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Air cargo – quiet economic powerhouse

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Air cargo – quiet economic powerhouse

May 1, 2007 by PLA Editor

Most experts agree that air cargo provides a barometer for global economic swings. One of them, Alan Greenspan, former chairman of the US Federal Reserve, was keenly aware of the importance of air cargo in the global economy. Greenspan, when assessing the health of the US economy, often phoned Fred Smith, CEO of FedEx, to see how the express parcel business was performing. Greenspan saw these shipments as a clear snapshot of the trendline for the entire economy.

In the very short term, brisk parcel deliveries mirrored a vibrant economy. In the mid-term, he knew that air cargo volumes tended to begin to track down as much as six months before an economic downturn, as manufacturers slowed production and shippers trimmed inventories. At the low point in the downturn, cargo volumes would begin to tick upward when consumer confi dence returned and orders across the logistics supply chain rebounded.

Over the long term, the prospects are rosy – ACI Forecasts predict tripling of volume by 2025 as reported in ACI’s recently published edition of the Global Traffi c Forecasts 2006-2025.

In our industry, the importance of cargo is not always fully recognised, with passenger services grabbing most of the attention of governments, politicians and the public. I am sure this audience wishes that air cargo had more fans like Alan Greenspan, who understands the value of this quiet cargo powerhouse. The benefi t for local economies is tremendous, including the approximately 700,000 airport jobs related to air cargo business worldwide.

In our industry, cargo has never really been given the proper respect, as passenger services get most of the attention of governments, politicians and the public. One cargo expert I know, trying to redress the imbalance, likes to refer to passengers as “self-loading cargo”. This description is not terribly far-fetched in today’s industry, where passengers often book and check-in on line, and relieve the carriers of many of the costs of enplaning them.

For airlines, cargo is a key fi nancial contributor in the balance sheet. KLM, for example, has calculated that its fares would have to rise 20 percent without the favourable impact of belly-hold cargo on passenger fl ights. British Airways calculated that fewer than 10 percent of its city pairs would be profi table without the contribution of cargo in the hold. In Asia Pacifi c, two major carriers report that cargo revenues represent 30 percent of gross earnings.

A number of studies have been undertaken in recent years on the economic impact of the air cargo industry. The studies unanimously confi rm the growing importance of air cargo in the increasingly interdependent world economy, particularly cargo’s role in facilitating effi cient movement of intermediate, high-value goods among nations to bring effi ciency and cost savings in the production process.

Quantifying the economic impact of air cargo is at best an imprecise science. There exists a great range of estimates on the direct, indirect and catalytic effects of air cargo on the world economy.

Studies by ACI over the past several years have quantifi ed the number of employees at airport sites owing their jobs to air cargo operations. Taking the overall fi gure of 4.5 million employees working at airports worldwide, ACI surveys determined that about 15 percent of these jobs were directly related to air cargo operations, giving a total of nearly 700,000 jobs in the cargo sector.

In the Middle East, cargo traffi c has grown exponentially, with local governments providing full support for what is acknowledged as a solid and durable business investment. Similarly in Asia Pacific, where strong cargo traffic growth is forecast to continue over the next several years, major hubs throughout the region are ensuring adequate facilities to absorb new business.

There are widely varying estimates of the fi nancial impact of the air cargo industry. Many analysts quote a fi gure of 40 percent as the amount of world trade by value that moves by air in value terms. But a recent study at the University of North Carolina put the fi gure closer to 30 percent. Using this 30 to 40 percent range, this puts the value of all shipments carried by air at between US$2.5 trillion and $3.5 trillion, by any measure an impressive number. As more and more nations join the World Trade Organisation (now including Russia), tariffs will decline and more goods will move by air. Almost all industry forecasters see at least 6 percent annual global growth for air cargo tonnage over the next 20 years.

A few words about liberalisation. With the logistics chain putting a premium on time-defi nite services, any restrictive bilateral and multilateral air services agreements impose a high cost on carriers, the shipper and the eventual customer. Outmoded agreements, which always have treated air cargo market access as a subset of passenger traffi c, slow the logistics supply chain or cause the chain to operate over circuitous routings, adding precious time to the shipping process.

Only a few countries (India the most prominent) have embraced the logic that all-cargo services should be treated separately from passenger traffi c and have moved to create liberalised regimes for cargo, including in some cases unilateral rights for seventh freedom traffi c. And in China, the decision to create the Shanghai free port gave spectacular results.

The air cargo industry is already enabling the rapid integration of the world economy, bringing effi ciencies to complex production processes by moving intermediate goods to regions which add the highest value at the lowest cost.

Air cargo also carries high value fi nished goods quickly from manufacturer to consumer, cutting inventory costs and driving high levels of customer satisfaction. The future of the industry depends to a large extent on governments recognising that market forces should continue to drive innovation. Excessive regulation is counterproductive. It brings a high cost, by creatinging ineffi ciencies in the global supply chain and thereby reducing the positive economic impact of air cargo on the economy.

We at ACI and TIACA need to continue combining our efforts and carry this message to governments at every opportunity.

Other Topics: Air & Cargo Services, air cargo, Air Cargo Asia, air cargo freight, Air Forwarding, air freight, Air Freight Asia, Air Freight Logistics, air freighter, air freighting, Air Logistics Asia, Air Shipping Asia, airlines cargo, airways cargo, asia cargo news, cargo aviation

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