Geo-political tensions and generally slowing economic activity that had previously slowed freight’s rate of growth accentuate in Q3 – and risk extending into 2020.
Significantly slowing international trade generated only modest gains in air and sea freight during the third quarter of 2019, representing one of the weakest degrees of expansion since the 2008 global financial crisis. And with the mix of geo-political tensions undermining business confidence and planning transparency still apparently far from resolution, many observers don't expect a significant rebound in cargo flows before 2020.
Third quarter volumes in both air and maritime transport grew by roughly 2.5% -- smaller increases than enjoyed for most of the past decade. Comparing growth levels to the same months of 2018, for example, the International Air Transport Association said air freight demand in July, 2019 was down 3.2%, and 3.9% lower in August. On sea routes, meanwhile, transporters withdrew 150,000 TEUS of capacity in August alone to offset softening demand that put downward pressure on rates.
"July's traditional peak season didn't amount to much, trades were weak in August, and September is always flat ahead of habitually stronger fourth quarters," says Anne-Sophie Fribourg, Sea Freight Procurement Director for Bolloré Logistics in Paris. "The question this year is whether China's Golden Week in October, and year-end holidays around the world can provide their usual boost when businesses everywhere are holding back and waiting for clarity."
The causes for the doubt and hesitation are numerous. The US-China trade conflict, risks of additional tariffs between Europe and North America, shambolic negotiations towards Brexit, and dramatic developments in the Middle East all weighed even more on business planning in Q3 than they had the previous two quarters. The resulting uncertainties that clouded medium-term visibility caused companies to scale back procurement, production and export activities.
Even before that, weakening manufacturing and worldwide trade had led the International Monetary Fund to lower its 2019 global GDP outlook from 3.5% to 3.3%. In October, the World Trade Organization cut its initial 2019 forecast for global commerce from 2.6% to 1.2%, and revised its expectation for 2020 from 3% to 2.7%. But some observers warn even that modest reprise will probably depend on eliminating the key sources of current doubt – the US-China clash foremost among those.
Until that happens, many businesses appear set to operate at limited export capacity until they feel reassured reinvesting in strengthened production has become less risky.
"Apart from luxury goods, whose markets remain stable despite changing global factors, virtually all exporters are waiting for signs that conditions for doing business are transparent and reliable before committing to new activity again," says Claude Picciotto, Air Freight Procurement Director for Bolloré Logistics in Paris. "We're in an atmosphere of concern and doubt that tends to feed on itself, so it's difficult to see exactly how and when confidence will be restored."
The good news in that situation, he notes, is that businesses maintaining or increasing export volumes are finding ample capacity available at reduced rates. "But the limited savings involved are small consolation," Mr. Picciotto notes. "Everyone would rather have somewhat higher cargo costs in a generally booming business scenario that generates higher activity and income all around."
Exporters of maritime cargo are facing additional questions arising from IMO 2020 rules requiring transporters to cut sulfur emissions next year. Ms. Fribourg says shipping companies have yet to produce transparent pricing schemes establishing how much of their heavy investment in cleaner burning engines and fuel will be passed to clients. As a result, customers are preparing arguments that new costs imposed on transporters not inordinately affect rates, which they insist must reflect traditional supply and demand balances.
Despite the generally slowing export picture, however, Ms. Fribourg says relatively robust volumes on Asia-Europe, Europe-North America, Asia Africa and intra trades indicate exporters can still find waiting markets and opportunities if they're willing to adapt to shifting situations.
"Identifying and building upon trades resisting the wider slow-down is a good way to ride out the lull in a way that also creates new business once global activity picks up," Ms. Fribourg says. "Worldwide growth may have shrunk of late, but there are brighter spots out there."