Will supply chain support air cargo?

The U.S. saw two consecutive years of declining consumption in 2008 and 2009, for the first time since the 1930s.
By Patrick Burnson, Executive Editor
August 24, 2010 - SCMR Editorial

The next two years will not be plain sailing for airlines despite an encouraging recovery in the freight market since last fall, according to David Hoppin, managing director of MergeGlobal, a supply chain think-tank.
Airfreight shrank by an unprecedented 26 percent in value terms in 2009, from $60.7 billion to $44.9 billion. By February 2010, volumes were still 9 percent below the peak of two years ago.

Hoppin does not think a double-dip recession is inevitable, but warned delegates at the Executive Summit of The International Air Cargo Association (TIACA) in Leipzig earlier this summer that he was “deeply concerned about the macro-economic picture in the US and parts of the Eurozone.”

The U.S. saw two consecutive years of declining consumption in 2008 and 2009, for the first time since the 1930s. People were “scared for the future” with unemployment levels likely to remain high through 2011 in North America and Europe. This had reduced demand for major lines of flown goods including clothing, electronic products and toys.

Hoppin said the “debt-fueled spending binge of recent years” was over thanks to high level of household debt, which was applying “the force of gravity on consumer spending.”
As government stimulus packages come to an end and industry completes its recent restocking phase, growth will now be more muted. Hoppin predicted it would take until the second half of 2011 before the airfreight industry returned to its pre-recession level.

Intercontinental trade as a percentage of world GDP will stay above the 10 percent mark, but airfreight’s share has fallen to 3 percent as the result of massive growth in deepsea container shipping.
Airlines have become more efficient, but so have manufacturers. The transport component in final product price has increased as a result of high fuel prices, eroding the benefit of outsourcing to Asia to reduce labor costs. “For all the good things about it, airfreight is energy intensive. The cards are being stacked against air,” Hoppin said.

While 49.9 percent of CDs and DVDs were airfreighted to their destination market in 1999, the figure last year was only 15.2 percent. On the upside, he noted that products earlier in their life cycle, “new evolutions of technology” such as tablet computers and e-books, could expect to have a positive impact on airfreight for many years.

As airfreight flows change – intra-Asia traffic had grown as big as the Europe-Asia trade lane by 2008, for example – carriers face major decisions about their future fleet needs.
The Boeing 747-8, the first 130-ton capacity freighter built for scheduled services, will be delivered later this year, but Hoppin suggested that not all airlines’ networks could cost-effectively support these.
The industry had continued to order mid-range A330 and MD-11 aircraft, not necessarily because they had the lowest operating cost but because they could be filled efficiently on a round-trip basis.

“Don’t assume that the market will grow to support the operation of ever-larger freighters,” Hoppin concluded.



About the Author

image
Patrick Burnson
Executive Editor
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly 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

U.S. companies made only marginal improvements in their ability to collect from customers and pay suppliers in 2013, while showing no improvement in how well they managed inventory, according to the 16th annual working capital survey from REL a division of the Hackett Group, Inc.

Study suggests solutions for filling the talent gap, including the development of robust ties with the education system.

The Department of Transportation’s Bureau of Transportation Statistics (BTS) reported this week that U.S. trade with its North America Free Trade Agreement (NAFTA) partners Canada and Mexico increased 5.4 percent from May 2013 to May 2014 at $103.9 billion.

With an eye on making transportation of crude oil by rail (CBR) and ethanol safer following various tragic accidents over the last year, the United States Department of Transportation yesterday released details regarding its rulemaking proposal designed to improve how large quantities of flammable materials by rail can be moved in a safer manner.

Getting items ordered online to your home on a same-day basis is as important or relevant as it needs to be, and it depends on things like the type of products being ordered and its relative urgency as well. This was put into better perspective for me during a recent conversation I had with Dr. Victor Allis, CEO of Quintiq, a supply chain vendor specializing in a single optimization and planning platform.

Article Topics

News · Global · Supply Chain · Trade · Shipping · All topics

About the Author

Patrick Burnson, Executive Editor
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review. Patrick covers international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. Contact Patrick Burnson

Comments

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