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10.3Airfreightpricing216
10.4Revenuemanagement221
11Airlinecosts 229
11.1All-cargoairlinecosts229
11.2Freighteraircraftcostsbyaircrafttype242
11.3ACMI/wetleaseaircraftoperatingcosts245
11.4Problemsofjointproductiononpassengerservices247
12Aircargo financialperformance 250
12.1Cargoairlineprofitability250
12.2NipponCargoAirlinescasestudy253
12.3FederalExpresscasestudy263
12.4Networkcarriercargosubsidiaries268
13Aircargoandtheenvironment 273
13.1Background273
13.2Aircraftnoise273
13.3Airtransport’sexistingcontributiontoglobalCO2 emissions281
13.4Emissionstaxesandcharges288
13.5Emissionstradingschemesandaircargo289
13.6Globalmarket-basedmeasure:ICAO’sCORSIA294
13.7Non-CO2 effectsofaviation296
13.8Aircargoandfoodmiles297
13.9Conclusions297
14Aircargoforecasting 301
14.1Aircargoforecastingapproaches302
14.2Airlineforecasts307
14.3Airportforecasts308
14.4Airtrafficmanagementforecasts309
14.5ICAOforecasts311
14.6Otherindustryforecasts313
14.7Aircraftmanufacturerforecasts313
14.8Forecastingcyclicalaircargodevelopments320
14.9Outlook321
x Figures
13.5ImpactofbenchmarkingonB737-400 flightwithhypothetical averageat1,850kmsectorlength292
14.1ICAOmethodologyforforecastingairfreight312
14.2AirbusGlobalMarketForecastmethodologyforfreighter demand314
14.3Forcesandconstraintsforaircargogrowth315
14.4BoeingWorldAirCargoForecastsvsactualFTK development1970–2035319
14.5CorrelationbetweenglobalFTKgrowthandstatisticalindicators322
Tables
1.1Internationalworldcargotrafficbytypeofservice,1999, 2008,2009and20154
1.2Worldcargotraffic,domesticservices,1999,2008, 2009and20155
1.3EUaircargotonnescarried,2016vs20068
1.4Freighttonne-kmsbyregionofairline registration/domicile, 2016 9
1.5Airfreightthroughputfortop10worldairports,201613
1.6Top10internationalairportsandtheirhubcarriers(2016)15
1.7TrafficbreakdownatAmsterdamSchipholhubairport15
1.8Cargoloadfactors:IATAmemberairlines,201619
1.9Publishedfreighter flightsfromEuropetoAsia,January201021
1.10Integratorandcargojet flightsfromEastMidlandstoWestern Europe,March201722
2.1EUairfreightimportsbycommoditytype201628
2.2EUairfreightimports2016 – machinery,transport equipment,manufacturedarticles28
2.3EUairfreightimports2016 – agriculturalproductsand liveanimals30
2.4EUairfreightimports2016 – chemicals33
2.5USCivilReserveAirFleet(CRAF)allocations,January46
3.1Airservicesagreementsandcargoprovisions1980to200566
3.2AnalysisofASAsinAPECcountries,200573
4.1Scheduledairfreightbytypeofcarrier,201684
4.2Top10internationalcargoairlines,scheduledinternational FTK,201686
4.3Worldlowcostcarriercargoacceptancepolicy(examples)88
4.4Factorsimpactingoncargoairlines’ locationdecision93
4.5Systemwideairfreightbynon-integratedall-cargocarrier,201694
4.6Top10USairlinesbytotalFTKscarried,201398
4.7Top10EuropeanairlinesbytotalFTKscarried,2016100
4.8Top10Asia-PacificairlinesbytotalFTKscarried,2016102
4.9Top10MiddleEast/AfricaairlinesbytotalFTKscarried,2016104
Foreword
Althoughthe firstmovementofcargo(airmail)wasaccomplishedinthevery earlypartofthe20th centuryandcommercialliftshavebeeninexistencesince then,itwasthegreatBerlinAirliftin1948thatestablishedairasaviablemajor modeofcargotransportation.Sincethentherehasbeenadevelopingfocuson movinggoodsbyair.Frombulkloadedairplanestothedevelopmentof containerisedmovement,bothinairandocean,thewaycargoistransported changedovertime.
