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Follow on Google News | IATA's Cargo Market Analysis - Q3 2012• Cargo profitability has come under downward pressure in Q3; • The minor improvement in air freight demand in H1 has stalled, yields have declined, and oil prices are surging once again;
By: IATA Economic Situation - global economic growth is expected to be just over 2% this year, although the weakness is not widespread. Western economies continue to be limited by tightening fiscal policy, and US and European banks have stopped loosening lending standards, reducing the risk of another banking crisis (page 2) Traffic Growth - air freight volumes have stabilized, and signs of improving demand during H1 2012 have now stalled (page 2) Demand Environment - for air cargo is soft. Business confidence started to decline over recent months, but world trade continues to expand, although at a slowing rate of growth. There is still no sign of a major inventory overhang (page 3) Demand Drivers - have clearly weakened. Consumer confidence has declined in China, the US and particularly in Europe, depressing demand for air-freighted commodities like semi-conductors. Furthermore, capital investment intentions by Japanese and UK companies has declined and flat inventory to sales ratios indicate businesses have no immediate need for transporting cargo quickly (page 3). Capacity - freight load factors and have stabilized throughout 2012, but asset utilization has been declining in the air freight industry. The trend is set to continue, with deliveries of new twin-isle aircraft with belly hold capacity set to increase the existing widebody fleet by 6% in 2012. Air freight rates continue to be under downward pressure (page 4) Competition - sea freight markets are showing growth in shipping volumes across all regions, except Europe, suggesting slowing growth momentum in world trade is concentrated in Europe (page 4) Revenue and Yields - air freight yields have declined over recent months as the minor recovery in demand lost momentum and excess capacity remained in the market (page 5) Costs - jet fuel prices surged after a short-lived decline in June, continuing a stretch of 19 months since prices rose above $120/barrel, again placing downward pressure on net profits (page 5) Profitability outlook - is somewhat pessimistic, with cargo yields expected to decline over the next 12 months and traffic to increase only modestly, according to heads of cargo surveyed in July 2012 (page 5) Economic Outlook & Traffic Growth Global economic growth is expected to be just over 2% in 2012, slightly lower than 2011. The weakness, however, is not widespread. Although economic growth in the Euro area is likely to contract overall in 2012, the US is expected to improve on 2011 performance, as is Japan. Growth in emerging markets continues to significantly outpace Western economies, with robust expansion anticipated throughout Asia Pacific, MENA, Sub-Saharan Africa and Latin America in 2012 (1). Western economies continue to be limited by tightening fiscal policy, while the governments of Brazil, Russia, India and China maintain a relatively looser fiscal position (2). Banks, too, have responded in a conservative manner to the continuing and increasing sovereign debt risks in Europe. The easing of bank lending standards which commenced earlier in 2012 has now stopped, with both European and US banks acting to reduce the risk of another banking credit crisis (3). Air freight markets have stabilized, after declining for an extended period from Q2 2010 to the end of last year. H1 2012 had showed signs of a minor recovery in air freight traffic, but improvement was narrowly based with growth on smaller markets, rather than on major trade lanes (4&5). Freight-only carriers have benefited more from the stabilization in air freight demand (6). Demand Environment & Drivers The demand environment for air cargo is soft. The Purchasing Manager’s Index was signalling modest expansion in business confidence throughout much of H1 2012, but that trend has now reversed and weakness is indicated for the months ahead (8). However, world trade continues to expand, although at a slowing rate of growth (7), and there is still no major sign of an inventory overhang (9). Demand drivers have clearly weakened. The balance of European consumers expecting an economic improvement has declined further, and consumer confidence in the US and China has also weakened over recent months (11). This sentiment continues to depress demand for air-freighted commodities, as indicated by the decline in semi-conductor shipments, a key customer (10). Furthermore, capital investment intentions by Japanese and UK companies have declined over Q2 and Q3, respectively (12). And despite there being no sign of an inventory overhang, businesses have no immediate need for transporting cargo quickly (9). End
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