Under normal circumstances, rising cargo volumes and revenues would be cause for celebration. This year, though, any euphoria on the part of airlines, integrated carriers, and airfreight forwarders has been cancelled out by worries over the cost of fuel, compliance with federal security mandates, and mounting labor tensions.

Worldwide air cargo traffic grew by nearly 11 percent in 2004, according to air industry analysts MergeGlobal Inc. Most major trade lanes, including outbound from Asia to Europe and the United States and from the United States to Asia and Europe, saw sharp increases in demand last year. Not surprisingly, the Asia-to-North America trade is growing faster than any other.

At the same time, the International Air Transport Association (IATA) estimates, airlines lost an estimated $5 billion. Most of that loss relates to passenger traffic, but it's still significant for cargo, as a parent company's economic travails inevitably affect service on both sides of the business.

Nothing illustrates the airlines' precarious position as well as the state of the industry in the United States. After years of consolidation, the largest U.S. airlines still find themselves either already in or teetering on the brink of bankruptcy.

First, the good news: In the first quarter, almost every U.S. airline posted higher cargo revenues compared to the same period a year earlier. Meanwhile, they're all working to slash operating costs on the ground and in the air. Yet regardless of how much cost they manage to cut out of their operations, the airlines will still find it difficult to dig themselves out of the hole they're in.

That's largely due to circumstances that are beyond their control. For one thing, soaring jet fuel prices essentially have wiped out any advances they may have made in the last year. In the first half of this year, fuel prices were about 40 percent higher than in the same period in 2004, according to Air Transport Association figures.

Even the all-cargo and integrated carrier segments, which had a very profitable year, have taken a hit as fuel price increases collided with a downturn in domestic shipment volumes in the first half of 2005. Raising their fuel surcharges has helped somewhat, but revenues from such surcharges typically lag the rise in fuel costs, leaving carriers to cover a months-long gap.

U.S. air carriers also must bear the costs of compliance with federal rules designed to protect passengers and cargo from terrorist attacks. Early on, the Transportation Security Administration (TSA) estimated that mandated security measures would cost U.S. airlines about $84 million annually. Now the air industry says that was grossly underestimated.

The Air Transport Association estimates that security mandates will cost airlines a whopping $4.5 billion a year. (See chart.) Cargo operations are especially at risk, with some legislators proposing that all air shipments be physically screened prior to loading on passenger aircraft.

If airline employees, angered by pension defaults and merger-related job losses, should strike or carry out work slowdowns against passenger carriers that handle belly cargo, it wouldn't take much to push financially unstable carriers over the edge. Given the number of U.S. carriers that could soon find themselves with a labor crisis on their hands, air cargo shippers would be wise to develop contingency plans now.