Trade War Threatens to Slow Demand for Air Freight, SIA Chief Executive

Some industries, such as steel and aluminum, are already feeling the consequences of the Trump measures, while others are desperately trying to minimise the impact.
Obviously, the trade war - if launched - will seriously affect the global air cargo, logistics and booming e-commerce industry.
In fact, The International Air Cargo Association (TIACA) has already warned that a trade war sparked by the levelling of higher tariffs by the Trump administration would damage the air freight industry in the long term.

Scholte warns
TIACA's chairman, Sebastiaan Scholte, was quoted as saying that: “The effect (of a trade war) would not be felt in the short term but could hurt in the long term. It will definitely hurt trade volumes and so will definitely hurt our industry."
Echoing TIACA's concern, airline members Cathay Pacific and Singapore Airlines last week also voiced concern over the possible impact of the U.S.-China tariff dispute on their profitable cargo businesses.
In a report, the South China Morning Post quoted Cathay's chief customer and commercial officer, Paul Loo Kar-pui, as saying that the company was monitoring the long-term effects of the trade situation “very closely.” "The whole thing is developing every day, we really don’t want to see trade disrupted. A trade war is not to anyone’s benefit,” Loo said.

As does SIA
Meanwhile, Cathay's competitor, Singapore Airlines voiced similar concerns. In an interview with Bloomberg, SIA's chief executive Goh Choon Phong said that while the brewing trade battle between the U.S. and China threatens to slow demand for air freight, the market is also facing pressure as demand gets in line with supply.
"From a business perspective, we would like to see countries around the world to work together to grow the economy, rather than contributing to the slowdown," Goh said. Last year "was a great year for cargo," Goh noted, as an unanticipated jump in demand outpaced capacity.
"Even without these aspects of world-trade impact, you will be expecting people to put in capacity," he said. "When capacity and demand are more balanced, you will then see lighter load into overall load factor. You will see pressure on yield."

Boeing might lose market shares
The Bloomberg report noted that Goh's comments shed light on another potential threat to cargo rates as carriers brace for a possible U.S.-China trade war that could undermine a market in which demand has risen since the fourth quarter of 2016. Asia-Pacific airlines, including Cathay Pacific Airways , Korean Air Lines and Singapore Air, control 37% of the global air-freight market.
The Trump-initiated trade conflict with its allies, neighbours and adversaries (notably China), could also seriously impact the market position of U.S. plane maker Boeing, which is at risk of losing its meagre lead in the world’s second-biggest aviation market, another Bloomberg report said.
The report noted that with the rising prospect of an all-out trade war after the Trump administration announced tariffs on US$50 billion of goods imported from China, President Xi Jinping is under pressure to retaliate.
A clue to his tactics may be revealed during French Prime Minister Edouard Philippe’s upcoming visit to Beijing, where he’ll try to seal a deal for more than 180 Airbus A320 jets.

Will Trump hear wake-up calls?
China is a key battleground for Boeing and Airbus as the country is slated to surpass the U.S. as the world’s biggest aviation market by as early as 2022. Boeing predicts China will need more than 7,200 new aircraft worth over US$1 trillion in the 20 years through 2036.
The US$18 billion Airbus order, if confirmed, would send a strong signal to the U.S. that China has effective options to hit hard where it hurts. The Asian power is likely to favour Airbus planes for future orders, according to Jin Wei, an aviation researcher at China Center for Information Industry Development, a state-backed think tank in Beijing.
“Awarding big plane orders to Airbus will be a wake-up call to the U.S. that China has alternatives and does not fear clashing with U.S. on trade,” Jin said.
To be sure, China and its carriers would be at a disadvantage if they would have only one aircraft supplier as they would lose leverage to command discounts from Airbus. Also, the airlines would have little leeway to shift orders between the plane makers as popular models, such as the A320neo, are sold out through the early 2020s.

Yet, according to the Bloomberg report, Trump’s policies may give China enough reasons to tilt the balance in favour of Airbus, Corrine Png, chief executive officer and founder of Crucial Perspective, a Singapore-based research firm focused on transport said. “We expect Airbus’s market share in China to increase going forward,” she added.

Serious dampening effect
Still on the impact of a trade war on aviation, global airline lobby group IATA has warned that a U.S.-led international trade war could hit worldwide demand for air travel.
Although IATA member airlines started 2018 with the slowest year-over-year global passenger traffic growth for almost four years, IATA director-general Alexandre de Juniac said that concerns over a possible trade war involving the U.S. could have "a serious dampening effect on global market confidence, spilling over into demand for air travel.”
De Juniac said aviation was the “business of freedom” but for it to be able to grow it needed “borders that are open to trade and travel, and infrastructure to support the demand for connectivity.”

No need for unilateralism
Despite the fact that some sectors of the air cargo and logistics industry are preparing for a worst-case scenario to meet the challenges of the trade war, it is useful to note that most of the goods affected by the tariffs are not typically shipped by air. That said, the overall protectionist policies of the Trump administration could have a dampening effect on the global economy in general and discourage the generally expected surge in freight volumes.
Last week, a Bloomberg editorial noted bluntly that: “There’s no need for this reckless unilateralism. The Trump administration’s theory of trade is fundamentally wrong. It sees bilateral trade imbalances as evidence of unfair practices. In fact, in a world without tariffs or trade barriers of any kind, a roughly similar pattern of surpluses and deficits would still arise, as a result of macroeconomic imbalances and other factors. There’s no polite way to say this: Trump’s goal of smaller deficits through better deals is simply delusional.”

Nol van Fenema