BY BRANDON FRIED
Airlines are experiencing booming success in their passenger departments, but cargo flown in the bellies of flights has been in a slump on many of the favored global trade routes. In addition to a weak global economy, the airfreight industry is suffering from an overabundance of space created by an influx of new planes now prevalent in most major markets.
According to the International Air Cargo Association, ongoing high capacity growth is putting significant pressure on cargo yields. Despite a small uptick in June, freight leaders expect further decreases in yields for the remainder of this year.
Air carriers prefer passenger numbers being up, but as a symphony orchestra playing out of sync, disappointing cargo volumes reduce the value of airfreight divisions and the overall profitability of flights themselves. The result is that expensive, shiny new planes flooding the market are not reaching their full profitability potential, making their return on investment a challenge, especially since airlines factored significant cargo volumes into their purchase decisions.
As a result of these adverse freight market conditions, airlines are adopting a strategy of aggressive cost cutting along with higher revenue, premium product offerings. These include increased emphasis on cold chain services such as pharmaceutical and perishable transportation. While each requires additional labor, infrastructure, and worker training investment in complex handling procedures, customers often pay a premium for reliable and efficient service. In other words, additional revenue is attainable, provided airlines are willing to work harder to get it.
Of course, the constant threat to premium product development is commoditization where most carriers, in one form or another, are offering the same or similar services. That is why working with freight forwarders as partners in creating innovation and helping carriers fill their cargo capacity is essential. The forwarder’s role is analogous to a travel agent, arranging ground handling before and after the flight while dealing with customs clearance and various complexities encountered in the shipping process. Most offer all modes of transportation to meet budget or processing requirements, and airlines depend on forwarders to supply the vast majority of cargo flown on passenger flights.
Surface transportation options compete for air traffic and while impossible to match ocean and truck costs, airlines and their forwarder partners must continue to offer pricing options that narrow the gap as much as possible. While air cargo is usually the choice when time is of the essence, carriers must realize that the fast delivery is not always the same thing as delivering the most value. Both must collaborate in developing products focusing on solutions tailored to meet specific shipper challenges.
But alas, according to airline manufacturer Boeing, the current air cargo slump is a temporary situation as the world economy and industrial production, primary leading indicators of air freight traffic are forecast to recover and return to long-term growth rates with improvements in capacity balance and yields. When this happens, South Carolina residents and businesses will benefit, thanks to an airplane game changer built in their backyard.
Last year, the 100th Boeing 787 rolled off the Charleston assembly line six years after the company made the unprecedented move of building a jetliner factory outside Washington. Despite labor and productivity issues initially experienced, the decision has been a boon for Charleston and the Carolinas, thrusting the area into the global aerospace market.
Most airline insiders know that the Boeing 777 and its freighter variant have excellent cargo capacity combined with superior technology and service reliability. But despite its favorable attributes, the aircraft is most economical to operate on significant passenger and cargo density routes. The newer 787 features substantial fuel economy combined with long-range capability achieved through the use of composite materials. Carriers are using the plane on lower density routes previously never before even considered such as Dallas to Sydney or Boston to Tokyo. It represents the airplane of the future for Boeing and a brilliant economic opportunity for South Carolina, especially since economic growth and the need for carriers to replace aging planes is bound to create more demand for the 787.
For the time being, however, the airlines and the air cargo industry must contend with the glut of lower hold space where much of the world’s airfreight gets carried. Yields are down to levels not seen since 2009 while, ironically, high passenger demand is driving the need for the planes creating the challenge. If low-density routes served by the Boeing 787 mature, high passenger demand remains, and fuel costs stay low, air cargo volumes are likely to increase as freight begins to play in tune with the rest of the band.
(Brandon Fried is executive director of The Airforwarders Association. He has more than 35 years experience in the airfreight forwarding industry.)