CNS 2016: A glimpse of the cargo landscape of 2020

p6_Tue_Photo_ClancyNASHVILLE — Launching his presentation with an anecdote from his past about his first CNS conference, speaker Brian P. Clancy, managing director of Logistics Capital & Strategy, LLC contrasted the glory days of the past, when the airfreight market expanded at a multiplier nearly double the rate of global GDP growth, with the present situation of surging capacity and falling yields.  

Admitting he did not have access to an all-telling crystal ball, Clancy’s presentation offered an alternative framework built out of the economic assumptions related to market growth. He urged the audience to closely follow and analyze current global trade trends and patterns, which upon close examination reveal how different verticals and varying rationales for using airfreight in the present landscape, complicate one’s ability to make broad predictions for the industry as a whole.

Part of what makes predicting future air freight demand difficult are the unique features of the airfreight industry itself. Passengers travel on both legs of a journey, whereas freight is strictly one-way. Freight is often perishable. As ticket prices fall, passenger demand is stimulated, whereas falling airfreight rates do not push up demand. Moreover, more than 50% of air freight capacity is a direct product of passenger travel.

Turning to the U.S. market specifically, Clancy spoke of the importance of consumer demand and its impact on cargo patterns. Demand across most trade lanes has ebbed and flowed over the past five years, however, U.S. demand for imports from Asia and Latin America has continued to grow. What has changed is the patterns by which airfreight enters the U.S.

Such patterns highlight the tendency of freight forwarders to consolidate volumes—a pattern which he says will likely lead the establishment of four major gateways. In the five-year period between 2010-2015, MIA, LAX and ORD all gained market share, while JFK persistently declined. Forwarders he claimed, found ways to utilize road-feeder services to deliver cargo from Chicago that was previously destined for JFK. During the five-year period, other major gateways including SFO, DFW and ATL have remained stable, but of the bunch, he said one is likely to join the ranks of ORD, MIA and LAX as larger growth hubs.

Looking at growth by vertical, perishables was the largest contributor to volume growth in 2015, while the high-tech market, traditionally the backbone of the industry was virtually flat during the past year.  Considering products from the high-tech sector make up 25 percent of the total market for airfreight, this is of great significance to future growth models as shippers rethink what they put in the air, and high-tech airfreight shipments slow.  

By linking the shipper segment to expected GDP growth in the destination economy, Clancy proposed new growth multipliers for U.S. exports based on destination region, and across all markets. Perishables, which comprise 16 percent of the air cargo tonnage exported from the U.S. are expected to drive growth across all regions.

Clancy closed with a summary of four key factors which will impact the air cargo industry in 2020.  

  • Belly capacity growth will continue to be driven by air travel demand. Due to the increasing number of widebodies in operation, belly capacity will continue to rise. This will continue to reduce demand for freighter lift.
  • Integrators which currently operate 75 percent of dedicated freighters in service will continue to control a significant portion of the freighter fleet, especially as new players in China and the e-commerce business move into logistics.
  • Non-integrated freighter operators will continue to exist due to “shipment size, directionality and seasonality.”
  • Seasonality and Directional trade balance will continue to change.
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