Aircargo,initsearlystages,wasaveryexpensivemodeoftransportation andgenerallyonlyveryurgentshipmentswereeffectedbyair.Thankstothe UnitedStates’ AirlineDeregulationActof1978,competitivefactorscontinued toplayandmovementbyairforcargostartedbecomingmoreandmore affordable.Sinceglobaltradewasmoredirectionalinthepre-globalisationera, emptylegsmadetheratesmorecompetitiveinthehopesofcatalysingnew businessfromothermodesoftransportation.Thesea/airmovementfromthe FarEasttoEuropewasadirectresultofthis.
Withthestartoftheglobalisationoftradeandmanufacturinginparticular, whererawmaterialsweremovedintolowercostproductionfacilitiesinChina andotherFarEasterncountries,commencedanemphasisondevelopingthe scienceofsupplychainoperationsandmanagement.Suddenlylogisticians werelookingattheoverallcostefficiencyoftheintegralcostoftheentire supplychainoperationinsteadofindividualcostelements.Thishighlighted thefactthatwhentime,costofcapitalandreturnoninvestmentwere concerned,thehighercostofaircargoactuallyaddedbettercostefficiencyto theendproduct.Itwasfurtherboostedbytheevolutionininventorymanagementandthepassingofcostofinventorytothevendor.Inanextremely globalisedworldandacompetitiveglobalmarket,speedtomarketand first moveradvantagecoupledwiththeefficiencyofsupplychainmanagement becamethethinlinebetweenprofitandloss.Evolutionintechnologyandthe resultantshorterlifecyclesofproductsledtoinventorynotbeingproduced untilitwasrequired:componentsandendproductshadtoeitherbemovedto productionlinesortoconsumersintheshortestpossibletime.Thiswasgreat newsforthemovementoftradeandgoodsbyairandthesea/airmovements alsobecamepartofthejust-in-timelogistics.
IATA’scampaign “aircargomakesithappen” continuestoringsotrue today.Despitethefactthatdynamicsofaircargohavedramaticallychangedin thelastdecade,theycontinuetoevolveatafreneticpace....e-commercehas openedupawholenewchannelofretailingwhichhastrulychangedcustomer behaviour.Today,onlinebuyingisascommonasgoingtotheneighbourhood grocerwasintheearlypartofthe20th century.e-tailerslike amazon.com and Alibabahavefurtherchangedtherulesofengagementbypromisingdeliveries toconsumerswithinhoursoftheirbuying.Thosewhocontrolefficientlast miledeliverieshavebecomethewinnerswithaircargonowbecomingapart oftheirmiddlemileoperation.Theefficiencyofthe firstandlastmiledepends largelyonthemiddlemileoperation,beitbyair,landorsea.Sincetimehas become firmlyintegratedwiththeotherthreedimensions,itbenefitsfromthe fluidityofdemandandsupply.
Changingdynamicsmeansthateverythingthatgoesintothehandlingofair cargomustevolveinordertobeabletomaximisetheefficiencyofthe process.Everythingfromgroundhandlingequipmenttoaircrafthasto evolve.Today’swarehousesandprocessesaresignificantlydifferentfrom whattheyusedtobeacoupleofdecadesago.Nomatterhowtheseevolve, thebasicconceptsremainthesame.Somepartsofthehandlingarebeltand bracesandwillremainassuchdespiteautomation,e.g.offloadingfroma transportvehicle,building/offloadingofpalletsandcontainersetc.Bringing efficiencyintotheseprocesseswilldependonhowinformationismoved about.Informationtechnologywillbecoretoallaspectsoflogistics.Embracingvirtualandaugmentedrealitywillbevitaltobringingfurtherefficiencies inthehandlingprocess.Digitisationwillbekeytosuccess.
Ontheaviationside,today’straditionalfreighterswilltransitionfrom mannedtounmannedairvehicles(UAV).Thiswillrequiremassivechanges inthewayairportsoperate,especiallyfromthecivilaviation/airtrafficcontrol (ATC)aspects.TheinitiallargeUAVwilloperatejustliketraditionalairplanes withindustrystandardpalletsandcontainers(ULD).Hence,standardground serviceequipmentwillsufficetohandlethem.Themainchangeswillbeinthe flightoperationsarea.
