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WorldACD China Special Report: Directional Rebalance

China air export demand rebounds close to record levels, while inbound tonnages slide

Analysis by WorldACD highlights a clear and growing directional divergence in the world’s largest air cargo market, with outbound tonnages back growing strongly and inbound volumes retreating to 2014 levels

China’s outbound air cargo demand has rebounded this year back up close to all-time record levels, while inbound tonnages have dropped to levels last seen in 2014, in what has been another extraordinary year for the country and its logistics trade, analysis by WorldACD Market Data reveals.

A quick glance at China’s overall international air cargo tonnages across the last five years suggests that the market that for two decades was the main engine of global air cargo growth has itself failed to achieve any overall growth since 2019, based on the 2 million monthly transactions covered by WorldACD’s data, despite a strong recovery of outbound tonnages this year from last year’s Covid-affected performance.

Given the extreme instability, uncertainty, disruption and volatility of the last few years, caused by the Covid-19 pandemic – globally and, particularly, in China – on trade, supply chains, aviation, consumer behaviour, and all manner of other areas, this may be unsurprising. There are limits on what we can learn about long-term and future trends from the patterns of the last four or five exceptional years – which have been complicated further by a gradual strategic and economic decoupling by the USA and other democratic countries of certain parts of their economies and critical supply chains from China’s influence. But deeper analysis reveals some interesting patterns that seem to reflect longer-term developing trends.

Analysis by Amsterdam-based air cargo data specialist WorldACD indicates that China’s overall international air cargo tonnages grew by an average of +6% annually from 2010 to 2018, but in the last five years they have fallen by an average of -1% per annum, albeit in a highly volatile market strongly affected by Covid-19 and characterised by big peaks and troughs in air freight demand and supply ­– not to mention manufacturing capacity volatility. At the same time, China’s overall economic gross domestic product (GDP) has grown by an average of around +5% a year, faster than any other major world region.

But within that overall air cargo decline, there are strongly diverging patterns for inbound and outbound demand. Whereas China’s outbound air cargo tonnages have achieved around +2% average annual growth since 2019, inbound tonnages have declined by an average of -6% per year in the last five years.

And that divergence is particularly apparent this year. After peaking in 2021 and falling back sharply last year, China’s outbound air cargo tonnages – which make up around 60% of the country’s international air cargo volumes – have rebounded strongly this year, with +12% year-on-year (YoY) growth in the first 10 months of 2023, taking tonnages back up close to the record levels achieved in 2021, and above pre-Covid levels.

This growth is particularly important because China is by far the largest air cargo market in the world, with its international outbound annual air cargo sales worth around US$25 billion – around 2.5 times those of the second-largest market, the USA.

The +12% average growth in China’s outbound air cargo tonnages this year would look stronger but for a -26% figure in January. Since February, outbound tonnages have been in positive territory compared with the equivalent month last year, rising in July to +17% and since August to more than +20% YoY growth.

Inbound decline

In contrast, China’s inbound volumes have continued to fall in 2023, with a drop of -8% in the first 10 months of this year. And apart from a one-year Covid-related spike in 2021, this is consistent with a pattern of decline in China’s air import volumes that began in 2018, ending a multi-year trend of strongly rising inbound air cargo tonnages and taking inbound tonnages way down from the peak levels in 2017 and 2018, to levels last seen in 2014.

This points towards a longer-term change, with the inbound decline since 2018 initially linked to the escalating trade war between China and the USA and subsequently exacerbated by global and national economic uncertainties, including a loss of consumer confidence in China, and moves by some countries, companies and industries to limit their reliance on manufacture in China.

Capacity revival

China’s diverging outbound and inbound air cargo story comes amid a 27% increase in international air cargo capacity from China in the 12 months to October 2023, thanks chiefly to a return of passenger aircraft belly capacity, with more expected in the coming months. Indeed, outbound international bellyhold cargo capacity from China has more than doubled in the last year from around 70,000 tonnes to almost 170,000 tonnes per month, rising to around 31% of the total outbound capacity from just 17% of the market 12 months ago. Meanwhile freighter capacity has increased during that period by around 6% to around 375,000 tonnes per month.

