Something in the air

American shippers are not alone in looking to other parts of the world for sourcing, nor is the U.S. the only country increasing its commitment to the use of air for moving cargo (Figure 1). China — including its domestic freight movements — and other Asia-Pacific countries are projected to account for half of the world's top 20 freight markets in 2023, creating challenges for extended supply chains as they have only now begun to emerge.

With the world getting flatter as globalization strategies widen, then, a key question is: Where will the capacity come from to meet the demands?

U.S. aerospace giant Boeing Co. projects the demand for new commercial airplanes — both passenger and dedicated freighters — as a $2.1 trillion market, with 36% of that earmarked for the Asia-Pacific area. The conversion of passenger planes to freight carriers will be a continuing fact of cargo life.

With a consensus that cargo growth (up 6.2%) will outpace passenger traffic (up 4.8%) over the next 20 years, manufacturers are projecting significant growth for the world's freighter fleet (Figure 2).

"We project cargo will grow faster than passenger," says Jean-Luc Bersat of France-based Airbus, which has passed Boeing to become the world's leading manufacturer of commercial aircraft. "Today some cargo is being carried in bellies of passenger planes. If we assume available belly capacity will grow as passenger aircrafts develop, there is a shortfall between projected cargo demand and passenger demand.

The differential between cargo growth and passenger traffic growth will have to be taken up by dedicated freighters."

Both aircraft suppliers agree on the need for extremely large dedicated freighters to move the ever-growing amount of international cargo by air. The Airbus A380, for instance, has three decks, with two cargo doors on the lower deck and a separate-cargo door for the upper deck. It can fly non-stop from Shanghai to Los Angeles with a 150 tonne payload, claims Airbus' Keith Stonestreet.

The matter of moving air freight between North America and the Asia-Pacific region is of course of great interest to U.S. manufacturers sourcing products in that part of the world. Of all world regions, the entire Asia-Pacific is the hottest air freight market today. Bersat points out that growth is not limited just to China, with Hong Kong up 14%. Kuala Lumpur, for instance, is up 10%, while Singapore is up more than 10%. "The entire region," he says, "is seeing double-digit, year-on-year growth."

For that matter, all regions of the globe showed an upturn in the handling of air cargo. According to Boeing's Jim Edgar, "Worldwide cargo traffic increased about 11% [in 2004], which was a new all-time single year record for increase year-overyear. So far in 2005, the picture is a little mixed," he continues. "January and February were unusually soft, but that's compared to an extremely strong 2004."

The top five commodities moving eastbound (i.e., from Asia/Pacific to the U.S.) are: office machines and computers, apparel, telecom equipment, electrical machinery and miscellaneous manufactured articles. These goods account for 63.2% of the eastbound air cargo, according to Boeing's market analysis.

Among the top commodities moving west from the U.S. are documents and small packages, electrical machinery, and fruits and vegetables. Westbound, the top five commodities shipped comprise just 36.7% of all air cargo traffic. Projecting out over the next 20 years, Boeing suggests that Asia-to-North America traffic and North America-to-Asia traffic will grow at roughly the same pace — a little over 7%.

Following is a look at the major trends in each region of the globe, with comparisons of the major carriers shown in the accompanying chart, Air cargo by the numbers.

U.S. Majors According to Boeing's market analysis (based on complete 2003 figures), the U.S. domestic air cargo market's express sector accounted for 60.9% of all U.S. domestic air shipments, while scheduled air freighter business accounted for 19.3% of the market. Though carrying only roughly half of rival FedEx's volume, UPS showed healthy growth in its air cargo tonnage (9.1%).

The air freight carriers ranked third, fourth and fifth — Northwest Airlines, American Airlines and United Airlines — are all facing serious financial challenges for a variety of reasons, and lag well behind UPS and FedEx in freight tonnage.

U.S. Nationals Atlas Air Worldwide Holdings operates both Atlas Air and Polar Air, the top two carriers in this market sector. Most of Atlas Air's business comes from wet leases of its freighter aircraft. (A wet-lease is a leasing agreement where a certificate holder agrees to provide an aircraft and at least one crewmember to another direct air carrier.)

Because of a weakened economy and a lessened demand for Atlas Air leases and Polar Air scheduled services, the holding company filed for Chapter 11 bankruptcy protection in January 2004. By July 2004, it has restructured its finances and emerged from bankruptcy.

Among its other actions the holding company reduced its fleet and refocused its attentions on core cargo business. Today, between the two entities, the company is the world's third largest cargo airline-— behind FedEx and UPS — and the biggest operator of B747 cargo airplanes in the world.

U.S. Regionals/Specialty Carriers
ABX offers a wide range of cargo services from its headquarters and major hub in Wilmington, Ohio. Its charter customers range from the U.S. Postal Service to Fortune 500 companies. Each night more than 240 aircraft arrive and depart the hub where its total Sort Center capacity is nearly 1.2 million packages per night. The airline utilizes 11 regional hubs.

Canada
Following on the mid-April announcement of a new Canada-China bilateral air agreement, Air Canada will triple its passenger and freight capacity as well as increasing the number of points that it will be able to serve directly. The airline began cargo operations between Toronto and Shanghai using an MD-11 freighter. The service will be increased to daily flights in 2006, and a second daily flight will be added, which will include a stop in Vancouver.

