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What is next? Industry observers peer into the crystal ball

By John W. McCurry on March 13, 2014

After a tough couple of years for air cargo, a group of industry executives offered a look into their various crystal balls during a session on Industry Trends Wednesday at the World Cargo Symposium in Los Angeles.

While the mood seemed to be one of trepidatious optimism, the prevailing opinion seemed to be that while the industry is not going to achieve historic gains, it wouldn’t falter in the near future either.

“The world is flat, but a flat world is better than none,” said Gert-Jan Jensen, executive director, head of cargo advisory practice, for the Seabury consultancy. “The challenge is finding places where things are going pretty well.”

But, noting that there are always trade lanes and niches that buck the trend Jensen cited the “winners and losers” by product category. Fashion and its raw materials were the big winners in 2013, with the highest absolute growth rate of 11 percent.

“Fashion was a growth market for Asia and the subcontinent,” Jensen said. “Most of China and the Indian Subcontinent saw significant increases in exports of fashion goods. When consumer confidence returns, they spend first on fashion.”

Conversely, high-tech was the big loser in 2013, he said, with China driving more than a third of the world’s losses in high-tech exports. Computers and semiconductors were hardest hit, he said.

Taking a look at aircraft, Jensen said the future of growth of cargo capacity would be driven by passenger aircraft. He said without substantial new freighter orders, future capacity will increasingly be driven by wide-bodies. Jensen noted that while its fashionable to look at Middle East carriers as setting the pace for adding capacity, it’s actually the Asia-Pacific carriers who have the majority of capacity on order.

When the discussion turned to freighters, the consensus was that despite the growth of belly capacity, the main-deck aircraft would continue to play a major role for the foreseeable future.

Jensen said FedEx placed the most freighter orders over the past five years with 51, noting that many of them are replacements.

“It’s still remarkable that one company has been driving the freighter orders over the past few years.”

Jensen said large and medium freighters are increasingly flying shorter sectors as they “vacuum clean” for cargo. The full-range capabilities of these aircraft are not typically used, he said.

Russell Tom, Boeing’s regional director of marketing for air cargo, says main-deck’s share of cargo continues to remain steady at about 60 percent. He said the news of freighter’s demise is premature. Tom cited Boeing figures that say the world’s freighter fleet would increase to 2,300 by 2032. The current figure is 1,730, split between large and medium aircraft.

“There is a major role for freighters and that will continue,” Tom said. “There is much more freight that needs to be moved by freighter than can be accommodated by the lower hold.”

The world’s 30 largest carriers that use both passenger and freighter aircraft carry 46 percent of their cargo on freighters, Tom said.

Pondering what’s next, Jensen took a short-term guess based on various mathematical projections and surmised that the industry would plug along at about a 1 percent growth rate over the next few months. Things will be better for the next few months if you believe the PMI (Purchasing Managers Index) trend.

“That’s pure mathematics, there’s no opinion from our side on that,” he said.

Jensen said the conventional belief that the cargo industry will grow at an annual rate of 5-6 percent per year in a strong economy does not hold true anymore.

“Something would have to change to get the multiplier up,” he said.

Jensen noted that one unofficial barometer as to the importance of air cargo to airlines is whether it is mentioned in their annual reports. He said that number has increased in recent years.

The cliché “game changer” has been tossed about this week as the industry looks for some impetus for growth. Igor Pasternak, president and CEO of cargo blimp company Aeros, which makes the Aeroscraft, hopes his company’s innovation will fall into that category.

“Let’s talk about the revolution,” Pasternak said. “This is really something that can change everything about what the air cargo business is about. We will create a new market.”