CARGO eCHARTBOOK

Q1 2015

OVERVIEW
Financial performance in the cargo business remains poor and does not deliver adequate returns for investors.
Overcapacity has resulted in lower load factors and has placed downward pressure on yields. Lower jet fuel
prices may provide temporary relief to some carriers but are not expected to have a lasting impact on cargo
business profitability as jet fuel price reductions will be passed on to consumers. If lower jet fuel prices persist it
will help boost demand for air cargo services but favorable impact on financial performance on the cargo
business will only be achieved if coupled with capacity discipline. Underlying economic demand drivers remain
positive and business confidence continues to signal expansion in manufacturing activity but with dampened
expectations. Risks remain high as deepening of the Russian-Ukraine crisis, uncertainty in oil price, turmoil in
the Middle East and continued concerns around sovereign debt of EU member states weigh on confidence.
However, continued positive demand for air-freighted commodities, as indicated by expansion in semi-conductor
shipments, are a potential source of optimism for the year ahead.
Economic Situation The global economy is expected to grow faster in 2015 than at any point since 2010.
However, the forecast growth rate of 2.8% is lower than was expected in mid-2014 (page 2).
Traffic Growth Air freight traffic in 2014 expanded by 4.5% compared to 2013, expansion in freight
volumes continued in January 2015 compared to a year ago albeit at a more subdued pace of 3.2% (page 2).
Demand Environment Growth in global trade volumes has continued to expand, with mirrored increase in
FTKs. Business confidence continues to signal expansion in manufacturing activity but with dampened
expectations (page 3).
Demand Drivers Demand drivers for consumer confidence remain positive across key markets, although in
Europe pessimism still prevails but there are signs of significant improvement in expectations (page 3).
Capacity Freight capacity addition in 2015 will be driven by delivery of wide body passenger aircraft, for
every one tonne of hull capacity added by a wide body freighter three tonnes will be added by wide body
passenger aircraft (page 4).
Competition The difference between sea and air freight rates has largely remained unchanged over the
past year. A key development to watch in 2015 is how the new Silk Road rail link from China to Europe will
impact modal choice and trade dynamics on this important trade lane (page 4).
Revenue and Yields the recent decline in yields are consistent with the continued weakness in load factors
but may also partially be explained by a decreasing cost base with the drop in jet fuel prices (page 5).
Costs jet fuel prices experiencing a decline of 46% since their 2011 highs and 39% since their 2014 highs
in USD terms (page 5).
Profitability outlook if lower fuel prices persist it will boost demand for air cargo services but favorable
impact on financial performance of the cargo business will only be achieved if coupled with capacity discipline
(page 5).

IATA Economics: www.iata.org/economics

Cargo eChartbook Q1 2015

Economic Outlook & Traffic Growth

The global economy is expected to grow faster in 2015 than at any point since 2010 (1). However, the forecast
growth rate of 2.8% is lower than was expected by purchasing managers in mid-2014 and continues to be below
long term trend. The growth in the global economy remains unbalanced.
In advanced economies, the US continues to be a strong source of growth aided by patient monetary policy in no
hurry to accelerate tightening. The UK continues to expand with rising PMI. The recovery in the Eurozone has
broadened with every country in the block expected to grow in 2015, although on average at an anemic rate of 1.6%.
The quantitative easing program announced by the ECB has helped growth prospects although further intervention
may be needed to support the recovery through accommodative fiscal policy in the short term and in lockstep with
long term structural reform (3).
In emerging economies, Brazil is flirting with recession while Russia has contracted at the steepest rate since 2009
as sanctions begin to bite. India has strengthened prospects for growth, further aided by loosening of monetary
policy made possible with inflationary pressures easing due to lower oil prices. China is targeting a new normal
growth rate of 7% below its 30 year average of 10% but still over double the expected 2015 US growth rate of 3.4%.
Air freight traffic in 2014 expanded by 4.5% compared to 2013, expansion in freight volumes continued in January
2015 compared to a year ago albeit at a more subdued pace of 3.2% (4 & 5). The lower growth rate in air freight
markets is not explained by seasonal variability in the timing of the lunar New Year but rather continued challenges
in the demand environment (6).
1. Forecast for GDP growth

