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Cargo chiefs say 2014 likely a mixed bag

By Martin Roebuck on December 12, 2013

Airline heads of cargo, responding to an annual International Air Transport Association survey, feel upbeat about likely airfreight volumes over the next year but are much more cautious in regard to yields.

Their concerns are well-founded, according to IATA chief economist Brian Pearce. Addressing the cargo media in Geneva, he said global freighter numbers began to reduce as far back as 2005 and had flat-lined since 2011. This was necessary capacity adjustment in the first instance, but the rapid expansion of wide-body passenger fleet “has added a lot of capacity which has been chasing quite limited demand, with obvious consequences on price.”

Pearce said freighter load factors had suffered despite the retirement of older equipment. “The encouraging part of the story is we have seen that begin to see load factor stabilize at around 45 percent.”

Karl Ulrich Garnadt, CEO and chairman of Lufthansa Cargo, said his own company’s freighter load factor was 73 percent in November. “There’s a huge difference across the market. On the North Atlantic, 20-30 percent of capacity is provided by freighters, but it’s 80 percent through Shanghai.”

Trade hubs from which fewer people traveled had a more sizable freighter share, Garnadt said, but the challenge facing the traditional air cargo sector was to upgrade its traditional value proposition to compete with the integrators, “because this will be the main battleground in future years.”

Key indices such as world trade growth, the industrial production trend and business confidence had all begun to turn positive from the end of 2012, Pearce said. Shipments by traditional bellwether industries such as semiconductors were also turning around.

However, the stagnation in air cargo after its strong rebound in 2010 highlighted something more fundamental.

“The experience of the cargo and passenger businesses has been very different since the recession. We are seeing some products shift from air cargo to ocean – including semiconductors, which are going through a life cycle of their own and becoming cheaper,” Pearce said.

Garnadt said the reality of customers’ airfreight experience was falling short of expectations in three main respects. First, they wanted high speed, but door-to-door transit time had not shifted from six days while shipping lines had raised their game by capacity-sharing and improving frequencies.

Second, customers were looking for low prices but there was insufficient price transparency. Third, they wanted high quality, but there were no generally accepted key performance indicators covering the end-to-end supply chain.

“The modal shift from air to seafreight is accelerating as shipping lines provide more comprehensive solutions for all industry sectors,” Ingo-Alexander Rahn, head of global airfreight at DHL Global Forwarding, said. “The air cargo industry needs to stay competitive in terms of service, speed and cost, and thus has to concentrate on further standardization and simplification of the processes. The main area of focus has to be documentation as the physical process of pure transportation only can be improved marginally.”

“We continue to look at our industry not as an integrated service provider but add layers and layers of complex processes to slow down the transit time and increase the cost,” Tom Mack, DB Schenker’s senior VP and global head of airfreight, said. “If our industry wants to stop modal shift, we need to address the issues of the total transit time, the total cost of the transportation chain, and the information flow between all parties to come up with a global solution that allows us to offer market competitive products at market competitive rates.”

The tools already exist, according to Panalpina, “but we need commitment and focus from all stakeholders,” Lucas Kuehner, global head of airfreight, said.

“In the eyes of the customer, airfreight is about 10 times more expensive than oceanfreight,” he said. “When contracting air freight, the customer expects speed, visibility and security. As an industry, we need to do much better to provide shipment visibility from door to door.”