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This is not a blip

Tags: Air Cargo   Economy

Oliver Evans on Monday, January 20, 2014 4:00 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 Peter Walter on Monday, April 14, 2014 9:44 AM
Dear Oliver - excusese once more for a very late comment. I again agree with you that the industry is experiencing a fundamentel change. One factor you did not mention however is the unstoppable growth of the integrators. I truly believe that combination carriers will continue to struggle and pick up the crumbs left over after the integrators have taken their lion share. The reasons are quite obvious. They control the entire journey from end to end. It used to apply for just documents or small packages but as you now they have rapidly expanded into larger shipments. When I worked for Swissair in the eighties we had an excellent express service called SPEX. It was in my view the best in the industry at that time- but the costs of managing SPEX shipments was exhorbitant. Besides which we could only offer SPEX on a limited set of routes. Combi carriers will never be able to compete with the integrators. So what are combi carriers left to do? I think they must continue to find niches - and also keep a close eye on costs. It always amazes me how so few carriers have any true idea of the net costs or net contribution that cargo makes on a particular routing. I suspect many are only looking at tonnage or gross contribution. If they took a closer many would find the would be better off not carrying any cargo at all. Depressing but true. Do you agree?

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