Air Cargo: California shippers confirm IATA forecast

Patrick Burnson, Executive Editor -- Logistics Management, 2/29/2008

LOS ANGELES—When The International Air Transport Association (IATA) released international traffic data for January, it only confirmed with U.S. West Coast shippers had suspected: the business cycle has about three more turns before profitability is restored.

“Based on our observations, the air cargo industry will remain in a slump until the fourth quarter,” said Jim Stone, vice president of business development for Priority Solutions International in Inglewood, California. “We noticed that there was a lot more available space even during the peak holiday season, when postal usually takes up a lot of capacity.”

According to economists at IATA, air cargo has been growing at half the rate of global trade expansion, indicating a loss of market share to ocean shipping which has benefited from faster vessels and cheaper fuel costs. While aviation fuel rose 300 percent between 2002 and the first half of 2007, residual fuel for ships increased by 200 percent. During the last half of 2007 the gap narrowed with the sharp increase in prices. Both modes are experiencing a 500 percent increase in fuel costs compared to 2002. The result is that air cargo has clawed back some lost market share, masking any early impacts from the downturn in the U.S. economy.

Stone told LM that his 3PL is not quite as sensitive to the downturn, since they move pharmaceuticals and other high-end cargo.

‘But generally speaking,” he said, “most shippers here are feeling the pinch.”

IATA says that it could be worse, however. In the larger freight markets there is continued strength, stated economists. Asia Pacific airlines saw demand increase 6.5 percent, up from 6 percent in December, boosted by the booming economies in China and India.

Giovanni Bisignani, IATA’s Director General and CEO said that this is an unusual situation for the industry. “Asia outside of Japan is looking strong, even as the U.S. economy weakens,” he said. This highlights the need for the air transport industry to globalize.

The outdated bilateral system and national ownership rules will prevent the industry from responding as a normal business to economic shifts, said Bisignani.

“Airlines cannot diversify risk, so the parts of the industry will see the impact of the U.S. credit crunch with very little buffer. This must change,” he added.