Subscribe to our free, weekly email newsletter!


Moore on Pricing: Put air cargo costs under surveillance

Brian pierce, chief economist at the International Air Transport Association (IATA), recently reported that there are mixed signals for air cargo shippers during this year and heading into next. Air cargo shippers need to be aware of the current and future challenges that are facing air carriers in order to better position themselves for the service levels and capacity they’ll need if their companies are going to compete on a global level.
By Peter Moore, Adjunct Professor of Supply Chain
June 01, 2012

Brian pierce, chief economist at the International Air Transport Association (IATA), recently reported that there are mixed signals for air cargo shippers during this year and heading into next. Air cargo shippers need to be aware of the current and future challenges that are facing air carriers in order to better position themselves for the service levels and capacity they’ll need if their companies are going to compete on a global level.

Significant changes in the air cargo market can impact the ability of supply chains to remain timely and efficient, so let’s consider the four most pressing issues facing air shippers.

Fuel. Fuel prices and availability are risks that carriers must deal with more strategically. The recent announcement by Delta that it’s buying a jet fuel conversion plant is a significant signal to air shippers that this vital resource is under scrutiny at the corporate board level of the carriers. New aircraft are also sporting new fuel-efficient engines, so air shippers should begin asking about their carrier’s strategy in regards to supply and cost of fuel.

Capacity. There are hundreds of new aircraft with greater capacity on order for delivery within the next 12 months according to the IATA. “Freight load factors [as measured by freight ton kilometers (FTK)] were 6 percentage points lower in January this year than the 2010 peak, and average hours flown by freighters were down 11 percent,” according to an IATA report. At the same time, IATA also noted that the far eastern export of semi-conductors is predicted to flatten or drop as they did this past year—meaning that carriers will be anxious to attract cargo to fill new and existing capacity. The addition of carrier capacity is usually a good thing for shippers; however, industry consolidation of routes can mean competition for limited space serving secondary markets. Shippers should be investigating who is adding capacity and which lanes may be affected by the arrival in new aircraft. 

Regulation. Economic regulation in the form of carbon taxes is threatening to again jolt the air cargo industry with another layer of oversight and expense. The European Union has announced an Emissions Trading Scheme (ETS) that would impose taxes on aircraft flying to and from the EU. The tax scheme is particularly onerous to long-hall carriers since it’s calculated based upon total flight distance, not just the portion over the EU airspace. While it’s not yet clear what the impact will be for carriers, shippers will be hearing from carriers about weight and cube costs as reflected in carbon emissions. 

Global risk. New attempts to introduce explosives onto aircraft by terrorist organizations have again raised the specter of supply chain interruption and the slowing of clearances at airports.  Carriers have to invest in more equipment and security resources, while shippers have to work on recovery and redundancy plans for their supply and distribution routes. The cost of automation to make manufacturing plants in the Americas competitive with Asian sources will be offset for some shippers by reduced risk and lower transportation costs with air cargo being the highest on a FTK basis. Just as car makers have established North American plants to improve their cost-to-serve the Americas market, other manufacturers are building primary and secondary sources of supply in key domestic markets, reducing the reliance for extended supply chains dependent upon air cargo. 
These price factors need to be put under surveillance by shippers as the air cargo market undergoes yet another series of surges in capacity, fuel costs, taxes, and risk.

About the Author

Peter Moore
Adjunct Professor of Supply Chain

Peter Moore is Adjunct Professor of Supply Chain at the University of Denver Daniels School of Business, Program Faculty at the Center for Executive Education at the University of Tennessee, and Adjunct Professor at the University of South Carolina Beaufort. Peter writes from his home in Hilton Head Island, S.C., and can be reached at .(JavaScript must be enabled to view this email address).


Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

Last month, I gave a presentation to a group of senior transportation and supply chain executives. It was entitled “Predictable Surprises,” because it addressed how transportation and supply chain professionals can eliminate unpleasant surprises by looking at and evaluating issues in the transportation industry, and projecting how those issues will affect their companies.

The Port of Los Angeles (POLA) and the Port of Long Beach (POLB) said this week that they have formally established working groups, which they said will aim to seek new supply chain efficiencies, and focus on various aspects of port operations, including peak operations and terminal optimization in an effort to augment the San Pedro Bay port complex.

A month ago, the Shippers Conditions Index (SCI) from freight transportation consultancy FTR indicated that shippers might be traveling on a rocky road in the coming months. And one month later it appears those concerns appear to have been confirmed.

The American Association of Port Authorities (AAPA) had nothing but praise for the Senate passage over the past weekend of the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (TPA-2015).

While there are apparent benefits to switching from diesel fuel to natural gas in terms of promised climate benefits, they come with a catch according to a research paper recently researched by the Environmental Defense Fund (EDF).

Article Topics

Columns · Air Cargo · June 2012 · Transportation · All topics

Comments

Post a comment
Commenting is not available in this channel entry.


© Copyright 2015 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA