2JanJJa January 2015: a bad start or business-as-usual?

In any highly-cyclical small-margin business a drop in unit revenues of almost 11% year-over-year (YoY) and of 8.5% month-over-month (MoM) would make all alarm bells ring. In the first month of 2015, such a drop in unit revenues (in this case revenues per kg, measured in USD) is exactly what happened to the worldwide air cargo business. Yet, we maintain that alarm bells can remain silent, for three reasons.

Firstly, a good case can be made for the statement that almost 2/3 of the yield drop was caused by decreasing surcharges, perhaps a surprising development for all those who referred recently to what they called “anecdotal evidence” that surcharges have not come down. The reason behind this decrease would seem to be good news for everyone involved, with a possible exception for the oil companies. A second element in the USD-yield decrease was the deteriorating exchange rates of virtually all currencies against the dollar. Lastly, there was the usual effect of January showing lower yields than December: -4.4% in Jan 2013, and -3% in Jan 2014.

A bad start? We think not. Business as usual then? Difficult to say given the industry’s diverging performance from one region to another. Worldwide January volumes were up by 3.2% year-over-year (YoY), not great, but also not too bad given the fact that January 2014 was already part of the recovery that started in autumn 2013.

North America and Asia Pacific were the origin regions with the largest YoY volume growth (8.3% resp. 5.5%), the former also being the only region that hardly lost volume compared to December. A substantial part of the growth in the USA came from Pacific States business destined for Asia, presumably a nice windfall from the port problems… The MoM performance was particularly worrisome for the region Central & South America: 19% volume loss accompanied by a yield drop of 10%. January also marked this region’s first YoY volume contraction. Africa had the smallest YoY %-growth in twelve months, whilst Europe and the Middle East & South Asia (MESA) showed “business as usual” by continuing their below average growth pattern.

For longer term developments, this month we take a quick look at a specific part of the perishables markets over the past three years: flowers. The role of flowers in the total perishables palette has diminished. Whilst the overall air cargo volume in 2014 was 9% up on 2012, and perishables in general even by 23%, WorldACD recorded a growth of 13% in the volume of flowers carried by air. At a conference held in South Africa recently, Amsterdam Schiphol urged the air cargo sector to develop answers to technological developments in shipping. Understandably so, since Western Europe – being the main destination for flowers – stands to suffer most from a growth in flower markets lagging behind the general growth in perishables. Other destinations thrived, for example the Gulf Area with inbound growth of 57% in two years.

Worldwide yields from the transport of flowers decreased by more than the overall yields between 2012 and 2014: -10.2% vs. -5.2%. We saw some notable deviations from this trend, however. Flower transport from South America, although still the highest yielding in the business, suffered a yield drop of 13.5%. At the other side of the Atlantic, Europe, lost only 0.1% in yield in the same period. But the flowers from the origin North America really stood out: a volume increase of 12% accompanied by a yield increase of 11.9%.

We are pleased to show more details in the presentation we will make in the “perishables track” during the upcoming IATA conference in Shanghai.