The second half of 2014 saw strong air cargo demand driven by a number of technology releases and the overall rising consumer confidence in the European Union and U.S. To sustain prolonged periods of air cargo success in subsequent years, however, the industry must address some key issues.
The economic picture remains challenging. Although global growth is returning, it’s not as strong as it was before the 2008-09 global financial crisis. Other factors likely to impact air cargo include rising domestic production and an increase in companies investigating the benefits of near-shoring, which takes advantage of reducing unit wage costs in some developed economies and accelerates the time to market. That’s particularly attractive in the fast-moving cycles associated with today’s consumer goods.
Another factor evident since the global financial crisis is the increase in trade protectionist measures. More than 900 traditional and nontraditional measures have been introduced over the past four years as states seek to protect domestic markets. These measures include traditional quotas and tariff barriers, as well as an increasing trend toward murky measures such as legislated requirements for an involvement of domestic assembly or domestic components in finished goods, packaging specifications or other such measures.
Despite the tough economic environment, the International Air Transport Association forecasts a compound average growth rate of 4.1 percent for the next five years. The industry will need to overcome significant challenges to achieve that, however.
The quarterly IATA Heads of Cargo survey supports this positive growth forecast, with the vast majority projecting volume growth during the next 12 months. They are less optimistic regarding the projected yield picture, however.
Excess capacity will place additional stress on the yield picture as an increasing number of modern widebody aircraft enter service to satisfy the growing passenger demands. The freighter fleet is mostly undergoing a renewal program as more efficient modern aircraft entering service are accelerating retirement of older-generation aircraft but still add to overall available capacity.
Despite the increased passenger fleet, freighters will provide critical capacity when the global economy thrives. A key challenge for airlines will be to secure flexibility in utilization to ensure freighter capacity is deployed where and when it’s needed. Seamlessly linking feeder operations into the global coverage that today’s freighter fleet provides will be the key to increasing overall load factors and yields.
Project and oversize cargo also will play a critical role in supporting various infrastructure and development programs around the world.
The dramatic reduction in oil prices experienced during the second half of 2014 will help improve freighter operational economics, but with the capacity situation as it is, we don’t anticipate seeing a large-scale return to service of some of the parked older-generation freighters.
Shipper demands, which have evolved to the extent that beneficial cargo owners now seek enhanced levels of reliability, predictability and transparency and with increasing competition from other modes, will motivate the air cargo industry to do more in this area. Airport infrastructure challenges exist in some of western Europe’s key air cargo markets, and the industry must move away from its reliance on paper.
Supply chain optimization that addresses sophisticated shipper expectations will rely on information and process integration. The industry has risen to this first challenge through the e-freight project, the first step of which is the electronic airway bill, or e-AWB. As 2015 begins, the industry is approaching e-AWB penetration of 22 percent, representing a significant leap forward from the beginning of 2014.
But the job isn’t done. Indeed, it’s just begun, and many challenges remain. Some customs authorities around the world still demand paper airway bills to be presented with the freight, even if the country ratified Montreal Convention 1999, which facilitates the removal of paper from the air transportation process.
Other challenges exist where some ground operation processes still rely on paper to move freight into, through and out of the ground handling facility.
In this regard, a number of large ground handlers have innovated their processes, with some introducing green “expedited” drop-off channels recognizing the value of data submitted in advance of the freight delivery.
Regulators around the world also are introducing advanced data requirements for security screening purposes, which is consistent with the industry strategy of electronic data vs. paper-based data. It’s extremely important, however, that where such advance data requirements are introduced, it’s done so with industry dialogue as harmonized data demands will facilitate industry efficiency but diverging data demands will hamper.
One additional benefit of the move away from paper is that the information relating to the freight can arrive ahead of the actual freight, allowing air cargo to leverage its value proposition — that is, speed — versus other modes. An industry challenge was issued to take 48 hours from the end-to-end shipment time, something that can be achieved only if electronic data is at the heart of how we operate.
The air cargo supply chain is complex by nature, because it requires many specialized skill sets to move products from point of manufacture to point of consumption. Because each party within the supply chain must work efficiently with all other parties to serve the end customer, however, we must collaborate effectively through data and process integration to create the seamless solutions required.
Glyn Hughes is global head of cargo for the International Air Transport Association. Contact him at hughesg@iata.org.