Delivering a stark view of the future of the airport-to-airport segment of the air cargo industry which faces a difficult macroeconomic climate, “gnawing” competition from both ocean freight and the express sector, along with a crippling rise of protectionism around the globe, he warned that the future is “unlikely to be analogous to the industry’s ‘Golden Age’ of the 1990s and early 21st century.”

“All of us may wish for a return of the halcyon days of double-digit air cargo growth, but we are creatures of much larger forces and the winds are not favourable” Smith warned. This is particularly the case for traditional cargo carriers, who until recently continued to operate large numbers of B747-400 and MD11 freighters that were the “workhorses of the air cargo ‘Golden Age’”.

With a four-fold increase in the price of fuel over the last decade and more efficient aircraft coming on stream – notably the new fuel-efficient, twinengine freighters in the form of the B777F and the A330F which provide airlift with much lower unit costs – Smith noted that 43 B747-400s are now parked in the desert and six have been scrapped while 20 and 4 MD11s respectively, have met the same fate. “To give just one example, a 777 freighter flight from Hong Kong to Anchorage costs $30,000+ less than a 747-400F while carrying almost the same payload,” he said.

To make matters worse, even with this scaling back, freighter capacity still exceeds demand and “when combined with 5-6 per cent underbelly capacity growth driven by increasing global passenger demand, further capacity reduction will be required to staunch yield declines for commodity air freight,” he said. Changing consumption patterns are also giving rise to new service demands.

“Given the integration of worldwide buyers and sellers due to the ubiquitous marketplace of the Internet, door-todoor shipments of smaller packages and light freight shipments continue to grow and cross-border e-commerce is providing a boost to this sector,” even if most national customs systems are far behind the needs of this market, he added.

This is more bad news for general air cargo sector because these kinds of door-to-door shipments are increasingly carried by the integrated networks of FedEx, DHL and UPS, with their dense and highly efficient pickup and delivery systems. “Thus, the global air express business continues to grow as does global sea trade, with both sectors gnawing at the traditional airport-to-airport air cargo market.”

Moreover, yields on this type of commodity traffic have been steadily declining, making traditional freighter services’ profitability “very challenging”, Smith said. “Except for a brief spike in freight traffic in 2010 when postrecession inventories were finally replenished and electronic product introductions were accelerating, all these factors have put significant pressure on commodity airport–to-airport air cargo yields which have been declining in real terms for two decades.”

Importantly, the express carriers also have the flexibility of using either their own equipment, or the “prolific underbellies of passenger carriers,” for more pricesensitive, less urgent shipments. And similarly for bulk shipments on the FedEx Trade Networks side of the business for instance, can move in “a variety of costeffective ways with reasonable transit times, whether by air or sea,” Smith says.

Another unique factor in the air cargo sector is the miniaturisation of electronics which represents about half the tonnage transported by air, Smith noted, adding “not only is there less weight being transported, but price reductions driven by technology have reduced the value-per-pound.” But the latest threat to the air cargo industry as a whole is that of rising trade protectionism, Smith said. Last year, the top 20 world economies passed 23 per cent more protectionist measures than in 2009 with Smith citing the case of Argentina, which alone passed 168 measures since 2009.

And despite the efforts to date on initiatives such as the TransPacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP), NAFTA 2.0, and the Trade in Services Agreement (TISA), prospects for more robust trade liberalisation are not good in 2014 in part because of the US election cycle, Smith said. “Both Democrats and Republicans are even resisting the reinstitution of Trade Promotion Authority (TPA), which gives the US President the ability to negotiate trade deals with only an up or down vote by Congress.

“And absent TPA, there is no possibility of America again leading the way – as it did for over 50 years – towards more open markets. This is indeed unfortunate as history shows innovation, investment and larger markets have been the main drivers in improving living standards and reducing poverty around the world,” Smith said.

Over the last several years, trade growth has decelerated from two and a half times world GDP in the first part of this century to much lower levels. “We at FedEx are committed to extolling the demonstrable benefits of growing world trade and pushing our politicians hard to look at the greater good of endorsing the new treaties mentioned before.

“We hope everyone involved in our industry will do so as well,” Smith urged. “In that way, we can ensure that a transformed air cargo industry can deliver the innovative services and efficient logistics support the global market requires.”