4. Freight Traffic Growth

% change over year

% change over year

6%

32
5%

22

4%

12

3%

2%

-8
-18

1%

2013

2014

Domestic Freight Volumes (ACI)

International FTKs (IATA)

Jan-15

Sep-14

Jan-14

May-14

Sep-13

Jan-13

May-13

Sep-12

Jan-12

May-12

Sep-11

Jan-11

May-11

Sep-10

Jan-10

May-10

Sep-09

World

Jan-09

Euro Area ASPAC

excl
Japan
2015

May-09

Middle
SubLatin
America East North Saharan
Africa
Africa

Japan

Sep-08

Jan-08

US

May-08

-28
0%

International Freight Volumes (ACI)

Source: EIU Viewswire

Source: IATA, ACI

2. Government Cyclically Adjusted Fiscal Balance

5. International Freight growth by major routes

change in % of GDP over the previous year

% change over year

60%

Tightening

1%

0%

40%
20%

2012

Europe - Far East

2013

2014

Within Far East

North Atlantic

Jul-14

Nov-14

Mar-14

Nov-13

Jul-13

Mar-13

Nov-12

Jul-12

Mar-12

Brazil

Nov-11

Russia

Jul-11

India

Mar-11

China

Jul-10

Japan

Nov-10

Euro Area

Mar-10

United
States

Jul-09

-40%

-2%

Nov-09

-1%

Mar-09

Loosening

0%
-20%

North and Mid Pacific

Source: IATA, ODS

Source: IMF

6. Ratio of World Trade to Domestic Industrial Production

3. Bank credit conditions

% banks

% banks

1.2
1.1
1

30

30

10

10

-10

-10

0.8

-30

0.7

Source: ECB, Federal Reserve

IATA Economics: www.iata.org/economics

Source: Netherlands CPB

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

0.5

1996

Jul-14

Jan-15

Jul-13

Jan-14

Jul-12

0.6

1995

US Banks

Jan-13

Jul-11

-50
Jan-12

Jul-10

Jan-11

Jul-09

Jul-08

Jan-09

Jul-07

Jan-08

Jul-06

Jan-07

Jul-05

Jan-06

Jan-05

European Banks

Jan-10

Looser Credit
Standards

-50

1991

-30

0.9

1994

50

1993

70

Tighter Credit
Standards

50

1992

70

Cargo eChartbook Q1 2015

Demand Environment & Drivers

Growth in global trade volumes has continued to expand, with mirrored increase in FTKs growth over the past year
(7). There have been different factors influencing demand on key trade lanes. On North-Mid Pacific route air freight
experienced double digit growth in 2014 and may have gotten a boost from the backlog in US West Coast sea ports.
In contrast, the intra-European air freight market contracted by nearly 1% in 2014, weighed down by sluggish
economic performance and increasing risk environment.
Business confidence continues to signal expansion in manufacturing activity but with dampened expectations (8). It
remains to be seen if the spike in inventory to sales ratio gives cause for concern as a small inventory build-up is
consistent with the lead up to the end of year holiday season (9). Demand drivers for consumer confidence remain
positive across key markets, although in Europe pessimism still prevails but there are signs of significant
improvement in expectations (11 & 12). The growth in air freight destined for Asia, supported by Chinas transition to
a consumption driven economy, is expected to continue well into the future, transforming the demand environment
and making Asia not only a major origin for air freight but also a leading destination. Continued positive demand for
air-freighted commodities, as indicated by expansion in semi-conductor shipments are a potential source of optimism
for the year ahead (10).
10. Semi-Conductor Shipments & Air Freight

