Skip to content
Search AI Powered

Latest Stories

newsworthy

Can the air cargo industry be saved?

Not until next summer (at the earliest), executives say.

Can the air cargo industry be saved?

An industry that's been steadily losing altitude for nearly 20 years is likely to struggle for a while longer, according to a group of international air cargo executives.

Cargo heads surveyed earlier this month by the International Air Transport Association (IATA), the global airline trade group, said they don't expect profits to improve over the next 12 months due to a cluster of challenges that will continue to plague the business. Global trade demand remains subpar, and cautious businesses appear willing to trade down in transit times by choosing a slower transportation mode in return for lower rates relative to air. About 42 percent of the cargo leaders expect volumes to grow over the next 12 months, the lowest proportion since April 2009, the depths of the "Great Recession." About 48 percent expect no change, and 9 percent forecast a decline in volumes.


The projections, if accurate, will prolong what has been a difficult 20-year cycle for air cargo. After strong growth in the 1980s and through much of the 1990s, the industry hit a wall when the dot-com implosion of 2000-2002 sparked a global recession and curbed demand for high-value information technology (IT) equipment that would typically be transported by air. In the ensuing years, cargo demand, while somewhat volatile, has remained mostly flat. This mirrors a slowing in global economic growth that made many shippers think twice about booking non-urgent shipments with premium-priced air services.

In the 1980s and 1990s, air cargo was marketed as a means of compressing order and inventory cycle times by getting goods to market faster than if they moved via land or sea. However, air transport's speed advantages have been diluted by the industry's inability to adopt digital processes that expedite the input and exchange of data between airlines and forwarders. This delays the release of airfreighted goods and lends credence to the old maxim that the typical airfreight shipment actually spends 80 percent of its time on the ground.

In the most recent cycle, the problem of slack demand has been amplified by a rise in global aircraft capacity, which has the knock-on effect of expanding the amount of lower-hold space where much of the world's air cargo is carried. The oversupply has driven down cargo yields—the revenue generated by flying one ton of cargo one mile—to levels not seen since the second half of 2009, according to the survey. About 90 percent of respondents said they expect yields to be unchanged or to fall over the next 12 months.

The tenor of the respondents' comments should not come as a surprise to IATA, which already forecast a 6 percent year-over-year drop in yields in 2016.

Ironically, the addition of aircraft capacity that is impairing cargo profitability is in response to a bullish outlook for passenger business, which accounts for the lion's share of an airline's revenue. About 68 percent of airline CFO respondents expect passenger volumes to rise over the next 12 months as terrorism-related disruptions fade and falling fares help stimulate demand.

Capacity is also being propped up by the dramatic drop in jet fuel prices, which has allowed airlines to keep more fuel-guzzling planes flying when they might otherwise have been grounded if prices were higher. In June, the spot, or noncontract, price for a gallon of jet fuel stood at $1.38, according to the U.S. Energy Information Administration (EIA), a unit of the Department of Energy. In June 2014, a gallon on the spot market was priced at more than $2.88.

Jet fuel prices have recovered from the multi-year low of 93 cents a gallon set in January. Still, most respondents to the IATA survey expect operating costs to remain unchanged or fall further for the next 12 months. This is due in part to the carriers' practice of fuel "hedging," where they place bets on commodity markets to protect themselves against an expected price move in the product.

Low fuel prices depress cargo yields by reducing the revenue that is captured by jet fuel surcharges. According to estimates by Chicago-based aircraft manufacturer Boeing Co., fuel surcharges affect 40 percent of world air cargo prices.

In the latest edition of its biennial world air cargo forecast, which was published in 2014, Boeing said it expected global traffic to climb by 4.7 percent a year through 2034, spurred in part by increasing consumer and business demand in far-flung markets away from traditional trade lanes. However, those markets today offer more potential than they do results, and any growth there does not offset weakness in the traditional air cargo trade lanes.

The Latest

More Stories

nimble smart robots for fedex

FedEx picks Nimble for fulfillment automation

Parcel giant FedEx Corp. is automating its fulfillment flows by investing in the AI robotics and autonomous e-commerce fulfillment technology firm Nimble, and announcing plans to use the San Francisco-based startup’s tech in its own returns network.

The size of FedEx’s investment wasn’t disclosed, but the company was the lead investor of Nimble’s $106 million “series C” funding round, announced last week. The round was co-led by existing shareholder Cedar Pine LLC.

Keep ReadingShow less

Featured

Logistics gives back: October 2024

For the past seven years, third-party service provider ODW Logistics has provided logistics support for the Pelotonia Ride Weekend, a campaign to raise funds for cancer research at The Ohio State University’s Comprehensive Cancer Center–Arthur G. James Cancer Hospital and Richard J. Solove Research Institute. As in the past, ODW provided inventory management services and transportation for the riders’ bicycles at this year’s event. In all, some 7,000 riders and 3,000 volunteers participated in the ride weekend.


Keep ReadingShow less
siemens logistics airport buggage

Vanderlande to acquire Siemens Logistics for $325 million

The logistics process automation provider Vanderlande has agreed to acquire Siemens Logistics for $325 million, saying its specialty in providing value-added baggage and cargo handling and digital solutions for airport operations will complement Netherlands-based Vanderlande’s business in the warehousing, airports, and parcel sectors.

The acquisition has received approval from the Supervisory and Management Boards of both Vanderlande and its parent company Toyota Industries Corporation (TICO) as well as the Management Board of parent company Siemens AG.

Keep ReadingShow less

Resilience is a daily fight

I recently came across a report showing that 86% of CEOs around the world see resiliency problems in their supply chains, and that business leaders are spending more time than ever tackling supply chain-related challenges. Initially I was surprised, thinking that the lessons learned from the Covid-19 pandemic surely prepared industry leaders for just about anything, helping to bake risk and resiliency planning into corporate strategies for companies of all sizes.

But then I thought about the growing number of issues that can affect supply chains today—more frequent severe weather events, accelerating cybersecurity threats, and the tangle of emerging demands and regulations around decarbonization, to name just a few. The level of potential problems seems to be increasing at lightning speed, making it difficult, if not impossible, to plan for every imaginable scenario.

Keep ReadingShow less
AI tops digital supply chain investment priorities

AI tops digital supply chain investment priorities

Investing in artificial intelligence (AI) is a top priority for supply chain leaders as they develop their organization’s technology roadmap, according to data from research and consulting firm Gartner.

AI—including machine learning—and Generative AI (GenAI) ranked as the top two priorities for digital supply chain investments globally among more than 400 supply chain leaders surveyed earlier this year. But key differences apply regionally and by job responsibility, according to the research.

Keep ReadingShow less