The Hindu Business Line : World Air Cargo Forecast 2004-2005

THE Boeing Company believes that world cargo traffic will expand at an average annual rate of 6.2 per cent in next 20 years, tripling over current traffic levels.

The Asian cargo markets will continue to lead the global air cargo industry in average annual growth rates.

As in the past, North American and European markets will reflect slower, and thus lower-than-average, traffic growth rates, with the exception of those linked to Asia and South-West Asia.

Since 2001, the overall worldwide freighter fleet has remained relatively constant in number. However, because of the larger freighters replacing smaller cargo aircraft through 2003, the capacity increased more than four per cent per year.

All these and many other observations are contained in Worldwide Air Cargo Forecast (WACF) 2004-05, released recently by Boeing at the International Air Cargo Forum and Exposition 2004 in Spain.

The forecast summarises the major air trade markets, identifies key trends and presents forecasts for the performance and development of markets, as well as the world freighter aircraft fleet. The next update will be released in fourth quarter of 2006.

A strongly resurgent air cargo industry characterises the market for 2004-05.

Traffic grew nearly 11 per cent in the first half of 2004 relative to 2003, when concern over the Iraq War and the severe acute respiratory syndrome (SARS) crisis in Asia curbed industry growth.

If the current momentum of air cargo traffic is maintained through the end of 2004, the WACF feels it will mark the first double-digit percentage growth year for the industry since 1997.

Economic activity, as measured by world gross domestic product (GDP), remains the primary driver for air cargo growth.

World GDP growth exceeded two per cent in 2002 and 2003 and a sustained near-term economic recovery looks likely as long as investor and consumer confidence remains strong. However, there are risks, such as high oil prices and rising interest rates.

Since 1985, the decline in scheduled freight yield has averaged 2.4 per cent per year, after adjusting for inflation. Scheduled freight yields firmed from 1989 through 1991 and from 1993 through 1995, but resumed the decline until 1998.

From 1991 through 2001, freight yields stabilised, slightly increasing by the end of 2001, owing to strong demand in 1991 resulting from Y2K uncertainties, further aggravated by fuel surcharge.

From 2002 through 2003, the air cargo industry witnessed a spike in freight yield of 14.9 per cent and 6.2 per cent respectively.

WACF attributes the increase in freight yield over the past couple of years to the US West Coast port strike and SARS, which produced a cargo capacity shortage in certain markets.

The world economic recovery, bolstered by the fuel and security charges imposed during the period, also contributed to the rise in air-freight yield.

International express cargo has grown at more than twice the rate of total worldwide air cargo traffic, averaging 16.4 per cent annually over the last decade, as measured in RTK, or revenue-tonne-kilometre. Since 1998, however, annual growth, though still impressive, has been somewhat lower, at 9.1 per cent.

As a proportion of total international air cargo traffic, international express cargo expanded from 4.1 per cent in 1992 to nearly 11 per cent in 2003, reflecting a higher than average annual growth. Average international express shipment size grew from 2.7 kg in 1992 to four kg in 2003.

As businesses continue to expand beyond domestic and close regional markets, the international express sector, according to the study, will continue to grow, albeit at more sustainable long-term rates.

Among the predictions made by the aircraft manufacturing giant is that the world freighter fleet will increase to 3,456 airplanes from 1,766 during the 20-year forecast period. And, of the 2,950 freighters predicted to join the fleet, 1,260 will be replacement for old aircraft while 1,590 will be additional.

More than 75 per cent, or 2,226 aircraft, will come from planes modified into freighters, while 724 will be new production.

Wide-bodied freighters, currently 44 per cent of the fleet, will account for over half of the 2,950 planes predicted to join the fleet and will conclude the period with a majority 60 per cent share of the fleet.

The number of wide-bodied planes will nearly triple and the shift will result in a fleet-wide increase in average freighter aircraft payload.

Asian air cargo markets will, it is predicted, continue to lead the industry, with domestic Chinese and intra-Asian markets expected to expand by 10.6 per cent and 8.5 per cent per year respectively. Intra-Asia air cargo traffic has grown much faster than the rest of the world in past two decades, the average annual rate of growth being around 11 per cent.

India is not considered among the top countries accounting for half of the intra-Asian market.

The trade between Asia and North America/Europe too is expected to exceed the world average. Compared to the world average annual growth rate of 6.2 per cent, North America-Asia will average 7.2 per cent, and Europe-Asia 6.7 per cent.

WACF has drawn attention to certain issues that could have a significant impact on the air cargo industry. These are security requirements, service fragmentation and low-cost carriers.

Of all industry developments, government-mandated security regulations may have debilitating effects on shipment transit time.

The study, therefore, suggests that the industry work with the authorities concerned to make them realise that security enhancements need to be balanced with time-sensitive industry realities.

Compared to passengers, air cargo is more concerned with time and efficiency than routing. Hubbing, then, becomes a more acceptable alternative to cargo customers when significant handling, volume and rate efficiencies could be realised.

Another passenger business phenomenon that has implications for air cargo is the proliferation of low-cost carriers.

Some low-cost carriers realise significant revenues by concentrating on express shipments or by contracting with other airlines to handle their low-hold space.