Industry Pulse: Air freight hits double digit growth as manufacturing, trade surge

Dive Brief:

Global freight ton kilometers (FTKs) posted double-digit growth for the fourth time in five months, according to the International Air Freight Index's (IATA) July 2017 report. The new data coincides with the IATA's H1 2017 report last month, which showed that in 2016, air freight grew at its fastest pace in five years.
According to the report, North American international FTKs increased 18.7% in July YoY, beating out all the other continents except for Africa, which grew 34% YoY. That's surprising because a month ago, Asia was expected to continue its surge with the strongest growth.
Industry-wide FTKs landed at 11.4% in July, up 0.2% from June, up from the five-year average of 4.2% and the 10-year average at 3.1%. Air freight may be facing a slight capacity crunch, though, as available FTKs dropped to 3.7%, down from 5.2% in June. Cargo revenue for air freight is currently at $50.7 billion for 2017, up almost $1 billion from 2016.

Global FTKs jumped while available FTKs dropped, suggesting a slight capacity shortage but continued confidence in the air freight market.

Supply Chain Dive

Dive Insight:

The IATA noted that the strong data is probably boosted by strong manufacturing purchasing managers' indices (PMIs), but also noted that because seasonally adjusted FTKs remained flat in June then fell in July, air freight may soon hit a peak.

Manufacturing in North America is certainly on the uptick as American companies shift operations back to the U.S. and Chinese companies experiment with offshoring on American soil. According to the Institute for Supply Chain Management, the U.S. PMI increased 2% in September to 60.8%, in addition to 17 of the 18 manufacturing industries reported growth in September. More positive data came out of Texas last week, showing that Texas business executives saw and expect strong manufacturing growth in the state, despite hurricane damages.

Taken together, the data jibes with strong freight growth and suggests air freight will continue to surge in response to robust manufacturing and trade and an uptick in exports.

Air freight may continue to grow for a while before peaking, however, as long as it's supported by growing manufacturing, global trade and the e-commerce industry. As the North American market enters peak season, air freight will likely accelerate to meet e-commerce demands for fast shipping for online shoppers. If the available FTKs continue to drop and induce a capacity shortage, air freight rates may increase just in time for the holidays, which could hurt shippers and some consumers if the price increase becomes a shipping surcharge for goods bought online.