Structural problems hold back air cargo growth, IATA says

Structural problems hold back air cargo growth, IATA says

HONG KONG — The air freight business has just completed its best peak season in years, but the International Air Transport Association (IATA) has presented a sobering picture of an industry enjoying a cyclical upturn while struggling to overcome structural problems. 

Brian Pearce, IATA chief economist, told reporters in Geneva that despite the strong volumes, the economic cycle was weak with poor business confidence and industrial production.

Uneven performance on trade lanes and regions was another characteristic undermining the air cargo industry. While the trans-Pacific and Asia-U.S. routes were showing strong growth, the North Atlantic and Europe-Asia trades were not performing well.

The regional picture was even worse. Air cargo is measured in freight ton kilometres (FTKs), and airlines registered in the Middle East are way in the lead, growing FTK by 55 percent above the 2010 peak level. The arrow has basically shot straight up since 2010 as the carriers consolidated their hub position and expanded aggressively.

However, the next best region is Africa at 16 percent above the 2010 peak level, then Latin American airlines at 6 percent and Europe carriers at 2 percent up. North American carriers are down 4 percent on the 2010 peak level and, surprisingly, Asia-Pacific airlines are down 8 percent, although a positive is that the arrow for both regions does have a slight incline.

The good news — for this paragraph, at least — is that the utilisation of aircraft has improved. Freighter aircraft utilisation is increasing and was close to 50 percent in September with the planes flying an average of 11 hours a day. Load factors have also risen this year and are up above 45 percent.

The air cargo industry will see a significant injection of additional capacity in 2015 as new freighters and passenger planes are delivered.

The falling oil price will help carrier balance sheets, but it is also making air cargo cheaper. Yet the falling revenues appear to be arresting a steady loss of air freight market share to ocean. According to a recent IATA-Seabury modal shift study, the air cargo share of the market has remained stable after falling by 1.5 percent a year since 2002. But the bad news, Pearce pointed out, is that there is plenty of capacity coming online from new freighters and wide-body passenger planes injecting additional belly cargo into the market. The graph shows the enormous amount of belly space that will arrive in 2015, threatening yields and dragging down profitability.

IATA’s five year forecast is that globally, air cargo will have a compound annual growth rate of 4.1 percent. The Middle East was the fastest growing carrier this year at 9.7 percent, but that will moderate to 4.7 percent CAGR over the next five years. Asia-Pacific cargo grew 5.1 percent this year compared to 2013, but that will moderate to 3.8 percent CAGR over the next five years.

IATA is battling to transform the air cargo industry into a leaner, adaptive and innovative business as customers become more sophisticated. Earlier this year, shortly before retiring and handling the hot potato over to his successor Glyn Hughes, long-time IATA cargo head Des Vertannes set an industry goal of cutting 48 hours off the average end-to-end time of a consignment. Vertannes noted that since the 1960s, the transit time of air cargo remained at six to seven days, and this needed to change.

By cutting down the end-to-end the time, the industry would be making dramatic improvements to processes and data sharing across the supply chain that would enable the airlines to cope with handling products that were growing in value and complexity. 

For instance, in the moving of pharmaceuticals, a sector generating strong air cargo growth, shippers complain of a lack of standardisation, compliance and transparency across the air transport supply chain. Despite being a heavily regulated industry, there is no single global standard or certification for the handling of pharmaceutical products.

Contact Greg Knowler at gknowler@joc.com and follow him on Twitter: @greg_knowler.