7. World trade in goods and air FTKs

Index of world trade, 2005=100
(seasonally adjusted)

Billion FTKs
(seasonally adjusted)

140

15
14

130

13

120

12
110

11
100

10

% Growth, Semi-Conductor Shipments

% growth - International FTKs

56

34

46
36

24

26

14

16
6

-4

-6

-14

-16

-24

International FTKs

Jan-15

Sep-14

Jan-14

May-14

Sep-13

Jan-13

May-13

Sep-12

Jan-12

May-12

Sep-11

Jan-11

May-11

Sep-10

Jan-10

May-10

Sep-09

Jan-09

May-09

Sep-08

Jan-08

Jul-14

Nov-14

Mar-14

Jul-13

Nov-13

Mar-13

Jul-12

Nov-12

Mar-12

Jul-11

Nov-11

Mar-11

Jul-10

Nov-10

Mar-10

Jul-09

Nov-09

Mar-09

Jul-08

Nov-08

Mar-08

Jul-07

Nov-07

International FTKs

May-08

-26

90

Sep-07

May-07

-34

Semi-Conductor Shipments

Source: IATA, SIA

World Trade Index

Source: Netherlands CPB, IATA

11. Consumer confidence

8. Purchasing Managers confidence survey

& Air Freight Demand

Balance expecting improvement, index

Balance expecting improvement, net %

120

60

100

-5

40

80

20

60

40

-20

20

-30

-40

-35

% growth YoY

-10
-15

JP Morgan Manufactuerers PMI (+2 months)

International FTKs

US (left scale)

China (left scale)

Feb-15

Sep-14

Apr-14

Nov-13

Jun-13

Jan-13

Aug-12

Oct-11

Mar-12

Dec-10

May-11

Jul-10

Feb-10

Sep-09

Apr-09

Nov-08

Jun-08

-25

Jan-08

Mar-15

Jul-14

Nov-14

Mar-14

Jul-13

Nov-13

Mar-13

Jul-12

Nov-12

Mar-12

Nov-11

Jul-11

Mar-11

Nov-10

Jul-10

Mar-10

Nov-09

Jul-09

Mar-09

Nov-08

Jul-08

Mar-08

Nov-07

Jul-07

Mar-07

-20

EU (right scale)

Source: DatasStream

Source: IATA, Markit/JP Morgan

9. Total Business inventories to sales ratio & FTKs

12. Capital spending intentions

Inventories to sales ratio

Net balance intending to increase investment

FTKs (billion)

1.60

Net balance intending to increase investment

15

70

18
1.40

16

50

10

30

10

Source: IATA, US Census Bureau

IATA Economics: www.iata.org/economics

UK Business (left scale)

Japan Business (right scale)

