Modeling the volatility of international air freight: A case study of Singapore using the SARIMAX-EGARCH model

Abstract

The volume of international air cargo not only generates income and jobs for countries, but also promotes international trade and other economic sectors. This study used SARIMAX-(E)GARCH volatility models to model Singapore's air cargo volume in ten key markets namely Malaysia, Indonesia, Thailand, Vietnam, Mainland China, Hong Kong SAR, Japan, United Kingdom (UK), France and Germany. Using socioeconomic factors and monthly data for the period 1991–2022, empirical models reveal that GDP and bilateral trade are important explanatory factors that have a positive impact on international air cargo volume in most of Singapore's key markets. Own price (international air freight), substitute price (deep sea freight transportation services) and the COVID-19 pandemic in the early stages also have different impacts in some key markets. In addition, the effects of positive and negative air cargo demand shocks are also found in different markets. These findings are the basis for forecasting international air cargo volume and making decisions and policies for air freight development.