A Breath of Fresh Air

p>by Roger Morton

After a long drought, the air freight industry has begun to sip some profits. Global cargo traffic growth was up 4.6% in 2006 according to the International Air Transport Association (IATA, www.iata.org). IATA's figures include passenger traffic as well as cargo. In 2006 cargo traffic in Europe grew 1.7% and Asia climbed 4.7%.

IATA points to high fuel costs and strong competition from other transport modes, particularly in Europe, for constraints on 2006's airfreight growth. Still, airlines were more profitable than in years past due to careful capacity management.

"The lesson for 2006 is that pursuing profitable growth pays off," says Giovanni Bisignani, IATA director general and CEO. "The focus for 2007 is efficiency. Slower traffic growth rates and a less buoyant global economy will impact revenue growth. We expect revenue growth to slow from 8% in 2006 to 4.5% in 2007."

Looking at domestic air cargo the U.S. Federal Aviation Administration (FAA, www.faa.gov) forecasts increases in volume of 3.1% per year from 2007 to 2017. The FAA notes that all-cargo carriers increased their share of the domestic market from 61% in 1996 to 81% in 2005. The agency attributes that shift to growth in express services by both FedEx and UPS, in particular, in conjunction with a lack of growth in the freight/express business for domestic passenger airlines. The FAA expects the share of all-cargo air carriers to climb to 84% by 2017 because of increased concerns and regulations related to security and an increasing number of wide-body aircraft.

Looking forward to 2007, John Heimlich, v.p. and chief economist of the Air Transport Association (ATA, www.airlines.org), claims that, "The initial economic outlook for 2007 is the most promising in several years. In addition to a healthy revenue environment, U.S. airlines are seeing the results of painstaking, ongoing cost reduction efforts and balance-sheet repair. Although the industry is optimistic and well positioned to move forward, the reality is that events beyond airlines' control could easily push them off course."

Including the all-cargo sector, ATA estimates the industry will report earnings ranging from $2 billion to $3 billion in 2006, and an estimated $4 billion in 2007. With net losses in the neighborhood of $35 billion over the past five years, full year profits come as welcome relief, says the Association.

The IATA and ATA outlook for 2007 is shared by airplane manufacturer, Boeing (Chicago, www.boeing.com), in its 2006/2007 World Air Cargo Forecast. As with all other modes, world gross domestic product (GDP) remains the primary factor influencing the growth of airfreight. In its projections Boeing's economic forecasters predict an expansion of world air cargo traffic at an annual rate of 6.1% for the next 20 years to three times current traffic levels.

Boeing expects airfreight traffic in Europe and North America to experience lower than average traffic growth. With globalization and the ongoing economic expansion of the Asia-Pacific region, the company predicts that air cargo within China will grow 10.8% for the next two decades.

What does this mean for the shipper? Boeing's analysts point to possibilities for service improvement.

"The distinction between express and general air cargo continues to blur as traditional providers expand their time-definite offerings, air cargo firms consolidate, and postal authorities make inroads as full-fledged logistics providers," claims the Boeing report. "Ultimately, the air cargo customer benefits from improvements, increased service options, and lower prices as market pressure brings competing products into the market."

Air Cargo Embraces Quality Measures
Underway for almost a decade, Cargo 2000 (www.cargo2000.com), a special interest group that operates within IATA, continues to improve operating processes for both the airlines and their customers. In addition to airline members, project participants include freight forwarders, ground-handling agents, trucking companies involved in airfreight and information technology providers.

Ronald Cesana, project director, explains the group's purpose, "We began in 1998 with the mission to create world class logistics standards for the worldwide cargo industry. The objective is to improve the efficiency of the air cargo industry, improve customer service and reduce costs to all participants by implementing a program of agreed business processes and automation standards."

A major step forward has been the reduction of steps in the air cargo supply chain from 40 to 19. "We have basically completed Phase One," notes Cesana, "which is the airport to airport portion of the process. We have mandated the implementation of Phase Two, which is door-to-door activity on the part of our forwarders. One member is already in Phase Two globally and there are another couple of members who have started measuring Phase Two. For all our active member forwarders, it is mandatory they implement Phase Two by the beginning of 2008."

Cargo 2000 establishes quality standards that are then measured by its airline and freight-forwarding members. In October 2006, the latest published performance data available at press time, there were 58,496 lane segments encompassing 43,397 shipments being measured for performance, a 250% year-over-year increase.

E-Tickets for Air Cargo
Cargo 2000 has joined with IATA in its on-going e-freight initiative, which aims to increase the quality and numbers of electronic messages exchanged between industry stakeholders. Where IATA e-freight targets process simplicity and efficiency, Cargo 2000 focuses on process quality and control. The shared objective of e-freight and Cargo 2000 is to simplify and implement best practices. Both programs require complete and accurate data to insure a simple, efficient paper-free movement of goods through the supply chain.

"Our cooperation with IATA is important," explains Cesana, "because Phase Three is aimed at full control of door-to-door supply chain operations, including the transmission of information and bar coding and so forth. It means control of the process backed up by quality, making sure the information is exact. Because we and IATA are similarly looking at a paperless environment, it made more sense to work together."

Working on implementing the Cargo 2000 program and IATA's e-freight initiative is Europe's largest cargo carrier, Air France Cargo-KLM Cargo (AF-KLM, www.klmcargo.com), which as of November 2006 was already handling half its airway bills electronically. As Michael Wisbrun, chairman of AF-KLM's joint cargo management committee notes, there is strong industry competition, not only with domestic European airlines, but also "from Asian carriers, rapid expansion plans from Middle East carriers, the strong increase of capacity for integrators and the need for positioning in China through joint ventures."

By identifying which of AF-KLM's major airport hubs—Schipol in the Netherlands and Charles de Gaulle in France—has greater strength in certain operations and redeploying assets and schedules to match them, AFKLM is trying to improve service in its markets. Similar efforts include optimizing flight frequencies and final destinations, enhancing days of operations and departure times to better serve its shipping community.

The combined airline reported 2.2% growth for the current fiscal year, with particular strength in Caribbean/Indian Ocean routes, up 7.0% year over year, and in the Africa/Middle East region, which climbed 14.3%.

A KLM cargo carrier, ready for loading.
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