Source: DatasStream

Q1-2015

Q3-2014

Q1-2014

Q3-2013

Q1-2013

Q3-2012

Q1-2012

Q3-2011

Q1-2011

Q3-2010

Q1-2010

-15

Q3-2009

-10

-70

Q1-2009

Dec-14

Aug-14

Apr-14

Dec-13

Aug-13

Apr-13

Dec-12

Apr-12

Aug-12

Dec-11

Apr-11

Aug-11

Dec-10

Aug-10

Apr-10

Dec-09

Aug-09

Apr-09

Dec-08

Aug-08

Apr-08

Dec-07

Aug-07

Apr-07

0.80

-50

Q3-2008

10

-5

-30

Q1-2008

1.00

-10

Q3-2007

12

Q1-2007

1.20

Q3-2006

14

Cargo eChartbook Q1 2015

Capacity & Competition

Capacity addition in 2015 will be driven by delivery of wide body passenger aircraft, for every one tonne of hull
capacity added by a wide body freighter three tonnes will be added by wide body passenger aircraft (13). Freighter
aircraft utilization rates have continued to show a steady improvement and are near their 2011 highs, but air freight
load factors are hovering around a weak rate of 46%, although freight only aircraft operate with load factors of about
70% (14). Looking ahead, aircraft utilization rates and freight load factors will continue to be challenged by fleet
expansion, with an expected 7.4% increase in 2015 of new wide body aircraft (15).
Air freight volumes from the EU to Asia are just 1% higher than they were in June 2008 but air freight volumes from
Asia to EU have grown by 27% (16). This rebalancing in air freight volume has helped fill cargo space on both legs
of a round trip journey. The difference between sea and air freight rates has largely remained unchanged over the
past year (18). A key development to watch in 2015 is how the new Silk Road rail link from China to Europe, which is
estimated to on average shave two days off end-to-end rail journeys, will impact modal choice and trade dynamics
on this important trade lane.
13. Cargo fleet composition

16. EU28 Trade with Asia

Number of aircraft

% change in tonnes from pre-crisis peak June 2008, seasonally adjusted

60%

3900
3700

40%

3500

20%

3300
3100

0%

2900

-20%

2700

End of month totals

End of year totals

Freighter fleet in service

Asia to EU by sea
Asia to EU by air

Widebody pax fleet in service

Jul-14

Nov-14

Mar-14

Jul-13

Nov-13

Mar-13

Jul-12

Nov-12

Mar-12

Jul-11

Nov-11

Mar-11

Jul-10

Nov-10

Mar-10

Jul-09

Nov-09

Nov-08

Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15

Mar-09

-40%

2500

EU to Asia by sea
EU to Asia by air

Source: International Transport Forum

Source: IATA, Ascend

14. Freight load factor & freighter aircraft utilization

Average daily hours flown
(seasonally adjusted)

% Available freight tonne capacity

(seasonally adjusted)
53%

12

17. Ocean container and air freight rate growth

% change over year
100%
80%
60%

11

49%

10

45%

40%
20%

0%
-20%

41%

-40%

Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15

-60%

Freight aircraft utilzation

Dec-14

Apr-14

Aug-14

Dec-13

Apr-13

Aug-13

Dec-12

Apr-12

Aug-12

Dec-11

Apr-11

Aug-11

Dec-10

Apr-10

Aug-10

Dec-09

Apr-09

Aug-09

Dec-08

37%

Aug-08

Freight Load Factor

Ocean container

Air Freight

Source: Drewry, IATA CASS

Source: IATA, Boeing

18. Container Shipping Volume Growth by Region

15. Widebody Aircraft Deliveries by Airline Region

% change over year

Number of aircraft

10

400
8

350

300
250

200
2

150
100

50

-2
North America

2007

2008

2009

Other

Middle East

2010

2011

2012

2013

2014

Europe
Dec 2013

North America

Europe

Asia Pacific

South East Asia

Middle East

Latin America

2015
Nov 2014

Dec 2014

Source: Drewry

Source: Ascend

IATA Economics: www.iata.org/economics

Cargo eChartbook Q1 2015

Revenues, Costs & Profits

Air freight yields have been declining steadily since mid-2011 and are now down 16% since that time (19), consistent
with continued weakness in load factors. Although the recent decline in yields may also partially be explained by a
decreasing cost base with jet fuel prices in USD experiencing a decline of 46% since their 2011 highs and 39% since
their 2014 highs (20).
Fuel hedging means that most airlines are not yet benefiting fully from the lower fuel price. For airlines with a
significant unhedged portion of their fuel, the drop in fuel prices may have a temporary boost to airline profitability.
Although airlines with a greater hedged position may have their profitability adversely impacted if their competitors
are in a better position to pass on the fuel cost savings. Once the impacts of hedging dissipate the fuel price
reduction will be passed on to consumers. Therefore, the change in fuel price is not expected to have a lasting
impact on profitability of the cargo business, which has not delivered adequate returns for investors (22 & 23).
However, if lower fuel prices persist it will boost demand for air cargo services, if combined with capacity discipline
this would have a favorable impact on financial performance.
Consistent with the uptick in the economic cycle, heads of cargo surveyed in January 2015 expect stronger growth in
traffic volumes and falling inputs costs combined with declining yields over the next 12 months (24).
19. Air Freight Yields (US$ per kilo)