Astechnologyandprocessesevolveinthefuture,thoughcertainprinciples willremainthesame,thenewprocessesandthebasicfabricwillevolveto embracethechangesthatthedisruptionsoftomorrowwillbringabout. Aircraftandairlinesoperatewithinthestrictestofregulatoryenvironments. Everyaspectofgroundhandlinghasanairsafetyelement.Largeportionsof thetotalaircargomovementshappenonwide-bodycombinationaircraft whichcarrypassengersontheupperdeckandbaggageandcargointhebelly oftheaircraft.Freighterstendtoploughthehighdensitytraderoutes.
Inacombinationoperation,revenuefromcargocontributestothebusiness alongsidepassengers,whereasinapurefreighteroperation,cargoistheonly sourceofincomeandthiscreatesitsownchallengesinthemarketpricing. Combinationoperationstendtobelesssensitivetodirectionalityoftrafficthan freighters.Thenewlydevelopingaircargomarketplacewillfurthereasethe
totalof2.26mtonnesofcargowereairliftedintoBerlin,anaverageof6,800 tonnesaday,80%bytheUSand20%bytheUK.Almostthree-quartersof thepayloadwascoal,vitalinheatingthecityespeciallyoverthewinterperiod. TheaircraftusedwereinitiallymostlyC-47swith3.5tonnesofpayload,but theseweregraduallyreplacedwithC-54sandAvroYorkswith10tonnes.An assortmentofotheraircraftwasalsopressedintoservice.Thepeakday involvedatotalofalmost13,000tonnessuppliedby1,383 flights,anaverage of9.4tonnesper flight.Onlythreerunwayswereavailableandtechniqueshad tobedevelopedforefficientloading,unloadingandairtrafficcontrol.Maintenancehadtobeadaptedtoschedulesthatgavehighutilisationwithoften ageingplanes.Morerecentexamplesofinternationalaidhavebeeninresponse tothedevastationcausedbyearthquakesor floods:heresurfacetransportis eithertoosloworimpossibleandairtransportistheonlymeanstosupplyfood andclothingtothehomeless.
Inspiteoftheimportanceofaircargoininternationaltrade,aidandrelief operations,ithasremainedthepoorcousintothemoreglamorouspassenger sideofthebusiness.Thishasbeenreflectedinthedearthofaircargobooks, withthetopicusuallydealtwithasonechapterinbooksonairtransport.It alsoreceiveslittleattentioninbooksonlogisticsandthesupplychain.The firsteditionofthisbookgavetheindustryitsowncomprehensiveanalysisof aircargo.Thesecondupdatesthe first,aswellasincorporatingthekey changesthathaveoccurredsincethen,aswellasideasandtechnologythat mayshapethefuture.
Individualsand firmsassumethatincomewillcontinuetogrowindefinitely everyyearandeconomieswillcontinueontheirexpansionpath.Thusthe upswingsofeconomiccyclesarefuelledbyspendingandinvestmentsupported bybanklending,whetherforconsumercreditorcompanydebt.Bubbles form,especiallyinpopularsectorssuchasITandhousing.Atsomepoint expansioncannolongerbesustainable,thebubbleburstsandthedownturn starts,triggeredorreinforcedbyaworldeventorcrisis,aswellashighprices andshortagesofkeyinputs.Asthisgatherspace,investmentplansareshelved, consumerscutbackspendingandpayoff someoftheirdebt,andcompanies starttobuilddepletedcashreserves.
Theaircargobusiness fitsthisstorywell,withthepatterndrivenmoreby internationaltradeandinventorylevelsthanGDPalone.Withincreased outsourcingofproductiontoothercountries,exportsandimportsbecome morevolatile:changesin finaldemandimpactinventorylevelswhichleadtoa multipliereffectontradefromdecisionsmadebyexportersandimportersof intermediategoods.Thisseemstoaffectairtrademorethanothermodesof transportsinceconsumersoftencutback firstonthehi-techgoodsthatare shippedbyair.Intheupwardpartofthecycle,airlinesinvestinnewand especiallyconvertedfreighteraircraft,theextracapacityjustifiedbyforecasts thatoftendisregardtheexpansionplansofothers.Wherethesearetakeninto accountanincreasedmarketshareisassumed,butthentheassumptionon yieldsmaynotberealistic.Manyairlineshaveorderedaircrafttowardstheend xviii Preface
Preface xix
oftheupturnanddeliveryand finalpaymentsaretimedtocoincidewiththe bottomofthedownswingwhennoairlineneedsthecapacity,causingfurther financialdistressandperhapsbankruptcy.Airlinesinvestinotherairlineson thebasisthattheyneedtopositionthemselvesinemergingmarkets,for exampleChina.Forwardersandintegratorsstrivetobecomemore ‘global’ by buyingthepiecesofthejigsawthattheylack.Thesedecisions,unlikeaircraft, aremorelikelytobejustifiedbylong-termtrends,andashortduration downswinghastobesufferedtogainlonger-termexpansionandprofitability. Thisisthebackgroundtotheworldofaircargowhichthisbookintendsto examineinsomedetail.
