DC Velocity - May 2016

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their portfolios in an effort to boost margins. One way is to convince less-than-containerload (LCL) ocean shippers to shift some of their freight to faster air transport, especially if they can do so at a price point not notably higher than what they currently pay. Yet the air industry has been woefully slow to adopt digital processes to expedite the input and exchange of data between airlines and forwarders. This delays the release of airfreighted goods, effectively neutering the speed advantages of the linehaul. The old maxim that the typical airfreight shipment spends 80 percent of its time on the ground, unfortunately, still holds.

Tony Tyler, IATA’s director-general, said in a speech earlier this year that shippers give the industry, on average, a “satisfaction rating” of seven out of a possible 10. This is an unacceptable percentage for a premium-priced service, Tyler said. In a sign of progress, 15 airlines switched on March 1 from paper to a digital platform for exchanging air waybill information with forwarders. Currently, e-air waybills are used on 37 percent of “feasible trade lanes,” according to IATA. The group projects the adoption rate to rise to 56 percent by the end of the year.

FUEL PRICE DROP A NEGATIVE

The stone-dropping decline in jet fuel prices, while a boon to the bottom line of passenger revenues, is a negative for the airfreight sector. Low prices further buttress capacity by keeping many older, large wide-bodied aircraft, the long-time workhorses for moving air cargo, aloft when they otherwise might have been grounded. They also depress yields by reducing the revenue captured by jet fuel surcharges. According to Tom Crabtree, Boeing’s regional director, airline market analysis–air cargo, about 40 percent of kilo pricing is directly tied to fuel surcharges. As surcharges have dropped since mid-2014 with the steep declines in fuel prices, so have yields, Crabtree said.

Newer fuel-efficient passenger planes
can help operators achieve better capaci-
ty utilization, which translates into high-
er availability of belly lift and keeps
a lid on yields. The planes also come
with sizable amounts of cargo space,
even accounting for baggage and air-
mail. Boeing’s 777-300 ER (extend-
ed-range) aircraft typically fills eight
pallet positions, equivalent to 10 metric
tons, per flight. However, the plane has
been known to carry far more cargo
depending on the number of passen-
gers and amount of luggage, according
to Crabtree. Several variables influence
lower-hold capacity, among them the
length of the flight, the dimensions of
the freight, and an airline’s policies gov-
erning cargo acceptance. For example,
a long flight means greater fuel burn,
which adds weight to the plane and
restricts the amount of freight that can
be loaded.

Modern-day aircraft will allow more freight to be loaded on longer stage lengths that required a lot more fuel in the past. This will allow regional-type carriers with heretofore scant freight exposure to now viably compete for business, said Jannie Davel, head of air freight for the Americas at DHL Global Forwarding, the air and ocean forwarding giant and a unit of Deutsche Post DHL. “Every smaller operator potentially becomes a mid-sized operator,” he said. With the scales tipped so heavily right now toward capacity, it will take 18 months to two years for the overall market to move into alignment and belly rates to begin to firm, Davel predicted.

The chronic oversupply situation threatens to eliminate the traditional seasonality that has influenced the sup-ply-demand scales. Keith Andrey, UPS’s vice president of forwarding, said that while the upcoming summer travel season will still bring with it additional belly lift as more planes are deployed, belly lift will not dry up when the season ends. “What used to be a cyclical trend in the summer months is now secular in nature,” Andrey said in describing the belly capacity phenomenon.