It is by no means as bad as the 2008-9 crisis, but there is a nervous mood in the air cargo market at present, with cargo managers downbeat about prospects and worried about overcapacity and falling yields, as the cargo business goes into the slacker summer months.
The scale of the nervousness can be seen in substantial freighter capacity cutting by Asian operators. Cathay Pacific, for example, has has trimmed 25% of its maindeck capacity to Europe and 15% to the USA, while Air China Cargo has cut 10% to Europe and 20% to the USA. Singapore Airlines has also announced a 20% cut, and asked its freighter pilots to volunteer for two years' unpaid leave. Other European and Asian freighter operators are widely rumoured to be thinning out their schedules.
"We are in a perfect storm of falling yield and rising fuel prices, and we are struggling to cover direct operating costs on many long-haul flights," says Nick Rhodes, director of cargo for Cathay. "I assume that other freighter operators are facing similar challenges, as a number of aircraft are being parked and operations cut back. It is possible we will park one or two Boeing 747-400BCFs ourselves."
The cuts are happening despite some encouraging signs in March, with Titus Diu, chief operating officer for Air China Cargo, reporting a "mini boom", especially on China-US routes, due to the launch of the iPad3. However, both he and Rhodes see this is only a temporary respite, and predict a challenging market at least until the third quarter.
Several carriers also voice a concern that the March upturn has just been a push to get goods out of factories before the end of the first quarter, with Ram Menen, divisional senior vice president cargo at Emirates saying a lot will depend on how April pans out.
Reasons for the sluggishness are not hard to find, with IATA blaming weak Western demand for Asian-made consumer goods, but the gloom is by no means evenly spread. Most carriers say routes to the USA are doing better than to Europe, while Asian operators report encouraging signs in India and Africa.
In the USA, Neel Shah, vice president cargo at Delta Air Lines, says that "things picked up in March without a doubt". He sees growing confidence in the US economy, a relatively robust market to South America, and even says that Delta's belly cargo loads from Asia to the USA have been strong.
"Europe still has its issues economically, and I don't see that ending any time soon, which is why the Asia-Europe market has collapsed, but the transpacific has been pretty strong for us," he says, Part of that transpacific growth was due to other carriers grounding freighters, so creating new opportunities for Delta's belly cargo. However Shah also admits that yields on the Pacific are "very very down" - as much as 25-30 percent below the same time last year.
It does not help that this market uncertainty is happening at a time when Boeing has finally managed to get next generation freighters moving off its production line. The 747-8 freighter, with a payload 20% larger than the 747-400Fs that has been the industry workhorse till now, has been arriving in recent months at Cargolux, British Airways, AirBridge Cargo, Cathay Pacific and Korean Air. Boeing 777Fs have also been delivered to Emirates and Korean Air.
Where until recently these operators seemed to be taking leadership by investing in new freighters, now their investments start to look like a gamble. It is true the new freighters will offer better fuel efficiency and lower unit costs, but only if carriers are able get high load factors and utilisation out of them. Meantime, high finance costs would make the new aircraft painful to park, in contrast to the older converted freighters that cargo has tended to be used to in the past.
None of this will matter if the world economy recovers and Asian exports pick up again, but a worry is that longer term trends may be at work here. IATA points out that though air cargo shrunk in the second half of 2011, world trade continued to expand.
It puts this down to strong Asian economies buying bulk commodities while western consumers cut back, but other explanations could be that sea freight is winning a bigger share, or that companies are switching their sourcing patterns nearer to home in response to higher Chinese labour costs and supply chain disruptions such as the Japanese earthquake and Thailand floods.
Shah thinks that companies are generally becoming smarter in the way they buy air freight. "Everyone now knows how much capacity is available or what the load factors are, and as soon as they see a change, they want an instant impact on rates," he says.
He thinks this will cause a permanent pressure on yields which air cargo will just have to adapt to, and which would be bad news for larger freighters. "If you look at the 747-8, I don't think yields can support such an aircraft. The only people who should be flying them are FedEx and UPS."