Dive Brief:

• Global air freight demand continued to grow at tepid rates throughout the summer, with the International Air Transport Association reporting freight ton kilometers (FTK's) rose just 2.7% then 2.1% in June and July, respectively.
• Supply, as measured by available freight ton kilometers (AFTK's), continued to outpace the growth in demand in both months. However, the rate also fell in June (4.1%) and July (3.8%) compared to the first five months of the year when AFTK's grew by 5.1% on average. 
• The dip is primarily a result of an end to the inventory restocking cycle, the IATA wrote in both its June and July Air Freight Market Analysis reports. However, short-term disruptions (such as the grounding of the Nippon Cargo fleet) and weakening global exports are contributing factors.

Dive Insight:

Air freight, one of the most expensive modes of transportation, tends to follow a few inter-related cycles when it comes to demand.

The first is global trade trends. If the world at large is growing in terms of Gross Domestic Product (GDP), there tends to be a higher demand for air freight, as a rising tide lifts all transport modes. To date, the IATA reports FTK growth remains on par with GDP, but nothing more.

The second, as explained thoroughly in the IATA's monthly analyses, is the inventory-restocking cycle, wherein companies need key parts and products quickly to maintain their safety stocks amid high production levels. This cycle had largely run its course by the end of 2017, according to the association. 

With the two underlying cycles equal, additional tailwinds on growth typically come from other more variable trends that tend to bolster air freight.

One of these tailwinds is supply chain bottlenecks, which delay and distort regular flows of inventory to factories and therefore demand managers look for faster transport options. Another is currency fluctuations, which may bolster the frequency of inbound international air shipments due to reduced costs. A third is sector-specific market trends — in e-commerce or electronics, for example — in which speed-to-market takes a premium.

As the major tailwinds for air freight market growth slows, the industry's attention turns to those three factors, among others, to determine its strength. To this, the IATA issued a bit of a warning. 

"The broader question is how strong the structural backdrop for air freight growth will be going into 2019," the July analysis reads. "This will depend in large part on the extent that potential headwinds from protectionism can be counteracted by opportunities from fast-growing areas such as e-commerce."

In a separate analysis of the effects a trade war could have on air cargo, the association asserts the tariffs enacted by the U.S. and in retaliation have little effect on air freight, since steel, aluminum, and other affected products are rarely transported by air. However, future tariffs on semiconductors from China could have a lasting impact, as could a trend toward reshoring sparked by fears of trade wars.

"The key risk is that increased tariffs and trade escalation lead firms to reconsider supply chains — further reinforcing the process of 'reshoring' that has been a key structural headwind for the industry since the [Global Financial Crisis]," the IATA wrote in a research note.