February 10, 2014 10:34 am

Air cargo market struggles for signs of modest upturn

The air cargo market has been in the doldrums since the global financial crisis began, but a few bright spots are providing hope that recovery is on the way.

The value of the sector, which moves everything from pharmaceuticals to fresh fruit and consumer electronics was estimated by Boeing, the aircraft maker, at $240bn in 2013.

The latest figures from the International Air Transport Association (Iata) point to a moderate improvement over the next five years.

In 2013 there was year-on-year growth of 1.4 per cent across the world, measured in freight tonne kilometres. Demand picked up in the latter half of the year, but improvement was patchy.

After the industry was dragged through the worst decline in its history in 2008 and 2009, with a brief pick-up in 2010, is this the start of a recovery?

Brian Pearce, chief economist at Iata, argues it is. “I think we’re seeing a cyclical recovery, because business confidence and global industrial production are picking up and we’re seeing air freight respond to that.”

However, it is not quite the revival the industry would like. It comes amid signs of significant structural change. At the same time, it does not mirror the rise in passenger traffic.

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Mr Pearce says: “It’s a weak recovery because overall international trade doesn’t seem to be responding to the increase in spending and production.”

The trend towards reshoring of manufacturing back to the developed world adds to the difficulties.

That said, Asia is among the regions that have shown some glimmers of hope, despite a decline of 1 per cent in 2013 compared with 2012. In Europe, cargo volumes grew almost 2 per cent last year.

Iata points to a rebound in November, and a pickup in trade volumes in recent weeks to herald rosier prospects ahead for Asian cargo carriers, which make up about 40 per cent of the global market. The trade body also sees these data as an indicator of a wider upturn.

Mark Sutch

Mark Sutch: cautious

Hong Kong-based Cathay Pacific, the biggest Asian cargo airline by freight carried, remains cautious, however. “Our view is that 2014 will be pretty similar to 2013,” says Mark Sutch, general manager of cargo sales. Mr Sutch suggests that this year will be a “bit better” than last but “not an all-singing, all-dancing recovery”. He explains the November boost as a fillip seen every year.

“What we saw [then] ... was the traditional fourth-quarter peak. That didn’t sustain itself much beyond the middle of December.”

Overcapacity is the biggest problem facing carriers. Middle Eastern airlines such as Emirates, the world’s biggest freight airline by tonnage carried, have been taking delivery of widebody aircraft such as the Boeing 777 and Airbus A380.

With the deliveries of those passenger aircraft has come a glut of extra freight capacity in their holds: the Middle East freight market grew nearly 13 per cent last year.

Singapore Airlines Cargo reported an operating loss of $167m in the year to March 2013, down 5.1 per cent because of weak demand and depressed yields.

“In 2008, Cathay ran 32 freighters a week from Hong Kong to Europe,” says Mr Sutch. “This year and last, it will average about 11 a week.” He adds: “I wouldn’t be too hopeful about [the market] ever coming back to the year of 2010, but if there is a part of the world you want to be in, then we’re very well placed in Hong Kong.”

Cathay is working on other opportunities, involving Mexico, India and Vietnam, among others. “It’s about where the new markets are and making sure you’re there,” says Mr Sutch.

Iata identifies trade between emerging markets as particularly promising, for example between China and Africa, where Mr Pearce expects to see “very strong growth as new trade lanes open”.

But Thomas Cullen, analyst at Transport Intelligence, cites another factor in the market’s malaise: the rise in the volume of freight carried by sea.

Industry figures point to Apple’s decision to ship some of its iPad tablets by sea rather than air as an example of this trend.

“The problem is the market has changed,” Mr Cullen says. “The question is to what extent a recovery will benefit air cargo.”

Alternative modes of transport are not the only threat.

High fuel prices will continue to put pressure on airlines. Competition issues loom if, as seems likely, the cargo industry follows the passenger market in forming closer relationships that require regulatory approval.

This sense of pessimism might be explained by the tough times the industry has already gone through, says Mr Pearce at Iata.

“There is undoubtedly a bit of conditioning by recent experience. Everyone has seen two to three years of shrinking. That dulls confidence in a dynamic upturn.”

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