22. Profitability of US Cargo Only Airlines

SE Asia-Europe
Global total - LHS

SE Asia - Europe (incl. Other charges)

Global (incl. Other charges) - LHS

Operating Profit Margin

2014Q3

2014Q1

2013Q3

2013Q1

2012Q3

2012Q1

2011Q3

2011Q1

2010Q3

2010Q1

2009Q3

2009Q1

2008Q3

2008 Q1

2007 Q3

2007 Q1

2006 Q3

2006 Q1

Apr-14

Dec-13

Apr-13

Aug-13

Dec-12

Apr-12

Aug-12

Dec-11

Apr-11

Aug-11

Dec-10

Apr-10

Aug-10

Dec-09

Apr-09

Aug-09

Dec-08

Apr-08

Aug-08

Dec-07

Apr-07

Aug-07

0.6

2005 Q3

0.9

2005 Q1

1.2

2004 Q3

1.5

2004 Q1

1.8

% of revenues

12%
10%
8%
6%
4%
2%
0%
-2%
-4%
2003 Q1

2.1

Dec-14

2.4

Aug-14

US$ per kilo

4.6
4.2
3.8
3.4
3.0
2.6
2.2
1.8
1.4
1.0
0.6

2003 Q3

US$ per kilo

Net Profit Margin

Source: US BTS

Source: IATA CASS

21. Jet Fuel and Crude Oil Price (US$/barrel)

23. Global Airline Industry Cargo Revenues

US$

% growth

Revenues (US$ billion)

200

75

40%

60

30%

180
160
140

20%

45

10%

120

30

100

0%
15

80
60

-10%

-20%

-15

-30%

Jet Fuel Price

European Union (left scale)

Source: DataStream

IATA Economics: www.iata.org/economics

China P.R (right scale).

2015F

2014E

2013

2012

2011

2010

2009

2008

2007

2006

2005

Weighted score

Yields - next 12 months

Volumes - next 12 months

Source: IATA Business Confidence

Jan 2015

Apr 2014

Apr 2013

Jul 2012

Oct 2011

Jan 2011

Apr 2010

Jul 2009

Oct 2008

Decrease

Increase

100
90
80
70
60
50
40
30
20
10
0

Jan 2008

Q3 2014

Q3-2013

Q3-2012

Q3-2011

12

Q3-2010

15

Q3-2009

18

Q3-2008

Q3-2007

21

Q3-2006

Q3-2005

% Growth

24. IATA survey of heads of cargo

% Growth y-o-y in nominal wages (China)

% Growth y-o-y in nominal wages

Q3-2004

2004

Cargo Revenues
Source: ICAO, IATA

21. Nominal Wage Growth

Q3-2003

2003

Crude Oil Price (Brent)

Source: Platts, Oanda, DigitalLook

USA (left scale)

2002

2000

Oct14

Jan15

Jul14

Apr14

Jan14

Oct13

Jul13

Apr13

Jan13

Oct12

Jul12

Apr12

Jan12

Jul11

Oct11

Apr11

Oct10

Jan11

Jul10

Apr10

Oct09

Jan10

Jul09

Apr09

Jan09

Jul08

Oct08

20

2001

40

Cargo eChartbook Q1 2015

Air Freight Routes and Direction

Table 1. International Freight Volume Growth by Route Area (Source: IATA ODS statistics)

% Growth in Freight Tonnes, year-on-year

Route Area
Africa - Middle East
Europe - Far East
Europe - Middle East
Within Far East
Within Middle East
Within South America
Mid Atlantic
Middle East - Far East
North Atlantic
North America-Central America
Europe - Africa
North America South America
Far East - Southwest Pacific
North and Mid Pacific
South Atlantic
Within Europe

