Friday, July 6, 2012

Disappointing end to the first half of 2012 with little relief in sight

Optimism for a global economic recovery has faded fast during the first half of 2012. Ti’s Global Logistics Monitor expects the last half of the year to remain stagnant with little if any uplift in freight demand.

What optimism there was at the beginning of 2012 has now soured as the first half of the year ends. Asia’s export-driven economy continues to decline as its major trade partners Europe and the US contend with economic concerns of their own.

Declines in demand, particularly along the Asian tradelanes, have resulted in capacity issues for both air and ocean freight providers.  

Airlines in particular, hit with high oil prices and declines in demand have scrambled to readjust capacity to fit the current demands. The Association of Asia Pacific Airlines (AAPA) reported cargo movement declined 5.3% during May and year-to-date, cargo is down 5.0%.   European air cargo providers also are reporting lower volumes. For example, air cargo provider Lufthansa reported a 12.3% decline in total cargo and a 12.8% decline along its Asia tradelane.

Ocean freight providers are also removing capacity while raising rates in an attempt to recoup from losses over the past year or so. However, ports appear to be holding their own as many have noted positive cargo movement - but this may be due to shifts away from using airfreight.  Also, increases in transshipments appear to be on the rise particularly in Asia.

North American economies have shown encouraging growth. Both Mexico and Canada continue to report good manufacturing activity through June – perhaps due to demands in automobile manufacturing – however, surprisingly, US manufacturing activity declined in both May and June. In fact, June activity declined sharply by over 3% sparking concerns for the economy. 

Still, US port activity remains good with both imports and exports remaining strong through May for such ports as Los Angeles, Savannah and Charleston.

The outlook for the remainder of 2012 is doubtful as the global economy continues to show signs of increased weakness. On a bright note, oil prices have declined to below $100 a barrel which should benefit transportation providers and also there are indications of a positive peak season based on recent shipper surveys.

Finally, the questionable economic situation seems to be sparking an increased interest in mergers and acquisitions across all regions as providers look to consolidate their positions as well as to expand into new regions and/or services.