Daily Management Review

Global Cargo Market Is Contracting As The Economy Weakens, Pointing To A Bleak Christmas


Global trade indicator companies such as FedEx and Cathay Pacific Airways have cast a pall over the year-end holiday shopping season, pointing to weaker-than-expected consumer demand rather than a Christmas bonanza.
The bleak outlook comes as consumers around the world struggle to keep up with rising food, fuel, and housing costs. As the country's harsh COVID-19 curbs have slammed the economy, even more spendthrift shoppers in China are tightening their purse strings.
FedEx, which withdrew a forecast issued just three months ago, said on Thursday that a global demand slowdown accelerated at the end of August and was set to worsen in the November quarter.
"The lack of a 'freight wave' from China's re-opening was a negative sign for freight demand," said J.P Morgan analysts, who downgraded FedEx stock to "neutral" from "overweight" on the outlook warning.
"It appears to have impacted FedEx first as the leading air freight carrier in the Asia-Pacific region."
FedEx shares were down nearly 20% in premarket trading on Friday, pulling stock in Deutsche Post - owner of logistics behemoth DHL - down 6.4% in Frankfurt.
The Christmas season is typically frantic for air cargo and shippers transporting newly released smartphones, toys, and apparel from Asian factories to the United States and Europe.
However, Western retailers such as Costco Wholesale Group and Macy's Inc have discovered their shelves overflowing with unsold merchandise, implying that they misjudged demand and will be more cautious when restocking.
"We do a lot of business with Costco, Walmart , Target and they are telling us straight that they just don't have space for anything right now," said Jonathan Chitayat, the Asia boss of Shanghai-based Genimex Group, a contract manufacturer for a range of products from cleaning brushes to exercise equipment.
"They just bought so much in the first half of the year to deal with the unpredictability of the supply chain from China and then demand dropped, so they just have massive amounts of goods."
Cathay Pacific Airways of Hong Kong has warned that this year's peak cargo season may be weaker than last year's due to inflation and China's zero-COVID policies. CMA CGM, based in France, said that weak consumer spending was reducing shipping demand and rates.
Ocean container shipping rates from Asia to the United States' West Coast have dropped nearly three-quarters since the beginning of the year, to their lowest level since May 2020, according to booking platform Freightos Group.
According to WorldACD Market Data, global air cargo volumes fell 11 per cent year on year in the first full week of September, with no clear signs of a recovery yet.
The Baltic Air Freight Index, powered by TAC data, hit record highs in December on a pandemic-driven peak season rally, but has since fallen nearly 40 per cent.
"Normally prices strengthen this time of year as traditional peak season approaches, but there is little sign of that happening yet," TAC Index said in a weekly market update.
Deloitte forecasted this week that holiday retail sales growth in the United States will slow sharply, owing to "declining demand for durable consumer goods, which had been the focal point of pandemic spending."
People are still spending on some goods and services, such as cars and dining out, despite a rise in raw material prices and a continuing semiconductor shortage.