Andrew Herdman is the director general of the Association of Asia Pacific Airlines. Air cargo carries less than 1 percent of the world’s tonnage but 35 percent of the value of international trade, he said. He spoke with Air Cargo World about the Asian air cargo industry, cargo security and how the environment factors into airfreight – a topic in which AAPA is active.
1. What is the outlook for the Asian-Pacific air cargo industry this year?
Asia carriers are heavily committed to the cargo business and represent about 40 percent of the global air cargo traffic, so when you say what’s the outlook for the Asian airlines and cargo, it’s pretty much the same as asking what’s the outlook for the global industry…The demand for cargo has totally flat-lined in the last couple of years, so the belly is absorbing a bigger proportion of that static cargo market, and as a result, the amount of cargo that’s needed in the way of dedicated freighter capacity is shrinking, so that’s putting people in a very difficult position, particularly all cargo operators, all those big combination carriers, including big Asian carriers who operate large freighter fleets. They’re having to reduce the number of freighters they’re operating, parking or retiring old aircraft, even if they’re adding new, more fuel-efficient 787-8 freighters or 747 freighters or so on. So the problem is right now is this surplus freighter capacity, and that’s making the economics of the cargo business very challenging.
2. What are the ramifications of the ongoing emissions debate for air cargo?
When the industry talks about its long-term growth potential, we have to be mindful of the fact that our emissions are growing, and that’s despite the fact that the industry is very strongly incentivized to be fuel-efficient because oil prices are high – roughly 35 percent of costs on average…Our traffic growth rate long-term is likely to exceed the pace of which we’ve improved efficiency, so it’s our view that there’s a role for some form of market-based measures, either emissions trading or more likely carbon-offsetting. The problem is that to put in place such a scheme, it’s not going to work to have every institute its own scheme for carbon pricing on aviation. We do need to get some global agreement.
3. What will the role of E-freight be in Asian-Pacific cargo?
If you look at the current attempts to switch to electronic Air Waybills, there are some examples from the Asia-Pacific. Some carriers are in the forefront of working with likeminded or supportive governments, particularly Cathay Pacific in Hong Kong. There are other examples of pushing ahead with moving toward electronic Air Waybill. And I think that gives a model on how the rest of the industry will go. But it does remind us of the fact that you need government involvement and government cooperation, particularly as far as customs information and the electronic flow of customs information.
4. What security trends have you noticed in air cargo?
We have to recognize that air cargo is extremely secure and always has been, and that’s one of its key filling features because so much of the goods we ship are high value. And so the system is set up to be very secure. Having said that, instances like the Yemeni printer incident and so on has prompted further initiatives by governments to impose tighter security controls. So the U.S. government has insisted on airlines that serve America have to comply with U.S. security requirements. Europe has recently introduced its own version of assessing other countries’ security ratings. So there’s been a strengthening of security all around. The problem for airlines is there are non-harmonized requirements for different countries. And you may have one rule for outbound and another rule for inbound. Since much cargo is consolidated through international hubs, the fact that you’re governed my so many different jurisdictions makes life complicated for big international cargo carriers. So we’re keen that governments talk to each other. There’s no point in one government insisting every other government follows its methods. I think there’s now a realization that we need equivalent outcomes. We don’t have to prescribe exactly how it’s done. I think the U.S. government now recognizes that many other governments have similar functionally equivalent regimes, and that’s now recognized, which avoids duplication of efforts, having to repack and rescreen cargo unnecessarily. But it still falls short of how we’d like to see it in terms of common global standards and harmonization of operating procedures.
5. How do you view the competitive landscape of air cargo versus other modes of freight?
Because the air cargo business has been relatively stagnant, it’s tempting to say that we’re losing market share to shipping, but given that 1 percent of the tonnage and 35 percent of the value, I have to remind people that if we disappeared tomorrow that our shipping friends would hardly notice the increase in business. So I don’t think there’s much evidence of a really significant modal shift. I think certain goods are going to go by air, certain goods are going to go by sea because are shipments are so marked that it’s a really a question of the category of goods. I think the problem in air cargo at the moment is there’s an element of our business, which is unexpected retail demand…That’s missing and has been missing for the last couple of years. The recent growth in retail sales is rather modest and it’s not taking retailers by surprise, so those who combine shipping by sea and some by air, particularly garments for example and some electronics, they find that they can rely on the ocean shipments for the bulk of their requirements because they’re not getting surprise demand spikes on the upside. As the global economy picks up and occasionally when you get new products like new iPhones or new iPads or new Saturn Galaxys, you do the same effect where you get a surge where people want the product. They want it now. And you see a surge in airfreight of those products. That’s always been the case – that pattern. I’m not a believer that we’re seeing a long-term mobile shift in one direction or another. There’s a role for trucking. There’s a role for ocean shipment. I think they complement each other rather than competing head-to-head.