Mostrecentlytheglobalbankingcrisisthatgatheredpaceinthemiddleof 2008hadadramaticimpactoninternationaltradeandthusairtrade.While thisbooklooksattheevolutionoftheaircargoindustryoveramuchlonger period,therecentdownturngetsperhapsadisproportionateamountofspace. Thisisnotjustbecauseitisstillinmostreaders’ memoriesbutbecauseitisa convenienttimetotakestockofhowthevariousparticipantshavereactedand fared.
Thechallengeofaircargoisthatitoffersapremiumproductthatcompetes withsurfacetransportonthebasisofspeedandreliability.However,the averagetimeforconsignmentstoreachtheir finaldestinationisaround five daysofwhichonly20–25%isaccountedforbythe flighttime.Therestis attributedtodelaysingroundhandling,customsinspectionandcollection. Passengersareoftenreferredtoas ‘selfloadingfreight’,andwhiletheysometimeschallengetheseattheyareallocatedtheydonothavetheverydifferent weights,shapesandsizesofgoodsanddocuments.Thesecanalsochange shape,suchaswhenseveralparcelsarecombinedintoasinglepallet,andthey canhavedifferentrequirementsintermsofspeedofdelivery,securityand pointofdelivery.Theycanhaveverydifferentdistancecharacteristicsranging fromdomestictocross-bordertointercontinental.
Shortersupplychainsmeanlessneedforshippingorshorterdistancesand mayinvolveonlysurfacetransport.Ontheotherhand,e-commercewill continuetogrowandfasterpremiumformsoftransportwillbeneeded. Technologymayplayagreaterrolethroughthecommercialisationofdrones whichcouldprovideshorterdeliverytimesthanarepossiblebyroadorrail. Thesechallengesandotherswillbeexploredinthefollowingchapters,sometimescontrastingcargowiththepassengersideofthebusiness,sometimes comparingitwithsurfacetransportmodes.
xxii Abbreviations
GHAGroundhandlingagent
GSAGeneralsalesagent
HAWBHouseairwaybill
IATAInternationalAirTransportAssociation
ICAOInternationalCivilAviationOrganization
IPCCInter-GovernmentalPanelonClimateChange
IRRInternalrateofreturn
JARJointAirworthinessRequirements(EASA)
KPIKeyperformanceindicator
LTLLessthantruckload
MALIATMultilateralAgreementonInternationalAirTransport
MAWBMasterairwaybill
MTAWMaximumtaxiweight
MTOWMaximumtake-off weight
MZFWMaximumzerofuelweight
NPVNetpresentvalue
OAGOfficialAirlineGuide
OECDOrganisationforEconomicCo-operationandDevelopment
PAXPassenger
RCSReadyforcarriageshipment
RFIDRadiofrequencyidentification
RFSRoadfeederservice
RMRevenuemanagement
RTKRevenuetonne-kilometres(alsoRTKM)
SLAServicelevelagreement
SSCSecuritysurchargeonairfreightrates
TortMetrictonne
TACTTheAirCargoTariff (IATA)
TIACATheInternationalAirCargoAssociation
TDCTotaldistributioncost
TEUTwenty-footequivalentunit
TSATransportationSecurityAdministration
UAVUnmannedaerialvehicle,alsoreferredtoasdrone
ULDUnitloaddevice,usuallyeitherapalletorcontainer
UNCTADUnitedNationsConferenceonTradeandDevelopment
VANValueaddednetwork
WACCWeightedaveragecostofcapital
WATSWorldAirTransportStatistics(IATA)
WCOWorldCustomsOrganization
WFPWorldFoodProgramme
WTOWorldTradeOrganization(formerlyGATT)
ZFWZerofuelweight
Sources:IATA,AEAandICAO
