Is air freight holding its own among global transport modes? Michael Steen, executive vice president and chief commercial officer at Atlas Air, offered a forceful defense of air freight in a late May earnings call, taking issue with an increasingly common view that the air cargo market in the grand scheme is losing out to ocean containers.
Is he right? Time will tell, but the numbers don’t point to air having the upper hand. To the contrary, air freight is basically flat while ocean container is clearly growing.
The key numbers are these: Global air freight measured by freight ton-kilometers declined 1.5 percent in 2011 and another 0.6 percent in 2012, according to the International Air Transport Association. At the same time, port liftings grew 8.1 percent in 2011 and 4.4 percent in 2012, according to London-based research analyst Drewry.
The anemic air performance relative to ocean is reflected in recent results of forwarders with heavy exposure to air freight, including Panalpina, whose CEO in early May said, “Ocean freight and logistics continued to grow strongly while air freight volumes were still soft.”
Last year was rife with stories of air freight staples such as iPads moving via ocean freight after an initial air freight surge at product launch, in what feels like a permanent loss of business for air freight.
That is just one story line within an overall trend that has shippers aggressively downshifting on costs and transit times. In North America, this is reflected in a decimated domestic air freight industry and a long-term trend from trucking to intermodal, the same trend that years ago led FedEx to diversify away from express and into trucking and, now, increasingly ocean through its expanding FedEx Trade Networks forwarding business.
Steen, however, disputed the notion of a structural shift unfavorable to air freight. As he said on the May 30 call (and transcribed by Seeking Alpha), “There’s … been a lot of debate about (modal) shift and what is happening there … I would like to come back to that and just share some reflections of what really is happening in the marketplace.
“First of all, when it comes to air freight, air freight is absolutely essential to the global economy and to global supply chains. Air freight only represents about 1 percent to 2 percent of the total volume that’s being shipped on a global basis; the rest being surface, ocean and road. But it represents 35 percent of the value of all commodities being shipped throughout the global supply chains.
“And what we see there is that those numbers are relatively stable. And as new products are being launched and there is a need for pharmaceuticals in remote places in the world that haven’t necessarily been served in the past, et cetera, et cetera, you will see that this ratio will certainly not decline from an air freight point of view,” Steen said. “And air freight will play a very important role to the global economy, and I would argue that it actually will increase as globalization continues. And we, as consumers, we’re expecting to get a product from one part of the world to the next part of the world overnight or in a couple of days.”
The need for air freight will never go away; that point isn’t in dispute. But contrary to what Steen says, the long-term trends don’t favor air freight, though cyclically there will be spurts of growth — as might be the case right now in North America.
A case in point is the newfound interest among analysts in Expeditors International of Washington, the Seattle-based forwarder that dominates in trans-Pacific air freight. Despite being one of the best-performing transportation stocks over the past decade-and-a-half, Wall Street had cooled on the stock, seeing it no longer as the growth story it used to be.
But the possibility of a rebound in air volumes this year has stoked the newfound interest. “After being on the sidelines for the past 2 ½ years, we believe now is the time to finally put new money to work in the gold standard of freight forwarding,” BB&T Capital Markets wrote in a research note about the company on May 28, referring specifically to optimism on air freight for the second half of 2013.
BB&T noted optimism on air freight tied to second half product launches including new devices from Apple. “Could we see a similar scenario to March/April of 2012 when rates spiked over 20 percent as Apple aggressively bought up available air freight capacity?” it wrote.
With IATA forecasting 2.6 percent growth in global air freight volume this year, “that means that we are going to face an uptick here in the latter part of the year,” Steen said.
While a strong second half might provide a respite for the air freight sector, this still feels more cyclical than structural. The global economy is growing, and air freight will benefit from that, but an increasing number of shippers see air as a mode to be avoided whenever possible.