Forwarders Finally See Airfreight Gain Altitude
After being stuck on the runway for more than two years, demand is looking up.
Airfreight demand began improving in the second half of 2013, and trends have stayed positive since. Ocean freight has held up better over the past few years, with help from the trade-down from the skies and healthy demand thus far in 2014. We don't anticipate robust growth in either mode as global trade on core east-west routes will probably remain subdued and overcapacity will limit rate gains. That said, moat-worthy global freight forwarders should see benefits from industry consolidation. Within our coverage universe, Expeditors International (EXPD) is among the best positioned to take market share. While UTi Worldwide (UTIW) has potential, it needs to work through distractions associated with its long-running IT rollout.
The industry's demand decline ran from early 2011 to the middle of 2013 and weighed heavily on the results of most global forwarders, since airfreight is no small component of their operations--it makes up 43% and 30% of gross revenue for Expeditors and UTi Worldwide, respectively. We use IATA's Asia Pacific international air cargo statistics as a proxy for underlying industry demand. While not perfect, the index includes shipments on key East-West trade lanes (Asia-Europe and Asia-North America) where forwarders like Expeditors and UTi Worldwide conduct most of their business. Total industry tonnage fell 5% in both 2011 and 2012 and about 4% during the first half of 2013. On Asia-North America lanes alone, volume contracted 6% in 2012 and 2.5% in 2013, according to data from Boeing. Despite its best-in-class execution capabilities, even top-shelf provider Expeditors saw its air volume plummet 6% in 2012 before rising in early 2013. These headwinds also suppressed investor sentiment, pressuring stock prices throughout the global third-party logistics industry.
Matthew Young does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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