The air cargo business shows no signs of slowing down. Industry consulting firm Air Cargo Management Group (ACMG) projects that world air cargo volume has grown 6.3 percent per year since 1985 and will triple by 2023.

According to analysts MergeGlobal Inc., in 2005 alone, the global air cargo network handled 17.6 million metric tonnes. This represents just a 3 percent increase—on the surface, disappointing after 2004's 14 percent gain. Yet analysts regard it as evidence of a healthy economy because that growth occurred despite catastrophic natural disasters.

"Demand for air cargo, measured in revenue tonne-kilometers (RTK), is strongly linked to the GDP," says Tom Crabtree, regional director, marketing, for Boeing Commercial Airplanes' Air Cargo Industry Analysis Group. The GDP is expected to grow an average of 2.9 percent per year during the next 20 years, he says.

High fuel prices are testing the market—the price has doubled since the second quarter of 2004. But Robert Dahl, ACMG project director, sees these as exciting times for the airfreight and air express businesses. "Consolidation, mainly in the freight forwarding sector, coupled with major changes underway in the composition of the fleet of freighter aircraft, signal optimism regarding future growth, despite a modest year-over-year increase in global airfreight traffic in 2005," he says.

All indicators point to demand for freight services surpassing that for passenger service. As a result, more freighter aircraft will be required to handle that demand, Crabtree says.

Asia will continue to be the prime engine for growth. Slower growth is forecast for Intra-Europe and North America; these markets are mature, and trucking and intermodal transportation is more cost-effective for many commodities (see chart).

Although cargo volumes are up on some lanes, pricing power is weak and backhaul flights imbalanced, especially from North America and Europe to China. Consequently, airlines must look closely at controlling costs, improving yields, and introducing more balanced routes to better serve shippers.

Meanwhile, integrated express carriers are steadily increasing their share of the international freight market. Express shipments have grown 10.9 percent per year from 1992 through 2005, including 8.8 percent growth in the past year, ACMG reports. Current shipment volume is nearly four times the level recorded in 1992.

Fearing a loss of market share, progressive airlines and forwarders are competing with the express companies by developing segmented product lines, accompanied by a variety of alliances and joint ventures.

"Airlines and forwarders appear to have thus far succeeded in maintaining control," Dahl notes. In fact, some airlines, such as Lufthansa, are simplifying their cargo service portfolios, a shift that appears to signify that complex service offerings have failed to increase yield and profitability.