What next for air freight demand?

  • David Harris
  • April 24, 2015
  • 3

The 2015 edition of Cargo Facts Asia took place this week at the Langham Hotel in Hong Kong. A record crowd of senior air cargo executives joined us from all over the world, and over the next few weeks we will pass on some of the highlights of the event here on our website. Starting with the thoughts of three of our industry’s top guns on the subject of future demand trends.

Coming soon to an airport near you, so hang on to your market share.

Coming soon to an airport near you, so hang on to your market share.

With Cathay Pacific reporting wild swings in cargo traffic over the last three months (see below), it was interesting to listen to James Woodrow, the carrier’s cargo boss, speaking at Cargo Facts Asia this week on the subject of air freight demand growth in the near and medium term. While he was not pessimistic about the outlook for the cargo business, he warned that the overall strong first quarter of 2015 was not indicative of a rosy future. He said he expected good performance over the next two years, but added: “Anyone looking for 5% growth over the next ten years will be disappointed.”

Nor was he alone in his prediction. Denis Ilin, Executive President of AirBridgeCargo Airlines, agreed that underlying growth in air freight demand over the next few years would likely average about 2% per year; and Ravishankar Mirle, Vice President Cargo, Commercial, at Emirates, said that while he expected his airline to continue to see strong growth, that growth would come from increased market share, rather than through any significant growth in the overall market.

To put the above comments in context, here is a recap of the first-quarter data from Cathay Pacific and also from Hong Kong International Airport.

Cathay Pacific Airways reported March cargo traffic up 2.4% y-o-y to 929 million RTKs. This follows a spectacular gain of 24.5% for the combined January/February period, and leaves Cathay with first-quarter cargo traffic up 15.4% to 2.55 billion RTKs. Commenting on the March results, Cathay Pacific General Manager Cargo Sales & Marketing Mark Sutch said: “Air freight demand was generally robust throughout March, helped by the month-end and quarter-end production rush out of the key manufacturing cities in Mainland China. Once again the main focus of our business was on the transpacific lanes, with traffic into and out of North America spurred by the continuing congestion in sea ports on the West Coast of the USA. Demand to Europe remained below expectations, with business affected by the ongoing economic woes and the depreciation of the euro.”

Hong Kong International Airport reported cargo volume in March down 8.2% y-o-y to 364,000 tonnes, continuing the roller-coaster ride of the first two months of 2015. HKIA’s handle was up 1.6% in January and up 22.6% in February. The overall March decline came as a 13.0% drop in export volume to 219,000 tonnes more than overcame a 1.3% increase in imports to 145,000 tonnes. For the first quarter of 2015, HKIA reported its handle up 2.8% to 1.02 million tonnes.

Looking at these results, and those of other carriers and airports in the first three months of this year, leads us to the conclusion that it is not possible to come to any meaningful conclusion about underlying trends in the air freight industry so far in 2015, and that Messrs. Woodrow, Ilin, and Mirle may well be right.

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3 thoughts on “What next for air freight demand?

  1. The genesis of airfreight demand is twofold : push and pull. The “classically” generated demand (push) is from established forwarders in the airfreighting sector, those who did it yesterday and will do it again tomorrow … no surprises, no tsunamis, no market upheavals. But I’m much more interested in the hidden potential of (pull) non-classical demand, in substance : demand related directly with Modal Change Revolution nº 2 from shipping (Triple E …) to airfreighting. Remember : world’s containerised cargo transits 98 % (10 trillion FTK per annum) by sea, only 2 % (200 billion FTK) go by air. 1 % Modal Change equates to a potential 50 % upsurge in annual ICAO airfreighting statistics.

    Triggering Modal Change is possible with the right tool : we need a vector capable of 350 metric tonnes payload, over 6,000 nm, producing airfreighting services at a unit cost to the operator of 15 to 20 cents of an €/FTK, selling to the forwarder for 70 cents of an € up to 18 € per kg of merchandise rendered West from East (or half that price the other way …), pending types of merchandise. Such an Ultra-Freighter shall carry – say – up to 26 AGA (whereof reefer) plus 90 LD3 plus another 60 metric tonnes general purpose merchandise, in total more than twice the payload of a 747-8F, with aft-ramp + swing-nose roll-on/roll-off handling or bridge-crane loading/unloading vertically through a special-purpose top-hatch for quick docking rotations, plus with optional in-flight fuel tankering (for swarm operations) for higher payloads. Such UltraFreighters would be sold directly to the international Shipping community, such as e.g. Maersk Line or Chinese alter ego shippers … the Operator who has this type of new tool will effectively control the market, being capable to underbid marginal-costed belly-freight onboard widebody Paxliners and still make a profit … causing existing airfreighting vectors (747-8F, 767F, 777F, A332F, Mryia, Ruslan etc etc) to become obsolete overnight !

  2. Shipping finance people – GI haircut, Harvard Yuppies – understand this type of figures : each EEE produce 18,000 TEU/trip x 1,315 $/TEU x 18 trips/annum = 426 M$ annual revenue, or a payback-time of less than three years. The UltraFreighter would do better : its payback-time would come underneath two years, possibly even below one year. The same asset management rules as for the EEE will apply to the UltraFreighter : useful life apprx. 12 years (no D-check), no second-hand remarketing, you fly the UltraFreighter to the scrapyard and start from scratch : you don’t want smaller players and beginners to gain access to this Prime Tool, UltraFreighters shall be reserved for the privileged, you don’t want to hand out a stick to let yourself be beaten by outsiders or newcomers ! The annual FTK-production will reach 2.3 GFTK per UltraFreighter (assuming a cargo load-factor of 85 %).

    First thing that will happen is ULD forwarders will redirect LD3 consignments away from WB paxliner bellyfreight over into UltraFreighter lower deck, due to cheaper quotes. Next thing, due to the appeal of mercantile Opportunity Rates, a Tsunami of fresh fruit/vegetables will go seek higher added value markets in developed countries (Western Europe/USA) from Africa or South America. Thirdly, due to financial Opportunity Rates or to Fashion demarque or High-Tech obsolescence, a lot of merchandise transiting earlier by sea will be ready for modal change due to the attractive rates by UltraFreighter. In fine, the UltraFreighter boom will happen, opening for an entirely new market so far unsuspected, of from 200 up to 500 UltraFreighters, equivalent in value of from 400 up to 1,000 A380 VLAP aircraft ? In short : the tool creates the market ! CQFD

  3. Funny – discourageing, disappointing – to see how tepid a response my previous two comments have (actually : have not) generated ?! Are you folks here insensitive to news about technology trends to take care of Modal Change from Shipping to Airfreighting ? Take a look at this marvel :

    http://commons.wikimedia.org/wiki/File:Artistic_view_of_a_PrandtlPlane_freighter.png

    It carries 24 AGA/250 metric tonnes payload over 4,000 nm, at cost levels per FTK you’d be surprised to know and compare with figures for your same old 777F, A332F or A350 belly-freight LD3 !

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