Airfreight rates soar ex-Asia as China Southern calls for fiscal policy change

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China Southern Cargo has called on the Chinese government to loosen its fiscal and monetary policy in the fourth quarter, in an attempt to buoy the economy. The carrier’s analyst Huang Jianwei wrote: “Only when the Chinese government further loosens the fiscal and monetary policy, the real economy will recover and the air cargo market will get out of a falling trend. If the measures are taken in the fourth quarter of this year, the market will recover before Easter 2013.”

Poor exports this year out of China have been generally accounted for by lack of consumer demand in the traditional markets of the US and Europe. However, noted Mr Huang, there are other factors in play.

Although the shift of manufacturing out of the coastal cities to the west of China has been well-documented, analysts say that it has been perhaps more significant than realised – and that the transition has in part contributed to the recent slowdown in Chinese exports.

“In the short term, the economy of coastal cities will lose the support of the manufacturing industry,” noted Mr Huang. “At the same time, the inland cities cannot create the same size of manufacturing. These cause slowdown of China’s GDP growth, [and] adversely affect the recovery of the air cargo market.”

China’s international trade rose just 6.2% between January and September this year – but in September, exports rose to a high of $186bn – up 10% from a year ago. While exports to Europe contracted for the third month in a row, exports to the US rose for the third consecutive month, and are expected to stay strong for the remainder of the year.

Much of this growth may be attributed to the growth in high-tech exports, with launches beginning in September, and shipments forecast to remain strong – in South Korea, home of Samsung, electronics exports rose by 16% year-on-year to a record high.

And this growth has contributed to impressive Trans-Pacific air cargo rates – the strongest, say carriers, since 2010.

“We are seeing rates of about $5.20 per kilo ex-Shanghai,” revealed the CEO of one carrier based in the US. “Ex-Hong Kong it is $4.95 to $5. Will it sustain for the rest of the year? Possibly.”

He continued: “It is related to high-tech. When the launches come, demand peaks and general freight rises as well. There is also a better balance in the market – eastbound and westbound. It is relatively good. Load factors from the US to Asia used to be poor, now it is 75% or even 100% westbound for Asia.

“We expect the demand to go on until Christmas, but there is uncertainty afterwards.”

Consultancy Drewry added that it expected rates to fall back. “Once peak season recedes, pricing is expected to fall back to mid-year lows as the demand outlook remains weak and capacity correction unlikely. So long as the passenger and cargo markets continue to move in different directions, balancing capacity with demand will remain a challenge for airlines, but a boon for shippers in search of a bargain.”

The company, which provides shippers with freight procurement advice, explained that overall figures had been buoyed by the Asia-US trade, concealing weaknesses elsewhere. Noting that Drewry’s air freight rate index remained low by historical standards, it said: “Drewry’s index reading slumped to 82.1 in August (November 2008 = 100), its lowest level since July 2009 when the world economy was in the grip of recession. It recovered in September to rise 6.1 points to 88.2 thanks to strong pricing on the trade from Asia to North America.”

The boost in North American trade has contributed to transatlantic weakness, say market players. Dave Shepherd, global head of sales at IAG Cargo, said that – despite contractions in the import market from China – the Asia-Europe spot market had “hardened considerably over the past month, and volumes are strong.” But he added that the Transatlantic market was suffering slightly. “It remains OK, if a little soft. Yields and volumes are both mediocre.”

While several carriers have removed capacity from the global market, others have shifted it – to North America. The CEO of one US carrier told The Loadstar that some “creative flying” was going on.

“There’s a degree of shifting by European carriers to go to the US, and to get US-Asia volumes to go through Europe. Also, Asian carriers are coming to the US, instead of to Europe. It’s a market-driven activity.”

Few players, however, believe that the market is showing significant longer term growth – with this month’s rise attributed to a peak in what is little more than a bump along the bottom. But, if China Southern’s calls for easing fiscal policy bear fruit, perhaps spring will see the start of something better.