The Impact of the Trade War on Air Cargo Carriers 1

Melissa is a mother of 2, lives in Utah, and writes for a multitude of sites. She is currently the EIC of HarcourtHealth.com and writes about health, wellness, and business topics.

Despite promises that the trade war between China and the U.S. might end soon, little relief has been felt by importers and cargo carriers. The conflict over trade between the two largest economies in the world could not have come at a worse time as trade volume growth has continued to slow. The impact of this slowdown has already started to put pressure on air cargo carriers such as FedEx and UPS.

Based on reports from shipping intelligence company Reveel Group, the recently announced 2020 FedEx rates indicate the carriers push “to make last-mile delivery more profitable for the company.” This comes at a critical juncture for the company where it is fighting to grab a larger share of falling demand, at least on international routes.

Alexandre de Juniac, the Director-General air cargo industry organization IATA recently noted that “further deterioration and tariff increases, there will be further damage to world trade”. As such, carriers have begun to look for ways to shore up their profitability – including rate increases and expanded delivery services.

Beyond the top-line numbers what has been the impact of the trade war on air cargo companies? For starters moves by the U.S. to target companies which are viewed as security threats has also impacted the movement of goods.

In May, the U.S. blacklisted Chinese telecommunications giant Huawei and in a countermove, China was reportedly investigating FedEx. While the recent arrest of a FedEx pilot in China was not explicitly tied to this investigation, there are indications that the company has come under more scrutiny in recent months.

Beyond the moves and the countermoves, evidence from both countries is starting to show that while the trade war might not be fully responsible for uneven economic growth, it is a contributing factor.

For example, retail sales growth in the U.S., even after seasonal adjustment has been inconsistent throughout the year and there is mounting evidence that China’s economy may be slowing faster than the government previously indicated.

The pinch is also being felt in other countries as monthly export results in Thailand (where many value-added goods are exported to China for re-export to global markets) have fallen for most of the year. In addition, Germany which is Europe’s largest export economy is largely believed to be on the verge of a recession.

More important for air cargo carriers is the fact that roughly 35 percent of cargo traffic globally is by air. As such, a slowdown in demand could either push exporters to shift from air to ocean or to hold back on shipments altogether. This has already been noticed on transpacific routes as UPS and Korean Airlines both noted weakness in air cargo demand earlier this year.

While some of this could be seasonal, the reality is that air cargo is the most expensive freight option for shippers. As such, falling demand is a clear indication that shippers are looking to reduce costs.

This is already evident in industries such as electronics and automotive. While both industries emphasize on just in time logistics solutions, they are also extremely price sensitive. The dispute has even impacted companies such as Apple. As such, the need to reduce costs in light of the increased potential for a slowdown could be forcing shippers to be proactive in their approach.

Back to the ongoing trade dispute between Beijing and Washington, there is increased concern about the risk certain Chinese companies represent. This includes warnings about telecommunications companies such as Huawei and ZTE as well as threats to delist Chinese companies from American stock exchanges if they do not meet reporting standards and an ongoing review of the rules governing Chinese investment in the U.S.

A growing number of observers have made the case for delinking the world’s largest economies, which some believe the delisting and restricting investment could be the first step.

Even if such measures are not enacted, the reality is that the shape of global trade is changing, and this is already beginning to impact cargo carriers. While a trade deal may, or may not be, on the table when the two sides meet in October it is unlikely that global trade flows will return to “normal”.

As such, exporters and air cargo carriers alike are starting to rethink global logistics for the first time since the turn of the century. Ultimately, the impact for air cargo carriers being that they will need to adjust their route maps including the placement of regional and international hubs.

This may be the biggest impact of the trade war as it has altered the status quo – at least for the time being.