Forwarders may see 20%-30% volume drop in second quarter

4/22/2020

Freight forwarders may see volume declines of 20%-30% in air and sea freight in the second quarter of this year with a “trough” of 30%-50% in April, following declines of around 10% for the first quarter of 2020, according to investment analysts Jefferies.

Analysis published today by the logistics investment specialist estimated that the major freight forwarders such as DHL, DSV, Kuehne + Nagel and XPO had faced volume declines or “volume pressure” of around 10% in air and sea freight for the first quarter of 2020 (1Q20E), “increasing to 30%-50% in April, which will likely be the trough, before a gradual restart of activities on the back of easing lockdown restrictions”. Jefferies continued: “We are now assuming volume declines of 5% for both air and sea freight for FY20E, followed by recoveries of 5% for FY21E.”

It estimated that air freight markets were “down more than 10% in 1Q20E”, predicting declines of 40%-50% in April, noting: “April will likely be the trough, with air freight volume expected to be 40%-50% lower, according to industry sources based on initial data, reflecting both Europe and the United States in lockdown.”

On the sea freight side, Jefferies estimated volumes were 5%-10% lower in 1Q20 and likely to be down by 20%-30% from April/May. It noted: “We expect sea freight volume to be 5%-10% lower in 1Q20E, with relatively higher exposure to East-West trades for both DSV Panalpina and Kuehne + Nagel. Maersk indicated it expects global container volume to be 3%-5% lower in 1Q20, while Hapag Lloyd said estimated 1Q20 volume slightly increased.

“Container throughput figures from the Port of Rotterdam, the largest port in Europe, showed a decline of 5% in 1Q20. Hapag Lloyd said volume for April is holding up, while May will likely come under increasing pressure.

“We are anticipating volume pressure of 20%-30%, in line with the targeted capacity reductions by the container liners. Alphaliner expects idle container capacity to increase to 3.0 million TEU in the coming weeks, accounting for 13% of the global fleet, versus 3% on average in FY19, after 250 scheduled sailings will be withdrawn in 2Q20E, resulting in capacity cuts of up to 30% on some of the most affected trade lanes.”

In terms of road freight and contract logistics, Jefferies estimated demand was 5% lower in 1Q20, adding: “We are assuming relatively more limited volume pressure of around 5% in road freight and contract logistics for 1Q20E, with lockdowns starting from mid-March in Europe, and from the end of March in the United States. We are anticipating high single-digit volume pressure in road freight and contract logistics for FY20, in line with the recently lowered GDP projections by the IMF for Europe and the United States.”

Figures last week from air freight specialist WorldACD Market Data indicate that the huge volatility and challenges within the air freight market currently are being felt by large and small freight forwarders, although some appear to be performing much better than others. Using preliminary data for March from over 1,500 individual markets and over 16,000 forwarders in its database, air freight specialist WorldACD Market Data highlighted that the world’s top 10 air freight forwarders, taken as a whole, had fared better than their smaller conterparts in March, in comparison with February, but slightly worse, year on year – although there was significant variation between the performance of the top 20 global players.

The Top-10 as a group increased their volumes by 3% in March, compared with February, although with individual performance ranging between -9% and +16%. Individual company performances within ‘Tier-2’ companies (numbers 11-20 lost 2% as a group, compared with their volumes carried in February) were much more divergent, ranging from -40% to +117%. 

But year-on-year comparisons reveal a more complex picture, in which smaller freight forwarders are holding their own – at least as a group. Preliminary WorldACD figures indicate that following the 2.7% year-on-year drop it reported for the months of January and February combined, March recorded a year-on-year decrease in chargeable weight of 17.7%.

Analysed in terms of the performance of freight forwarders, while global air freight tonnages in March year-over-year was 17.7% down for the total market – and hence for all forwarders – “for the top-20 forwarders, the drop was slightly larger: 19.8%. In other words, the top-20 as a group lost a bit of market-share in March 2020 compared to March 2019, but gained a bit when comparing with February 2020,” WorldACD’s Gerard de Wit told Lloyd’s Loading List.

Diverse performance among smaller forwarders

He said that further analysis shows that the individual performance of the smaller forwarders is very diverse, noting that quite a number of smaller forwarders doubled their business from February to March, while others had lost half of their February volumes.

He said this may explain some of the large differences in data currently being circulated, highlighting that the differences in March data going around are mainly caused by the differences in the scope and size of the underlying inputs. He noted: “Particularly in times of starkly diverging performances among players in the market, it is of paramount importance that the figures provided be based on the largest possible set of inputs, in order to give the best possible views and details on what is actually happening in the markets,” noting that WorldACD’s data “are based on a much larger set of inputs than the data from most other providers – we have data for over 16,000 forwarders in our database”.

Looking at March on a regional basis, WorldACD noted that within the year-on-year decrease in chargeable weight in March of 17.7%, cargo from Asia Pacific (-12%) and Latin America (-17%) fell least, while Africa and Middle East and South Asia (MESA) were hardest hit, falling 28% and 32%, respectively.

Trends within March

Looking at trends within March, “a month like no other in aviation history”, WorldACD noted that air freight capacity as a whole “fell by 28% in two weeks”. It said the total amount of cargo carried on freighters was 3.5% higher in the second half (H2) of the month than in the first (H1), “but freight carried on passenger aircraft was halved, causing the total freight carried to drop by 22% from H1 to H2 (of March). Cargo carried from Africa and MESA fell by more than 30% in two weeks, Asia Pacific’s by less than 10%.”

And comparing the last week of March with the first, another mixed picture emerges. “Cargo carried in the last week was 31% lower worldwide than in week 1,” WorldACD noted. “Airlines from the Middle East were hardest hit with a volume decrease of 49%. Cargo capacity on passenger aircraft virtually disappeared in the MESA region (-92%). Asia Pacific airlines dropped least (-10%). Airlines from North America lost 53% in European markets, but airlines from Europe only 28% in North American markets,” WorldACD highlighted

And looking at verticals, it noted that the volume of high-tech cargo transported in the last seven days of March was higher than in week 1. Fish & Seafood, Fruits & Vegetables, and Flowers were hardest hit, with drops between the first and the last week of March of 41%, 53% and 58%, respectively.

Air cargo market intelligence from Clive Data Services suggest that air freight volumes transported collapsed in the final week of March, falling by almost 50%, amid massive cuts in global bellyhold cargo capacity and lockdowns in large parts of the world, although the data is understood to be based on fewer data points than the WorldACD data. 

Overall air cargo volumes transported in March fell by 23% versus the same four weeks of 2019, but the decline in demand accelerated week upon week throughout the month, according to Clive Data Services. In the week ending 29 March, volumes were just over half of what was moved in the same seven days of last year – down 48%, year on year.

The collapse in traffic volumes at the end of March followed relatively respectable volumes in the first week of the month, when chargeable weight was down just 4% – despite an overall reduction in capacity of around 12%, year on year – as volumes began to recover following the reopening of some capacity to and from China. But as the month progressed, air freight chargeable weight continued to fall in parallel with declines in overall global air freight capacity, with tonnages down 11%, year on year, in the second week of March and down 27% in the third week of the month – before the near precipitous decline in the final week, a week in which capacity was also down by more than 40%, year on year.