Jul-14
0.5%
2.8%
-4.0%
7.2%
0.0%

Aug-14
11.3%
2.9%
5.5%
8.2%
0.0%

Sep-14
18.2%
0.5%
8.8%
4.7%
0.0%

Oct-14
13.0%
0.8%
8.3%
6.7%
0.0%

Nov-14
14.4%
0.3%
11.0%
6.8%
0.0%

Dec-14
15.8%
-0.2%
13.7%
7.0%
0.0%

2.5%
7.9%
3.9%
9.7%
-3.0%
2.0%
4.3%
-2.7%
19.8%
24.3%
-4.4%

3.7%
-4.0%
19.5%
5.9%
3.8%
4.6%
1.2%
-8.1%
12.6%
12.7%
-0.4%

-5.0%
-5.7%
15.8%
4.0%
-5.2%
0.9%
-0.5%
-0.9%
13.8%
14.9%
-0.5%

2.3%
-2.1%
17.8%
4.8%
-5.5%
0.5%
1.6%
-2.5%
15.2%
14.9%
-0.6%

3.8%
-1.9%
20.2%
4.5%
-6.8%
-0.6%
1.7%
-2.0%
15.6%
13.9%
-0.2%

5.4%
-1.7%
22.7%
4.2%
-8.0%
-1.7%
1.9%
-1.5%
16.0%
12.8%
0.3%

Table 2. Outbound CASS Market Revenues (incl. fuel and other surcharges)

Origin Region
Africa
Asia Pacific
Europe
Latin America & The Carribean
Middle East & North Africa
North Asia
North Atlantic & North America

% Growth in Air Freight Revenues, year-on-year

US$m
Q4 2014

2013 Q3

2013 Q4

2014 Q1

2014 Q2

2014 Q3

2014 Q4

107
1619

14%
-14%

-1%
-8%

6%
-4%

-5%
7%

2898
534
154

4%

6%

6%

11%
3%
-6%

-6%
17%
13%
-8%

-2%
14%
21%
-4%

0%
8%
21%
-2%

7%
1%
9%

-4%
14%
3%
6%
16%
17%
4%

5%
6%
6%
1%

1969
1269

23%
2%

Table 3. Inbound CASS Market Revenues (incl. fuel and other surcharges)

% Growth in Air Freight Revenues, year-on-year

US$m
Q4 2014

2013 Q3

2013 Q4

2014 Q1

2014 Q2

2014 Q3

2014 Q4

Asia Pacific

498
1849

-4%
-3%

-3%
2%

-1%
4%

7%
5%

11%
6%

Europe

137

0%

8%

7%

9%

0%

8%
0%
-15%

Latin America & The Carribean

1847
772
629
809

-1%

-2%

-3%

2%
-5%
2%

4%
2%
6%

6%
3%
10%

12%
-7%
15%
5%

9%
-8%
9%
6%

Destination Region
Africa

Middle East & North Africa

North Asia
North Atlantic & North America

IATA Economics: www.iata.org/economics

-2%
-1%
1%
-9%

Cargo eChartbook Q1 2015

Glossary
ACI: Airports Council International
AFTK: Available Freight Tonne Kilometers
ECB: European Central Bank
EIU: Economist Intelligence Unit
CASS: Cargo Accounts Settlement System
FT: Financial Times
FTK: Freight Tonne Kilometers
PMI: Purchasing Managers Index
Netherlands CPB: Netherlands Bureau for Economic Policy Analysis
ODS: Origin-Destination Statistics
SIA: Semiconductors Industry Association
US BTS: US Bureau of Transportation Statistics
M-o-m: Month over month percentage change
Y-o-y: Year over year percentage change

th

9 March 2015
George Anjaparidze & Andrea Navares
IATA Economics
economics@iata.org

IATA Economics: www.iata.org/economics