Halfway done, how does 2014 look for air cargo?

  • June 24, 2014
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Looking back at the first half of 2014, a common complaint exists among many airlines, ground handlers and forwarders around the world: dismal load factors and yield.

“That’s what keeps me up at night anyways,” Vito Losurdo, UPS vice president of global airfreight, says.

The load factor on most flights is still running about 50 percent, says Stan Wraight, executive director of consulting company Strategic Aviation Solutions International. He says while there may have been an uptick in load factor during the first four to five months of 2014, that is only compared to last year’s “abysmal” performance.

“It’s not something that we should be happy about – not at all,” Wraight says. “We still see a hell of a lot of empty capacity, and that’s a real problem for the airlines and also the airports and ground handling companies and everything else.”

In April, there was a 6.7 percent increase in volume and a 2.3 percent decrease in yield, according to figures from WorldACD, air cargo market data experts.

“As we all know, yield remains under pressure,” Gerard de Wit, managing director of WorldACD, says. “In fact, we have seen 10 consecutive months of year-over-year USD yield decline in combination with volume increases.”

 

Regional growth

A lot of air cargo activity during the first half of 2014 seems centered on Asia.

“Asia sort of bounced back, but we’re sort of watching it very carefully,” Lise-Marie Turpin, vice president of Air Canada Cargo, says. “I think it’s fairly fragile. There could be softening there fairly quickly.”

Kerry Logistics’ area of strength is Southeast Asia and China. So far this year, the Hong Kong-based forwarder has seen significant volume growth in export products worldwide.

“We know that China is a huge consumer market, and we’re actually focusing now on the consumable market,” David Mallinson, development manager for UK air product, says. “We’re doing this in high-street fashion stores that have identified China is a great big developing economy.”

The air cargo market in Hong Kong has proven strong for Hong Kong Air Cargo Terminals Limited (Hactl) during the first half of the year, Chief Executive Mark Whitehead says.

“The growth of tonnage throughput at Hactl has come from three main sources,” Whitehead says. “Firstly, we attracted some additional airlines, who joined in the early part of the year; the Gulf carriers have continued to put capacity into the market and the Hong Kong-based carrier, Hong Kong Airlines, has shown very strong growth in the first half of 2014.”

American Airlines also sees a prosperous future in China, starting its first services to Hong Kong and to Shanghai on June 11.

During the first four months of the year, China Southern Cargo’s freight tonne kilometers (FTKs) grew by 11 percent year over year.

“Since the beginning of this year, China Southern Cargo has intensified freighter operations between China and Europe to strengthen market presence, at the same time has been optimizing its freighter network to improve performance on Sino-U.S. routes and tap into the emerging markets,” a China Southern spokesperson says.

Finnair Cargo has found good fortune in Japan.

“Our four daily Japanese flights to Tokyo, Osaka and Nagoya have had strong growth demand, and this trend has not declined even after the sales tax increase implementation in Japan in April,” Juha Järvinen, Finnair Cargo’s managing director, says.

The carrier, with its main hub at Helsinki Airport in Finland, has seen 10 percent growth in freight volumes during the first five months of 2014.

Meanwhile at Japan Airlines, despite a decrease in airfreight in some regions during Chinese New Year, demand is on track to recovery, Spokesman Jian Yang says.

“The total demand from and to Japan in the first half of 2014 is expected to increase than the same period in 2013, thanks to the recovery of Japan economy and hurried purchases of products by the consumers ahead of the April 2014 introduction of consumption tax hike,” Yang says. “JAL has been capturing the demand and its air cargo traffic is expected to increase far more than the same period of last year.”

India’s air cargo market did well in the first four month of 2014, says Pukhraj Singh Chug, managing director of Group Concorde. In fact, the Delhi-based forwarder isn’t griping of low load factors – during this period, its load factor reached 105 percent.

“All routes ex India have been doing well with special emphasis on growth to European Union, Africa and Southeast Asia,” Chug says.

The Middle East and Africa cargo markets are a little spottier.

One of Coyne Airways’ main markets is centered on defense operations in the Middle East. For the past decade, Afghanistan and Iraq performed well, CEO Larry Coyne says.

“But as soon as the Americans pulled out of Iraq, I think that market became pretty much saturated by Middle Eastern carriers, so it hasn’t been great,” Coyne says.

Afghanistan has been a good market so far this year for Coyne. Iraq is down, but he believes it will slowly progress as it develops its oil resources.

At Lufthansa, FTKs from the Middle East are rising in the double digits, Andreas Otto, board member product and sales, says.

“Lufthansa Cargo has to compete with Middle East carriers – with growing belly and freighter capacities as well as increasing freighter services via the EU to the Americas – but of course also with numerous other big players, like Cargolux, Turkish Airlines, AirBridge or Air France/KLM,” Otto says.

But he says cargo demand is lower on routes from Europe to Africa.

The African market has also been disappointing for Coyne Airways this year.

“I think a lot of people rushed into Africa thinking it was going to boom, and it has grown and it will continue, but I think there are times when it just actually goes very flat,” Coyne says.

Latin America has mixed airfreight results.