Effect on rates

On the pricing side, rates from China have dropped significantly this year from their historic peak levels last year. For the 10 months to October 2023, YoY rates ex-China to Europe, North America and to other parts of Asia Pacific were down -37%, -40%, and -40%. However, they have stabilized as 2023 has progressed, and have been rising since September – especially to North America and Europe, where a surge of e-commerce-related shipments has helped boost demand and pricing, leading to double-digit percentage rises in November, compared with October.

Patterns within China

Looking more closely at the patterns for China’s international air exports during the last five years, it is clear that air exports from China South East have increased far more than those from any other region, with China South East’s share of China’s air exports rising from 11% in 2019 to 19% in 2023, analysis by WorldACD shows.

The only other region to see its market share grow is China Central & West, where its share of air exports  has risen slightly from 7% to 8%. Meanwhile, China’s two other big air export regions, China East and Hong Kong & Macau, have seen their market shares decline, with Hong Kong & Macau’s falling from 39% to 36%, and China East’s falling from 25% to 23%, during that five-year period.

Tradelane analysis

On a trade-lane level, analysis by WorldACD identifies three destination markets, Belgium, Mexico and Brazil, that have recorded very significant double-digit percentage average annual growth in China’s air freight exports during the last five years, averaging 25% or more growth annually, with Mexico and Brazil recording huge increases in 2023 of 80% and 57%, respectively.

Belgium and Mexico also feature in the top 5 origin markets that have recorded the highest increases in inbound air freight tonnages to China in the last five years, with Mexico averaging +18% average annual growth to China, although that has slowed to +2% this year. Air exports to China from Belgium, meanwhile, have grown by an average of +3% in the last five years, but that was strongly boosted by +24% growth in the first 10 months of this year. But by far the biggest increase in inbound air freight tonnages to China this year has been from Chile, where volumes have grown by +141%, in a market generally dominated by salmon air exports.

At the other end of the scale, Germany, Japan, Indonesia, Thailand, and the USA Pacific States are the markets that have seen the biggest decreases in the last five years in China’s outbound air cargo tonnages, based on absolute weight changes, with Indonesia and Thailand recording double-digit annual declines. But the biggest declines in absolute weight terms were to Germany and Japan, which saw average annual drops of -8% and -3%, respectively. Those figures were significantly worsened by very big drops in air export tonnages this year to those two countries of -18% and -15%, respectively.

Meanwhile, air exports between China and key USA regions have been surprisingly stable, considering the recent geopolitical and trade tensions between the two countries, with tonnages from China to the USA Midwest averaging growth of +4% in the last five years, although tonnages have fallen somewhat this year. China’s exports to the USA Pacific States have dropped by just -1% per year since 2019, with tonnages flat this year.

Declining trade with Germany

Germany and Thailand also feature in the top 5 origin countries that have seen the biggest reductions in air cargo tonnages to China in the last five years, with tonnages from Germany dropping by an average of -7% per year – including -11% in the first 10 months of this year alone. Thailand has seen a five-year average drop of -9% in tonnages to China, including -23% this year. And Australia, Italy and the UK have each seen double-digit average annual drops in air cargo tonnages to China in the last five years, with the UK recording a -16% drop this year alone.

Forwarder size shifts

Drilling down into the behaviour of freight forwarders in China’s air freight market, analysis by WorldACD reveals that the top 20 forwarders represent 43% of international air cargo business from China. But the share of the market controlled by the largest freight forwarders has been declining, with larger forwarders in China losing market share to smaller freight forwarders, alongside an increase in shippers doing direct business with airlines (e-commerce plays an important role here).

Indeed, in the 12 months to October 2023, ultra-large freight forwarders have seen their market share slip from 15% to 12%, a -20% drop in their market share, and large forwarders have seen that market share drop from 13% down to 9%, a drop of around -30%. In contrast, freight forwarders outside the top 200 air export agents from China (‘All other forwarders’) have seen their market share increase by more than 50%, from 9% to 14%, and the proportion of direct sales by airlines to shippers has risen from 30% to 33%, a market share increase of +10%.

OUTLOOK

WorldACD expects the strong recent increases in China’s outbound air cargo tonnages to continue in December, with China-Europe and China-North America tonnage growth for the full year expected to be around +19% and +18%, respectively.

Outbound growth is also expected to continue in the first half of 2024, but at a slightly more subdued pace to North America (+14%) and Europe (+6%), although the Amsterdam-based air cargo data specialist expects YoY growth of around +15% to Central & South America and to Middle East & South Asia.

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