Air Freight demand in 2017

It's a multi million dollar answer. Can you or anyone else forecast what would happen to the air freight industry in 2017? 

 No one has got it right this far. 

However, the social and economic conditions surrounding global markets should be able to give us some idea about what might happen. 

Anyone who has access to artificial neural network and machine learning type demand forecasting will get it right. 

Following comments are my personal views and it has no bearing on my profession . I write these blogs to share knowledge and learn something from feed back that I get . 

In my view, the geo political situation has a major bearing on the air freight demand and how 2017 will shape up. If we look at the tangible results of the financial markets , we could derive some idea of the market demand. The US dollar is strengthening and a large amount of funds released on the back of Quantitative Easing (QE) will flow back to USA . All money parked in bonds , properties will follow this trend. The currencies in Asia mainly in China, Malaysia, Singapore, Korea are going to feel the pressure . This trend of cash out flow from Asia to USA will depreciate the Asian currencies . The reaction expected from the Asia central banks would be to increase the lending rates, and take measure to manage the depreciation. Overall the depreciated currency will make Asian products more affordable and the demand in USA will be stronger as a stronger dollar will increase retail spending . 

The Strongest geopolitical event in 2017 has been the US election and the presidency. The information out in the media suggests that US is leaning more towards protectionist policy to improve the US economy. Republicans have had more influence on the domestic policies to protect the US economy than democrats . Perhaps this is the confidence that some people have because they are influenced by the political sentiments . The cancellation of TPP agreement will bring back the demand to China and India as TPP countries will not have the price advantages . 

The Indian sub continent region has been fairly peaceful with India leading the charge on "made in India" policy to increase investment and promote Indian products. Bangladesh has been winning more apparel production as the Chinese and Vietnam factories are losing the battle due to higher costs. Sri Lanka has been in the new with more aggressive moves to position herself as a regional hub for ISC region and it seems like there is a lot of progress with new Free Trade agreements falling in her lap from Singapore , Malaysia and many other countries .

China is building a 15,000 sq km free zone in the South aiming for India's demand and Africa . This could improve the air freight import demand to the country and if EU gives back the GSP++ , this will drive the high quality apparel production that Sri Lanka is famous for .

The Middle East region has been the most affected . Regional security , low price of fuel and weakening demand in EURO and also the European demand has put breaks on some of the development . Some Economies like the UAE has done well to stabilize the financials and offer confidence. Probably for the first time, in certain countries in the middle east, we saw bonds being issued to draw funds to the country. The government spending which stimulates most of the markets in the middle east has slowed down. Cost of living has gone up that drives more expenses for the companies to operate. In the past one year ,the worst effect has been on Turkey due to the proxy war that's happening in Syria . Turkey has been a strong back yard supplier to the middle east , Mediterranean and even Europe . Security concerns and depreciating currencies will displace the demand for Turkish products and biggest beneficiaries would be India and China . 

In summary , We could see the some light at the end of the tunnel on a strong recovery of US demand for products and Asian products being cheaper for the Western world. Considering that politics take time to influence any change, a 'quick win' might come for air freight from Asia to US demand being stronger .This could influence other markets positively,drive the air freight rates up and improve the load factors .

If you look back the tactical part of forecasting , the last two to three months of air freight demand in China / Hong Kong was a surprise to me .

This confirms something that I have always believed in. That is the world is changing to a more dynamic demand and supply variations and that could give spikes of high and low demand . The Airlines have to adjust to these trends otherwise they could join the Hanjin Club.

The last quarter air freight rates to USA reached HKD100 . The HKG carriers have seen more and more medium sized forwarders and postal services demand for BSA than the big boys . In this season of BSA discussions , I have seen the demand for BSA discussions improve and the market is expecting HKD2-3 rate hike to US and Europe and about 1-2 HKD higher for the Middle East, ISC and Australia . The demand for E-commerce is growing in double digits and most postal services have seen a huge growth on demand for mail and smaller parcels .

The Airlines should expect more growth in e-commerce demand. In one of my mentor's words ,"even my grandmother could have predicted it" . 

The Fuel prices are going to stay around USD50 in my personal opinion. If the OPEC and Non-OPEC countries have reached an agreement , then 1.2 million barrels per day cut in production should drive the oil demand. This will also influence the air freight rates as it will add pressure. A good example would be, the Civil Aviation Dept in HKG, who withdrew the FSC, could think about bringing it back.

The other sentiment on Ocean freight rates will also be an influence to the air freight demand . The Hanjin issue has finally been a wake up call to all the Ocean freight sales executives and pricing desk managers that if they don't do something about the yield , they could lose their jobs overnight . New Alliances getting formed in the Ocean world will displace the old deals they had for bigger customers and NVOs . 

I may be wrong by a million dollars, but these market scenarios are telling me that we could expect a better air freight demand in 2017 than 2016. I think that will help all stake holders in the industry to sustain the services , products and even jobs , so that we do not end up with the Hanjin after party. 

I hope you all could share with me what do you think about the air freight demand .