“Even though export markets are growing – especially air export of both Chilean salmon and the Peruvian asparagus – the market situation in South America is quite challenging, driven by the slowdown in Brazil and a stagnation of cargo imports in the region, which has been affected by the weakening of local currencies,” Cristián Ureta, CEO of LAN Cargo, says.

Expected cargo volumes associated with the FIFA World Cup did not pan out in Brazil, Ureta says. LAN Cargo also sees overall weakness with imports from the U.S. and Europe into Latin America.

At UPS, Asia Pacific routes into Latin America are faring better than last year, mainly due to high-tech activity into Latin America, Losurdo says.

As of press time, Worldwide Flight Services (WFS) is working on an acquisition that will put the ground handler into South America’s air cargo market, COO Barry Nassberg says.

WFS is also working to build the business in North America, identifying stations it wants to strengthen. JFK in New York is now becoming a focal point for cargo activity, Nassberg says. The company expects business to grow substantially there in the next few months.

Järvinen says JFK, Finnair Cargo’s North American gateway, has had a good start in 2014, momentum that the carrier plans to continue for the rest of the year.

Wraight says the American economy is one of the bright spots of air cargo.

“The unemployment fell,” he says. “Everyone seems to be in a more upbeat mood and willing to spend a few dollars compared to Europe.”

Much cargo activity is also concentrated in Europe, Wraight says.

Air Canada and American Airlines are seeing robust cargo business there, and Butler says AA’s merger with US Airways greatly expanded the carrier’s European network.

WFS has a historically strong cargo network in Europe.

“Everything is relative, but compared to the downturn that we had seen over the recent years, the economic recoveries both in Europe and the U.S. have translated into gains in traffic volumes,” Nassberg says.

UPS is seeing stronger growth in Europe, which Losurdo attributes to the automotive and industrial manufacturing segments.

Järvinen speaks of tremendous growth for Finnair Cargo over the 12-month period ending in May: a 252 percent increase in freight tonnage out of Belgium and a 20 percent increase in Germany.

Coyne says the Caspian Sea’s oil and gas market is steady but not spectacular, though there has been an influx of new competition as airlines search for profitable routes.

“If they perceive it to be a good market, then they come in,” Coyne says. “I just feel our Caspian area is a little bit overcrowded at the present time.”

 

Looking ahead

“Things can change very quickly in this business,” Turpin says of predicting the air cargo market for the rest of 2014. “But for right now, from what we’re hearing from shippers and forwarders, they feel that the same trend will continue through to the end of the year.”

She feels guardedly optimistic about the second half of 2014 for Air Canada.

Butler has a similar feeling. He is “thrilled” about AA Cargo’s performance in the first four months of 2014, especially in the middle of integration.

“I’m never going to envision that we can keep that kind of growth going for an infinite amount of time, but we certainly have the team focused in the right direction,” Butler says.

De Wit of WorldACD says a number of the newer cargo centers continue to climb the ladder, including Oslo, Manila, Ho Chi Minh City, Quito and Karachi, Pakistan.

“Business confidence remains on a stable to positive level, GDP and export growth are returning in 2014 and in many of our key markets, demand is developing into the right direction,” Otto of Lufthansa says.

Nassberg of WFS says the second half of the year has a bigger effect on the results of the full year, but he feels bullish.

“There isn’t an awful lot we can do about economic cycles and about traffic levels because in the end, we’re not the ones selling the cargo. It’s the airlines that are doing that,” he says. “But there is a lot that we can do about maintaining the geographic balance, about spreading risk to a great extent and about making sure that we’re present in the key areas that our customers would like to see us.”

Mallinson of Kerry Logistics feels certain of an upcoming peak in the airfreight market this year. But worries of a capacity shortage linger. He says there is lack of direct capacity on Shanghai-Europe and Beijing-Europe routes as airlines pluck freighters out of operation.

“There is overcapacity, however the market is that volatile that it only takes somebody like Foxconn or Apple to release a new model, and all of the sudden you’ve got a spurt in activity there. The freighters are full,” Mallinson says.

Ureta of LAN hopes that once the World Cup ends, the Brazilian economy will become active again, allowing for cargo traffic growth during the second half of 2014. LAN Cargo also expects improvements in imports from some of the Andean countries, especially Colombia, Peru and Chile.

The airline boasts of an increase in load factor of 2.6 percentage points “due to better control of capacity,” Ureta says.

“Operation of cargo aircraft was reduced and it was favored the use of capacity in passengers aircraft, resulting in cost savings,” he says. “To make this a permanent efficiency, we are working on a restructuring of our long-term freighter fleet.”

Group Concorde ties much of its cargo activity in the next six months to new Indian Prime Minister Narendra Modi, who took office May 26.

“The demand will be steady and expected to increase further especially in last quarter as India’s political scenario is changed. The new government has been formed with majority and expected to bring reforms for strengthening of the Indian rupee and more trade into India,” Chug says. “We feel that Indian economy is going to grow exponentially and much more stable with the new government.”


Despite many companies’ hesitant cheering for the rest of 2014, Wraight has other expectations: The worst of the year is yet to come, especially because of the currency-weakening Ukraine crisis.

“I’m not too optimistic that we’re on the right footing right now,” he says. “There’s too much uncertainty politically and economically to do anything more than stick your finger in the air and hope for the best – see where the prevailing winds are going to blow.”

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