Air Canada will also begin daily Toronto-Guangzhou non-stop service in 2007. Plans beyond that include freighter service that will serve Northern China through Tianjin.

Presently Air Canada's main hub in Toronto offers non-stop service to Hong Kong, Tokyo, Seoul and Delhi. From its Vancouver gateway the airline offers daily non-stop flights to Hong Kong, Shanghai, Beijing, Tokyo, Osaka, Nagoya and Seoul. Service for the new routes will be provided under a wet-lease contract between Air Canada and World Airways.

Latin America/Caribbean
The biggest surprise in this region is the slight slip by LanChile in volumes, although it remains a healthy and viable cargo carrier in the region.

With the continued demand for service for the oil and gas industries, Brazil's Varig Logistics has begun new weekly air cargo operations at George Bush Intercontinental Airport, becoming the first dedicated freighter service between Brazil and Houston.

Europe
Through May 2005, European carriers have generally been experiencing slight downturns, year-over-year, in their freight operations. While capacity — particularly belly space — has been increasing, loads have been decreasing. For example, in May, Lufthansa Cargo showed a 0.8% decrease while its cargo load factor-dropped 2.1% to 63.2%. Similarly, for British Airways, cargo fell 7.5% as its overall load factor fell 0.2% to 67.7%.

The linking of Air France and KLM Group has been a success for the two airlines, with cargo operations working to develop closer network management, coordinated freighter schedules and trading of capacity. The two have created a unified cargo entity expected to be fully operational later this year, Cargo European House, which will oversee network management, sales and marketing. Each airline will continue to handle its own operations.

Asia/Pacific
For the region's leader in freight, Korean Airlines, China provided the most growth, with volumes to and from that country up 277% over the previous year. Cargo capacity grew 317% to 75.8 million available FTKs.

To boost cargo business, in late January Cathay Pacific began freighter service from Hong Kong to Shanghai. It is part of an effort by Cathay Pacific to strengthen Hong Kong as a global logistics hub and as a gateway to the Chinese mainland. The airline also has service to Beijing.

Africa/Middle East For air carriers in oil-rich parts of the Middle East, a dominant theme has been to move from an economy dependent upon selling petroleum to one that serves as a hub for truly global trade. Dubaibased Emirates, for instance, has been a consistent success story for the region (see sidebar).

As passenger and cargo traffic increases in the region, carriers are moving to beef up their fleets. For example, last month Qatar Airways moved to purchase 60 A350s from Airbus and at least 20 Boeing 777s.

Although mainly a passenger airline, South African Airways is the major cargo carrier of those based on the African continent. Since 1990, with the end of apartheid, the airline began to shake its image as a pariah and to establish links throughout Africa and into Asia. The airline has been accepted for membership in the Star Alliance and is expected to join that group in 2006.

Air cargo by the numbers

The following tables report on the world's top carriers of air cargo, by region, for the year 2004. These are total figures, including shipments that moved in the bellies of passenger planes and dedicated freight carrying planes.

When taken alone, an FTK (freight tonne kilometer) means 1 tonne of cargo carried 1 kilometer. In our charts, it's the standard unit of measure, applied worldwide, for the amount of freight traffic moved. The percent of change shown is year-over-year.

In creating these comparative charts, Logistics Today is indebted to data developed by our sister publication, Air Transport World.

Africa/Middle East

Airline FTKs (000) % change
Emirates 3,507,745 35.6
Saudi Arabian 1,002,502 12.3
South African Airways 917,107 4.3
El Al 863,324 - 5.3
Gulf Air 687,300 23.2

Asia/Pacific

Airline FTKs (000) % change
Korean Airlines 8,294,831 17.3
Singapore Air 7,333,200 8.6
Cathay Pacific 6,007,000 13.4
China Airlines 5,769,000 19.6
EVA Air 5,481,478 16.3

Canada

Airline FTKs (000) % change
Air Canada 1,530,080 7.6

Europe

Airline FTKs (000) % change
Air France-KLM 10,078,000 8.8
Lufthansa Group 7,961,000 12.3
Cargolux 5,115,000 15.5
British Airways 4,531,810 8.1
Martinair 3,363,081 9.7

Latin America/Caribbean

Airline FTKs (000) % change
Varig 1,243,503 17.6
LanChile 929,555 - 1.0
Tampa-Colombia 856,215 n/a
AerolineasArgentinas 110,070 6.1
AeroMexico 108,224 12.0

U.S. Majors

Airline FTKs (000) % change
FedEx 14,509,284 4.1
UPS 7,706,731 9.1
Northwest Airlines 3,325,204 10.4
American Airlines 2,866,343 10.9
United Air Lines 2,353,856 8.7

U.S. Nationals

Airline FTKs (000) % change
Atlas Air 5,388,783 11.2
Polar Air 3,285,610 101.9
Evergreen 1,764,709 - 10.8
Kalitta Air 1,706,943 77.4
World Airways 1,287,148 49.3

U.S. Regionals/Specialty Carriers

Airline FTKs (000) % change
ABX 1,147,373 1.8
Southern Air 460,598 n/a
Tradewinds 357,831 38.7
Kitty Hawk 208,900 17.2
Amerijet 149,376 41.0

Statistical data for this article were obtained from Boeing's Global Market Forecast, Airbus' World Air Cargo Forecast and Air Transport World, sister publication to Logistics Today.

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