A&P 2007 - Challenges keep coming for airfreight business

By: | at 07:00 PM | Channel(s): Air Cargo News  

By Karen E. Thuermer, AJOTThe air cargo industry is a challenged business. Manufacturers and retailers who understand how to exploit its advantages look to achieve profitability for their companies. Yet issues compounding airlines and air cargo carriers keep thwarting their own corporate objectives: to provide the best service at the most competitive price while simultaneously making a profit.
Recent history shows how important air cargo is to the world economy. In 2004, air cargo contributed $880 billion to the global Gross Domestic Product (GDP).
“This is phenomenal. While 40% of the total value of manufacturing exports goes by air, this represents only one to two percent of export volumes,” states Erik Britton, director Economics, Oxford Economic Forecasting.
With more and more shippers attaching airfreight to their corporate strategies, projections for the industry are optimistic. Boeing’s World Air Cargo Forecast 2006/2007, for example, expects world air cargo to expand on average 6.1% annually during the next two decades and worldwide airfreight to increase three-fold. Airbus estimates freight traffic to grow 5.9% between 2004 and 2023. The International Air Transport Association (IATA) projects international airfreight traffic to grow an average annual rate of 6.3% between 2005 and 2009.
TOUGH CONDITIONSRight now, however, IATA estimates 2007 growth to be around 4.0%. Asia Pacific traffic, which is up 7.0%, offers the rosiest picture. And demand rose 8.2% in the Middle East, IATA reports, but only after a sharp fall in August to 3.5%. Also figures there are below the double-digit levels seen over the last two years. Freight demand in Africa contracted 10.4%, thereby continuing a five-month downturn due to a fall in demand in southern Africa.
IATA Director General and CEO Giovanni Bisignani sees traffic demand remaining strong in both freight and passenger segments, despite the financial instability seen in recent months.
“But it is still early,” he remarks. “Corporations — particularly those in the financial service sector — are adjusting travel budgets. This could impact premium traffic. And fuel prices, rising to new record levels, will add more pressure on efficiency. So there can be no let-up in the imperative to keep costs down and planes full.”
Rising fuel prices is of particular concern. These, on top of fees associated with security, are often passed on to customers as surcharges.
“As a carrier, these prices are very painful,” states Neel Shah, United Cargo vice president sales and marketing. “Fuel prices are our No. 1 expense.”
Every $1 per barrel of oil increase costs the airlines millions in dollars.
“From a cargo perspective, increases in fuel prices and surcharges have a negative impact on demand,” Shah says. “Every nickel you go up makes other modes of transportation more attractive.”
Consequently, more shippers are turning to steamship lines as a lower cost alternative. Whereas between 1985 and 2005 airfreight grew 6.4% per year compared to 4.8% for ocean freight, in the last decade maritime traffic averaged 5.4% per year compared to 5.1% per year for airfreight. Contributing to the recent surge is the rapid deployment of more and larger container ships. These have increased about 10% per year in overall capacity since the mid-1990s.
AIR VERSUS OCEANStill, today air cargo only encompasses 5% of all cargo volume transported worldwide.
“This is a small piece of world trade,” states Tom Crabtree, regional director, marketing, Boeing Commercial Airplanes’ Air Cargo Industry Analysis Group. “In terms of unit weight, we estimate this to be about 36 million tons moved annually.”
By comparison, the United Nations Council on Trade Development reports the world maritime industry moved 7.2 billion tons in 2005. But this figure includes bulk commodities such as oil, metals ores, and grains that cannot be compared directly to higher-value dry commodities associated with air freight. These bulk commodities will a

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American Journal of Transportation