What were the hot topics in the airfreight industry last year? That's an easy question to answer, says David Wirsing, executive director of the Airforwarders Association. "Any time in the last year someone's asked me what have been the major issues in the airfreight industry, it's been the economics of the industry and security. Any discussion of major developments really has to focus on those two."

Those issues certainly have been major concerns in other transportation modes over the last year or so, but they've taken on a life-or-death urgency in the airfreight industry. Despite the fact that cargo volumes and revenues are finally rising and, as Wirsing puts it, "we're starting to see some sanity return to our business," more than a few airlines are fighting for survival.

The Air Transport Association, a Washington, D.C.-based industry group that represents U.S.-flag airlines, estimates that those carriers lost a collective $3 to $5 billion in 2003. All of the largest U.S. airlines—US Airways, Delta Airlines, Continental Airlines, Northwest Airlines, and American Airlines—lost money last year, and the first quarter of 2004 was only slightly better. Cargo, in fact, has been one of the few bright spots for most of them: Delta, Continental, Northwest, and American all reported increases in cargo revenues ranging from 5.8 to 10.4 percent for the first quarter of 2004, compared to the same period last year.

Cargo's stellar performance came despite a host of roadblocks to prosperity in 2003, including the SARS virus threat in Asia, war in Iraq, unrest elsewhere in the Middle East, and slow economic recoveries in Europe and Latin America. Many carriers responded by cutting back their schedules and fleets to reflect reduced demand. What that meant for shippers, says Wirsing, was a "fairly significant" reduction in cargo capacity worldwide. As a result, when demand for cargo services started to rise in the second half of the year, it bumped up against capacity restraints and pushed rates upward on some routes.

Any gains the airlines may have made, though, essentially were wiped out by soaring fuel prices. Prices for jet fuel sold by U.S. refineries in May, for instance, were 44 percent higher than they were for the same period a year earlier, notes economist and LM columnist Elizabeth Baatz. The impact of higher fuel costs shouldn't be underestimated; by some estimates, every one-cent increase in the price of jet fuel raises the average airline's cost by $200 million.

Security remains a wild card, not only for the airlines but also for airfreight forwarders and shippers. Last year several industry associations worked with the Transportation Security Administration (TSA) and the U.S. Bureau of Customs and Border Protection (CBP) to develop more than 40 recommendations for security procedures that would be acceptable to both regulators and to industry stakeholders. They're still waiting for TSA to issue a notice of proposed rulemaking, originally expected early this year but now delayed until at least late summer.

The delay in issuing firm requirements for security procedures that have been in flux since Sept. 11, 2001, has kept the airfreight industry in a state of uncertainty. When finally published, the proposal will be subject to public comments, and it could be months before it is finalized and can be implemented. Wirsing, who participated in the public/private working group, expects that airlines and freight forwarders will bear most of the responsibility for ensuring air cargo security. But shippers may also come under closer scrutiny. "I think what you'll see is an endeavor on regulators' part to better validate the owners of the cargo and the facilitators of cargo movements," he says.