Air cargo is an optimistic business, whose executives tend towards the bullish when predicting the future. At times in the past it has also been a relative strength for airlines when the passenger business took a dive. But it is hard to be upbeat about prospects for 2009. IATA is now expecting a 5% fall in cargo traffic in 2009, following a 1.5% fall in 2008.
Even that figure could be optimistic. Early in November former Cathay Pacific chief executive David Turnbull warned that cargo volumes for Asian carriers could drop by as much as 20% by the middle of next year. Not long after, current Cathay Pacific chief executive Tony Tyler warned that the financial crisis was having "a particularly severe impact" on air freight, and sent two Boeing 747 freighters to the desert.
The decline in traffic at Asian carriers - responsible for some 45% of global throughput - has indeed been one of the more shocking aspects of the crisis so far. Previously the fastest growing cargo airlines, Asian carriers have seen traffic falls deepen from 4% in June to 6% in August, 9% in September and 11% in October, according to the Association of Asia Pacific Airlines.
China, which many hoped would be a beacon of growth during the global downturn, seems as badly affected as any other part of the region. Hong Kong airport saw a 9.2% fall in volumes in October, following a 7.5% fall in September, and leading freight forwarder Panalpina says that Asia to Europe tonnages were 10% and 20% below last year's levels during the September to November peak.
European and US carriers also saw traffic take a sharp dip in September. Figures from the Association of European Airlines show a 1.1% fall in August deepening to 7.2% in September, while US Department of Transportation figures showed cargo already 8.7% down in August. Two bright spots until recently have been the Middle East and South America, but as IATA chief economist Brian Pearce points out, this strength has been largely driven by high commodity prices, which have since fallen sharply.
IATA points out that most primary markets for air freight face bleak prospects. The Semiconductor Industry Association forecasts a 5.6% decline in sales, while automotive makers worldwide are giving their factories extended holidays. Nokia expects mobile phone sales to fall by up to 27%, and retail figures in the US and Europe are plunging.
Stabilising Demand
Faced with this grim news, cargo managers tend to skip over the first three quarters of 2009 and look ahead to a potential upturn. Robert van de Weg, senior vice-president sales and marketing at Cargolux, sees demand stabilising in the second or third quarter of the year, by which time he hopes the fiscal stimulus packages of China, Europe and the US should be having an effect.
Ram Menen, divisional senior vice-president cargo at Emirates, also believes that the upturn, when it comes, could be erratic in nature, favouring air freight. "Retailers and importers will be afraid to hold too much inventory, for fear of being left with unsold goods, so when demand increases they will need air cargo," he says.
Several of the major carriers also see an opportunity to increase market share. Andreas Otto, executive board member for Lufthansa Cargo, says its business fell more slowly than the market during the peak season, with tonnages out of Asia down only 2-3%, though with yields cut by 10-15%. He believes Lufthansa's superior revenue management system will pay dividends in the downturn. "We now have a system that tells us at exactly what rate a shipment is worth accepting," he says.
Other positive factors for carriers are the fall in the price of fuel, and the fact that high fuel prices in mid-2008 stripped out a lot of older freighter capacity. The delays in deliveries of new Boeing 777 and 747-8 freighters are probably also not causing many tears among air cargo carriers, though Cargolux for one regrets that its new fuel-efficient 747-8 freighters will not now come until 2010, rather than the original scheduled date of late 2009.
Capacity has still not fallen as fast as traffic in recent months in any region, a figure that may not have been helped by the lag between the cargo downturn and the passenger one. IATA shows global freight capacity down 0.9% in September versus the 7.7% fall in traffic, and in October capacity was still only down 1.3% against a 7.9% fall in traffic. As Van de Weg says, redressing that imbalance will be a key challenge in the coming months.
Source: Airline Business
