early to say.

“But I think we have to be realistic here.

“Purchasing managers may not be quite as low in confidence as they were two months
ago, but they are still about as low as we have seen since we started to collect
these numbers.”

Carriers and forwarders offered limited anecdotal evidence that the acceleration
of air freight’s decline may have been halted.

Steve Gunning, MD of British Airways World Cargo, told IFW: “We have seen things stabilise over the last three weeks.”

And Stefano Olmi, regional head of air freight procurement for Asia Pacific and
Greater China at Panalpina, said there had been a slight improvement since the
beginning of March.

But both said it was too early to draw any clear conclusions.

Whether the bottom of the air freight slump had actually been reached or not,
Pearce said the industry may understand where the bottom is.

“I think we will bump along on the bottom for some time, ” he added.

“I think it is probably going to take three to five years before we see business
back up to the previous peak, which was 2007.”