Supply Chain Analysts Say Second Quarter May Mirror First

The outlook for the freight market is mixed as Asia, Europe and the US grapple with slowing economic growth and in Europe’s case, a recession. Based on commentary from transportation and logistics providers’ first quarter earnings, expectations for second quarter and into third quarter are not high as many providers expect little increase in freight at best.

Transport Intelligence’s Global Logistics Monitor, which reflects Stifel Nicolaus’ Logistics Confidence Index suggests this may indeed be the case.

“For first quarter, Asia experienced perhaps its slowest growth in at least three years,” said Ti analyst, Cathy Roberson. “In fact, China’s GDP did in fact slow to only 8.1 percent. Manufacturing activity continued to contract throughout the quarter and by the beginning of second quarter, it appears that it was picking up. This slow growth combined with high oil prices was evident in the freight movement from this region.”

According to the Association of Asia Pacific Airlines (AAPA), air freight tonnage for association members declined 4.5 percent in March. For the first three months of the year, AAPA tonnage declined 4.1 percent. While airfreight suffered declines, ocean freight containers did pick up in March – Port of Hong Kong reported twenty-foot equivalent units (TEUs) up 7.1 percent year-on-year while the Port of Singapore reported an almost 6 percent increase for the same period.

“Due to the high oil prices, is there a shift from air to ocean? Based on Ti findings, this may be possible,” said Roberson. “For the first two months of the year, data suggests a larger increase in the use of ocean freight for electronics parts as oppose to via air freight was utilized from Asia to the U.S.”

A concern to the global economy is that of the spread of recession throughout Europe. At the end of first quarter, twelve European countries were officially in recession. Declining demand and strikes resulted in disappointing first quarter statistics for both ports and airports. Throughput volumes at the Port of Antwerp declined 2.2 percent for the quarter as liquid and dry bulk declined almost 9 percent. The Port of Rotterdam did report a 3 percent increase in throughput for the quarter mainly due to a 9 percent increase in liquid bulk, however dry bulk declined 7 percent and TEUs declined 4 percent. Similar to Asia, airfreight declined for the period as well. The Frankfurt airport experienced an 11 percent decline in cargo in March. For the quarter, the decline was just over 12 percent.

The outlook for both air and ocean was more optimistic in April versus March according to Stifel Nicolaus’ Logistics Confidence Index. European ocean freight forwarders particularly noted higher volumes in April versus March. Also, optimism increased from March for the Asia-Europe and Europe-Asia tradelanes. European air freight forwarders noted lower volumes in April relative to the time of year; however, there was a slight uptick from March. Increased optimism was noted for the Asia-Europe and Europe-US lanes.

Perhaps a bright spot continues to be the US. Although concerns are mounting of a possible slowing of economic improvement due to slowdowns in Asia and Europe, the country’s manufacturing and freight demands appear to be faring well. Although GDP growth slowed from 3 percent in fourth quarter to 2.2 percent in first quarter, manufacturing activity continues to expand as new orders and exports increase. For the month of March, ports reported strong increases in TEUs, particularly for imports as ports such as Charleston and Long Beach reported double digit increases of 12 percent and 18.3 percent respectively. This is a good sign that consumer confidence and spending remains resilient, particularly as the consumer constitutes over 70 percent of GDP growth.

Airfreight was a pleasant surprise for some airports such as Miami, Chicago and Los Angeles. Despite the high oil prices, all reported increases in tonnage in March. This may be due to the new electronic product launches of Apple and Samsung. It remains to be seen if this improvement in airfreight tonnage carries over into April.

Despite a global economy that Cathay Pacific’s chief executive describes as one “balancing on a knife edge,” opportunities exist for transportation and logistics providers. Domestic markets appear to be a possibility as U.S. NAFTA and intermodal trade continues to expand. Intra-Asia trade, although highly competitive, is another growth spot and finally, Europe, despite its economic situation, domestic opportunities such as road freight exist.

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