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This is not a blip

Tags: Competition   data   expansion   miniaturisation

Oliver Evans on Monday, November 04, 2013 2:00 PM


We are used to these nervous, unpredictable, erratic lines on graphs of data which depict the development of tonnage and freight kilometres, load factors, yields and all the other key performance indicators of our trade. Until just a few years ago, they were quite useful in predicting or at least tracking patterns such as the “blips” that heralded another economic downturn, or the year-end rally in the months before Christmas. We all took comfort in these patterns - even when the market was contracting – because we “knew” that we could soon be reassuring ourselves that the “good times” were just about to come back: the data certainly indicated so.

But not anymore. Though some of us are still waiting for the old familiar patterns to make a comeback, relying on the fact that, for most of the last 25 years, the seasonally adjusted trend for air cargo was happily chugging along, the awful truth is beginning to sink in, slowly but steadily: what we are experiencing right now is not just another of those relatively manageable downturns.

It is not a blip.

It is a structural change, or combination of changes, that runs deep down to the foundations of our industry, threatening all who turn a blind eye to it.

First, there is miniaturisation. It is true we have never before transported so many “computers” on our planes. But if the computing power of all the pads and pods and smart phones that we carry today is very impressive, the fact remains that all that power is packed into a tiny frame, so that the size and weight of the devices we carry has shrunk as fast as the computing power has increased. Most of that freight volume has gone and it has gone for good.

Second, there is modal competition. The economical downturn in 2008/09 saw most shippers explore the possibilities and benefits of sea freight. And for many, it worked. They adapted their supply chain, streamlined processes and found the ocean carriers more than willing to do the same, proving that there is indeed an alternative to airfreight for relevant chunks of the market.

Third, the rapidly expanding demand on the passenger side. New aircraft have been ordered like there’s no tomorrow. And most of the long-haul ones come with hugely enlarged belly capacity gnawing away at yields and revenues like hungry birds.

What it all comes down to is this: yes, every now and again there may be short terms spikes in demand; consumers will be hungry for the latest new gadgets and we may see mini-peaks in airfreight. After its recent bouts of nervousness, the global economy will recover and government attempts at trade protection will disappear once again. A lot of good things can happen. But even if they ALL do, we are likely to be seeing overcapacity for years to come.

Any silver linings? Just the ones we create ourselves. By taking a relentless look at our business models. By embracing the new opportunities rather than bemoaning the demise of old ones. By, most of all, acknowledging that this is not a blip.

Thank you for tuning in.

Oliver


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Published by Radharamanan Panicker on Tuesday, November 05, 2013 8:26 AM
Dear Oliver, Well said. The fact is that the air cargo industry never marketed or sold the air cargo or why shipper need air cargo. It only solicited what was there with somebody. There was always the herd mentality as is the case with stock market. Everybody does the same thing. Today what is remaining as air cargo products are the smart phones and ipads on one hand and pharma on the other hand. Smart phones and ipads are shrinking in size so it is problem. Pharma we are not able to understand and handle the way it should be so that's another problem. I agree with you 100% that there is a drastic need to overhaul the entire air cargo supply chain, reinvent and remodel it differently if the industry has to survive. But i don't see it happening any time soon.

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