Boeing's World Air Cargo Forecast 2006/2007 projected the air cargo industry to grow roughly 6 percent per year through 2025.

Its new forecast won't be released until November, but Boeing executives remain optimistic: “We continue to see growth despite the difficulties facing the industry,” says Tom Crabtree, Boeing Commercial Airplanes regional director of business strategy.

According to Crabtree, that optimism is due to the fact that carriers are currently upgrading their fleets with passenger planes that aircraft manufacturers are converting with more fuel efficient engines and factory-built freighters that accommodate increasingly higher payloads.

What's driving these changes? In a word: Fuel. The high cost of fuel is affecting the financial health of nearly every air carrier in the global market. To put a little perspective around just how much: According to James May, CEO of the Air Transport Association of America, U.S. airlines are projected to spend nearly $60 billion on fuel in 2008, $18 billion more than in 2007. The increase in fuel is the equivalent of employing 244,000 airline workers or purchasing 261 narrow-body jets.

Northwest, which plans to merge with Delta Air Lines, recently posted a quarterly net loss of $4.1 billion, partly due to higher fuel charges. United Airlines reported a $537 million loss and is cutting more than 1,100 jobs and numerous flights.

Consequently, shippers are currently being slapped with higher fuel surcharges. In May, British Airways World Cargo increased its fuel surcharge to $1.10 per kilogram, while NWA Cargo increased its fuel surcharges 10 cents to $1.05 per kilogram in certain markets.

In an attempt to help cut costs, American Airlines (AA) implemented a Fuel Smart program that encourages employees to provide ideas that conserve fuel and energy. According to the carrier, the program saved AA approximately 96 million gallons in 2007. “In 2008, we expect to increase our rate of fuel savings by another 15 million gallons,” says David Brooks, AA's Cargo Division president.

Nevertheless, Lufthansa Cargo is experiencing high demand for airfreight, but is becoming more selective about the routes it serves. Nils Haupt, Lufthansa Cargo spokesman, attributes this to the economic slowdown and shifts in trade patterns.

For now, cargo volumes are shifting worldwide based on a slowdown in key airfreight markets. For example, for the first quarter of 2008, Robert W. Baird & Co. projects airfreight in Asia to grow only 3 percent; 4 percent in Europe, and -2 percent in North America. Boeing projections in 2006, however, pegged those markets to grow 8.5, 5.3, and 4.1 percent, respectively, through 2023.

The International Air Transport Association (IATA) expects that international air freight volumes through 2011 will continue to be dominated by Asia Pacific. According to IATA, freight within Asia Pacific, between Asia Pacific and North America and between Asia Pacific and Europe will account for 57 percent of the 36 million tonnes of international air freight tonnes in 2011, up from 55 percent in 2006. The majority of this growth will be from the outbound leg from Asia Pacific.

What's ahead? Observes expect tighter FAA inspections and carbon emissions standards. There may also be further industry consolidation, but this may create opportunities for carriers as well. “We may be able to add additional capacity in certain markets, which would be a good thing for shippers,” stated Wally Devereaux, Southwest Airlines cargo sales and marketing director.