DC Velocity - May 2014

BY MARK B. SOLOMON, SENIOR EDITOR

AIR FREIGHT

YOU COULDN’T FAULT AIRFREIGHT EXECutives for smiling a bit. It’s been a rough 14 years, what with a financial meltdown, two recessions, a terrorist attack and the security measures that followed, rising oil prices, and profound changes in supply chain strategy turning the industry into a shell of its former self. So when the International Air Transport Association (IATA) reported that January volumes rose at their fastest year-over-year pace since 2010 and supplemented the data with an upbeat forecast for 2014 from global airline cargo chiefs, the sighs of relief were almost audible.

Yet it didn’t take long for reality to set in, reminding folks how little has changed to disturb the secular trends that took root years ago. In a March 31 report, U.K. consultancy Drewry said volumes dropped back in February, a sign the prior month’s activity was due largely to the timing of an early Chinese New Year that led to a surge in volumes before factories shut down for the two-week holiday. What’s more, Drewry said that its index of rates across 21

East-West trade lanes declined in February for the third straight month. The drop in January, even in the face of better volumes, “underscores the weakness of a market hampered by oversupply and lackluster demand,” the consultancy wrote.

At an IATA cargo conference March 11 in
Los Angeles, U.K. advisory and investment
banking firm Seabury Group issued a sober-
ing report on the global out-
look, saying the “conventional belief that the cargo
industry will grow at 5–6% per year does not hold
any more.” The following day, Hong Kong’s nation-
al carrier Cathay Pacific, considered a bellwether of
global cargo activity because of its huge presence in
the space, warned that the business remains “prob-
lematic” despite early signs that this year will be bet-
ter than last. “There is still no sign of any sustained
improvement in the market, and some changes in
the business appear now to be structural rather than
cyclical,” says Chairman Christopher Pratt.

But for a mix of symbolism and substance, nothing could match what happened on March 4 at a maritime industry conference in Long Beach, Calif. There, the founder and chairman of FedEx Corp.—a man more closely linked to air cargo than anyone in its history—took to the podium to extol the virtues not of his core business, but of sea freight.

Frederick W. Smith delivered a message air types won’t find too comforting: that ocean services were becoming increasingly relevant in addressing the needs of the modern-day supply chain and will gain market share in coming years, and that air freight in its traditional form had become less relevant and would continue to lose market share.

For some time, Smith has argued the
trends that transformed U.S. logistics and
transportation have begun to spread across
the globe. Domestically, the market for
high-speed and pricey air
transportationreport