With global air cargo volume shrinking for the last two years, carriers, brokers and forwarders shouldn’t expect to see a sizable jump in business any time soon and need to be aggressive in securing cargo.
That was the message from trade analyst Dan Gardner, president of Trade Facilitators, when he addressed members of the Los Angeles Air Cargo Association at an April luncheon. One factor that can increase trade and help boost volumes is having a free trade agreement in place, he said.
“After growing an average of 6.7 percent a year between 1981 and 2004, air cargo volume worldwide dropped 0.6 percent in 2011 and fell 1.5 percent in 2012,” Gardner said. Until the U.S. economy strengthens and the European Union solves some of its monetary woes, the trend won’t be shifting back.
Operators in the perishables sector of the market are seeing gains, however, said Chris Connell, president of Commodity Forwarders. “All we do is non-pharmaceutical refrigerated loads,” he said. “And from a perishables point of view, the outlook is relatively good.”
Connell’s company is seeing solid, if not spectacular, growth. “We’re up double-digits from the recession, and we expect to see that pace continue,” he said.
Shipping perishables by air is a balancing act for the market. “If the price is good (on a commodity), there is a window of opportunity to do air freight, and I don’t see that changing in the future,” Connell said.
Free trade agreements help keep air freight in the mix by making the end prices more affordable. “Cherries are a good example,” Connell said. “We’ve sold cherries in Korea for years, but after the (free trade) agreement went into place last year, we saw the volume jump because without the tariff, it was a much more affordable food.”
Cherry growers from the Pacific Northwest said their sales to South Korea doubled in 2012 after a 24 percent import duty on cherries from the U.S. was eliminated. The bilateral agreement took effect last spring, in time for the summer’s cherry crop.
Blueberry shipments also exemplify the strengths and weaknesses of a trade agreement. “For the first time, Oregon blueberries could be sold in Korea,” Connell said. “That’s encouraging and a step in the right direction. The next step is to get Korea to allow blueberries from California and other states.”
Guilio Battaglini, vice president of Jet Pro, a forwarder specializing in the cold chain, said it’s clear trade agreements work. “During cherry season, there is always a premium on space, and we definitely saw that last year,” he said. “Another trade agreement that has reaped some benefits is the one with Mexico. We get in a lot of produce by air that you would think should come in by truck — mainly because the roads aren’t that great.”
Air cargo perishables from Mexico include berries, mangoes and a number of other fruits and vegetables.
Shipments of meat by air are also up in most trade lanes, Battaglini said, but seafood shipments are down almost across-the-board.
Guy Fox, chairman of the Commerce Department’s District Export Council of Southern California, said the effects of a trade agreement also can be seen in reverse, when market share is lost to countries that have direct trade agreements. “California wines were big in Korea — they were popular years ago,” he said. “Then Korea implemented an FTA with the European Union. Once that set in, the European wines went from
30 percent duty to nothing. We probably had a 30 or 40 percent market share that disappeared overnight.”
The tariff on wine went from 30 percent to zero as soon as the U.S.-South Korea FTA took effect, Fox noted. “That made the wine people pretty happy, and they are starting to get their market share back,” he said. “As consumer demand comes back, we’ll see more air freight, especially perishables.”
Having an FTA on the books is a good way to weather an economic storm, Gardner told the Los Angeles association. “When times are good, free trade agreements matter a lot,” he said. “When the economy isn’t so good, they still matter, just not as much.”
Japan and China seem to be at the top of the U.S. wish list for new trade agreements; Japan, because it has traditionally been a good customer for high-value foods, and China, because of the huge number of potential customers. Battaglini also would like the U.S. to negotiate pacts with more Middle Eastern countries.
The U.S. desperately needs to reach a free trade agreement with China, Fox said. “That deal will be controversial, but we could work on it on an incremental basis. Doing something is better than doing nothing,” he said.
But trade agreements by themselves don’t solve everything, Connell said, pointing to Australia as an example. That pact has been positive in many ways, he said, but Australia’s regulations to protect growers from the possibility of invasive species harming crops has slowed access granted in the FTA.
“It’s a slow government-to-government process deciding what treatments are allowed or required before we get access to the market,” Connell said. “An FTA is a positive step in the right direction, but there are so many more steps that have to be taken afterward.”
Contact Stephanie Nall at firstname.lastname@example.org.