Impact of changing exchange rates not yet fully 'in sync' with economic theory

September 2013 was a relatively good month for air cargo worldwide: a 1.2% volume increase over September 2012, was accompanied by a 1.6% USD-yield improvement over August 2013. This marked the second consecutive month-over-month yield increase since July. The volume growth was entirely thanks to the airlines’ performance in specified cargo, particularly in perishables. This sector, accounting for almost 60% of all specified cargo, showed a big plus of 6.5% year-over-year. The biggest USD-yield increase went to the category VUN cargo: 3.9% above August. Interesting detail: the 10 largest city pairs together realized a volume growth of 4.1% Y-o-Y, coupled with a 2.9% yield increase over August, well above the worldwide average.

Rates of exchange have been rather volatile over the past two years, leading to a drastic devaluation for a number of currencies. Announcements about monetary policy change in Europe and the United States added a lot to the already existing unrest. This month, we try to get some feel for the impact of these developments. We looked at six countries. Over the past 24 months, the Australian dollar (AUD), Japanese yen (JPY), Indian rupee (INR), Turkish pound (TRY), South African rand (ZAR) and Brazilian real (BRL) all took a beating, resulting in September 2013 rates of exchange (‘RoX”) that were much lower than two years before. The ‘best’ of the six currencies (AUD) lost 9% of its USD-value, the ‘worst’ (INR) a stunning 25%.

A drop in a country’s exchange rates should boost exports and slow imports. As far as air cargo is concerned, this was indeed the case in 4 of the 6 countries: in the first three quarters of 2013 Australia, South Africa and India followed the textbook by increasing their outbound and decreasing their inbound volumes, compared with the same period in 2012. In doing so, they also reduced the imbalance in traffic to/from their country: Australia strongly and South Africa moderately. Turkey followed a slightly different path: strong growth in outbound was accompanied by slower growth in inbound air cargo. Japan and Brazil did not conform to the theory. Japan contracted in both outbound (-14%) and inbound (-6%) air cargo, whilst Brazil lost in outbound (-12%), but gained in inbound (+8%)!

Substantial RoX-variations may lead to a substantial impact on overall yields and revenues.

Take the case of Australia: outbound yields, measured in USD, dropped by 17% in September compared to the same month last year. But in Aussie dollars the figure looked less dramatic: -7%. Total outbound revenue increased by 2.5 % in USD, but by almost 8% in AUD. India was less fortunate: a very strong drop in the rupee was not compensated for by a strong rise in local yields: in September 2013 they were only 2% higher than two years before. This suggests serious challenges in the Indian air cargo market. On the brighter side, Turkey (fully) and South Africa (almost) managed to offset the adverse circumstances with an increase in local yields.

This leaves Brazil and Japan as the air cargo markets much in difficulties over the past nine months. Both suffered serious drops in volumes and local yields. Could they hope that the worst may be behind them? Whilst Japan will take heart from the improving figures of the past few months, the Brazilian market still waits for signs of a turnaround.