"Change is the law of life and those who only look to the past or present are certain to miss the future."
— John F. Kennedy
No, JFK wasn’t referring to the air cargo industry when he spoke these famous words about change, but for air cargo’s sake it would have been great if the industry had been listening. The maritime industry, on the other hand, fully understands the sentiment, and it's allowed team Slow Boat to win a freight war that air cargo didn't even know was being fought.
Global commerce is increasing at a dizzying pace, and we’re in the midst of the “give it to me now” era, so you’d think air cargo would be booming. Instead, it’s struggling.
The overall movement of freight has increased greatly, and the maritime industry has stepped up to the challenge. You can find supporting data for this in many places, but taking it from the World Bank Web site illustrates the divergent paths of the two industries during a period of relative prosperity. Consider that from 2000 to 2011:
- Global GDP increased 118 percent.
- Global ocean cargo traffic, as measured in 20-foot-equivalent container units, increased 155 percent.
- Global air cargo traffic (tonnage) increased 49 percent.
Nearly every article you read about lagging air cargo growth will point to rising fuel costs as the primary reason for this, and it’s true that the cost of fuel has skyrocketed. The average price of a barrel of Brent crude oil increased 292 percent from 2000 to 2011. That doesn’t tell the whole story, however. Steamship lines, after all, have to deal with fuel increases, too, yet the ocean freight industry has grown significantly while air cargo has stagnated.
The increased cost of fuel isn’t the reason the air cargo industry is struggling. The real reason is scale: go big or go home, and steamship lines figured that out a long time ago. Vessel sizes have been increasing steadily for well over a decade, and global maritime infrastructure has improved significantly to accommodate the larger vessels. According to maritime research analyst Alphaliner, the total available global capacity was 6 million TEUs in February 2001; by June 2011, that number had increased to 15 million TEUs.
What has the air cargo industry done during this same period of global expansion to keep pace? Well, not so much. The 747 was introduced in 1970, about the same time global containerization standards were being adopted and tramp steamers handled the majority of ocean freight. Yet today, 43 years later, the 747 remains the largest commercially used means available to carry air cargo.
It’s not that larger planes couldn’t be built. The much larger Antonov AN-225 was introduced in 1988, and Boeing introduced the Dreamlifter a decade ago by retrofitting 747-400s to support the Dreamliner supply chain. The Dreamlifter’s cargo hold is three times larger than a 747 and nearly double that of the Antonov, yet only a handful of them are being used today — by Boeing to support internal operations.
Fifteen years ago, a 5,000-TEU vessel was considered huge. Today, 15,000-TEU vessels are becoming the norm. Forty-three years ago, a 747 was considered huge, and today the size of the largest regularly used aircraft remains unchanged. Boeing and Antonov demonstrated many years ago that much larger aircraft could be built, but there has been no commercial demand for these types of planes.
A primary excuse for this is that airports can’t handle the larger aircraft. Maybe so, but there is no comparison to the difficulties involved with enlarging and improving ocean port infrastructure to airport improvements like lengthening runways, or building bigger gates. As the maritime industry demonstrated, if you build bigger ships, global ports will make the improvements required to handle them, and will vigorously compete to remain relevant.
The ocean industry didn’t just build bigger ships; it also developed means to help ensure these larger vessels operate near capacity through vessel-sharing and slot-charter agreements. Fifteen years ago, the notion of VSAs didn’t exist. Today, every major carrier uses them extensively.
The concept is simple, lines collaborate on regional routes by contributing a certain number of vessels, and the space available to each carrier is determined by their contribution to the lane. Carriers also use slot-charter agreements that allow one vessel operator to buy space from another operator, without contributing vessels to the route.
A look at Maritime Administration data from 2002 to 2011 clearly reflects the efficiency gains in the industry: Containerized port calls in the U.S. increased 29 percent and TEU volume increased 69 percent.
During this same period, the air cargo industry developed interline agreements such as SkyTeam and Star Alliance, but carriers’ failure to increase capacity significantly at the same time means there is no major cost advantage of the arrangement. Access improvements have been achieved, but economies of scale remain the same. By scaling up and innovating, the maritime industry has managed to significantly lower costs, increase service options, and now begin to achieve higher revenue.
Supply chain executives have adapted, too. Except for high-value industries such as technology and pharmaceuticals, “air freight” is considered verboten in many corridors. Freight that used to move regularly by air — automotive parts, for example — has largely been converted to ocean freight as steamship lines can get it from Point A to Point B directly, and at a premium rate to ensure this type of cargo sails as planned.
Barring major disasters within a supply chain, it’s no longer acceptable to just move something by air that could have moved by ocean. That reflects a failure to plan, and with supply chains as lean as they’ve ever been, it doesn’t bode well for logistics professionals who can’t plan far enough ahead to move something on the water instead of in the air.
This being the case, the air cargo industry already may have missed the boat. Air cargo executives may not realize the degree to which they’re competing with ocean freight to move cargo worldwide, but a comeback is possible. If the industry can reduce its overall cost structure significantly, it will lower the price chasm that exists today between air and ocean freight, giving supply chain planners a viable option that, when used, doesn’t end with a “talking to” by the boss.
Matt Koivisto is principal at LogAssist, an international logistics consultant in Charlotte, N.C., and a former export manager at Hellmann Worldwide Logistics and Schenker. Contact him at firstname.lastname@example.org.