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AN INDUSTRY THAT’S BEEN STEADILY LOSING altitude for nearly 20 years is likely to struggle for a while longer, according to a group of international aircargo executives.

Cargo heads surveyed in mid-July by the International Air Transport Association (IATA), the global airline trade group, said they don’t expect profits to improve over the next 12 months due to a cluster of challenges that will continue to plague the business.

Global trade demand remains subpar, and cautious businesses still appear willing to select slower but cheaper ocean freight over air services. About 42 percent of the cargo leaders expect volumes to grow over the next 12 months, the lowest proportion since April 2009, the depths of the Great Recession. About 48 percent expect no change, and 9 percent forecast a decline in volumes.

The projections, if accurate, will prolong what has been a difficult 20-year cycle for air cargo.

After strong growth in the 1980s and through much of the 1990s, the industry hit a wall when the dot-com implosion of 2000–2002 sparked a global recession and curbed demand for high-value information technology (IT) equipment that would typically be transported by air. In the ensuing years, cargo demand, while somewhat volatile, has remained mostly flat. This mirrors a slowing in global economic growth that made many shippers think twice about booking nonurgent shipments with premium-priced air services.

In the 1980s and 1990s, air cargo was marketed as a
means of compressing order and inventory cycle times
by getting goods to market faster than if they moved via
land or sea. However, air transport’s speed advantages
have been diluted by the industry’s inability to adopt
digital processes that expedite the input and exchange
of data between airlines and forwarders. This delays the
release of airfreighted goods and lends credence to the
old maxim that the typical airfreight shipment actually
spends 80 percent of its time on
the ground.

OVERSUPPLY OF GLOBAL CAPACITY

In the most recent cycle, the problem of slack demand has been amplified by a rise in global aircraft capacity, which has the knock-on effect of expanding the amount of lower-hold space, where much of the world’s air cargo is carried. The oversupply has driven down cargo yields— the revenue generated by flying one ton of cargo one mile—to levels not seen since the second half of 2009, according to the survey. About 90 percent of respondents said they expect yields to be unchanged or to fall over the next 12 months.

The tenor of the respondents’ comments should not come as a surprise to IATA, which had already forecast a 6 percent year-over-year drop in yields in 2016.

Ironically, the addition of aircraft capacity that is impairing cargo profitability is in response to a bullish outlook for passenger business, which accounts for the predominant share of an airline’s revenue. About

68 percent of airline CFO respondents expect passen-
ger volumes to rise over the next 12 months as ter-
rorism-related disruptions fade and falling fares help
stimulate demand.
Capacity is also being propped up by the
Can the aircargo industry be saved?