It’s been a rough 2011.
In the past eight months, the world has watched in horror as a magnitude-9.0 earthquake and a subsequent tsunami ravaged Japan in March, a series of tornados devastated the Southern U.S. in April, and the eruption of Iceland’s Grímsvötn volcano in May halted air traffic. In an ongoing crisis, residents of the Horn of Africa face mass starvation and famine.
Adding to this bleak picture are the economic instability and political unrest experienced in many parts of the world. It has been so bad, in fact, that many sectors have lost significant profitability and have seen cuts in every corner.
Unfortunately, the airfreight sector is not immune to these hardships. In addition to contending with the flight implications of the aforementioned natural disasters, carries have lost considerable market share to other modes of transport. In fact, seafreight and trucking have emerged as less costly options for budget-burdened freight forwarders, although the tradeoff in speed is a clear disadvantage.
Despite these concerns, the airfreight sector is still a viable mainstay in the logistics industry, IATA officials contend. It’s a point illustrated in the association’s list of the most prolific cargo carriers in 2010 (click here for the list, arranged by freight-tonnes carried), a ranking taken at an equally trying time for the air cargo industry. FedEx, which took top honors, led the pack in both the international and domestic categories, transporting a combined total of 6.94 million tonnes last year. Trailing FedEx were UPS Airlines and Korean Air, carrying 4.5 million tonnes and 1.8 million tonnes in 2010, respectively. Emirates and Cathay Pacific Airways ranked fourth and fifth among cargo carriers last year, posting respective tonnages of 1.77 million tonnes and 1.57 million tonnes.
IATA representatives point to the strong growth in the Asia-Pacific, Middle East and Latin American sectors as highlights of last year’s air cargo climate. This growth speaks volumes about the strength of the airfreight sector amid a challenging global landscape, industry insiders say. It also causes experts to take a closer look at what makes certain carriers stand out from the rest. Although other attributes are cited, the top five carriers of 2010 share three main goals: reducing fuel consumption, investing in sustainable technologies and adhering to everchanging security regulations.
If there’s a common refrain among carriers, it’s the increasing burden of fuel prices. With the cost of oil exceedingly high, carriers have seen their financial statements take a nosedive. In fact, according to IATA data, airlines spent $139 billion on fuel last year, a $14 billion rise from 2009. Fuel also comprised more than onequarter of carriers’ total operating costs in 2010.
Fuel is why carriers are so concerned about maintaining a full payload, UPS Director of International Airfreight Marketing Scott Aubuchon explains. “The primary reason UPS has been able to stay profitable despite rising fuel costs is efficiency and technology,” Aubuchon says. “With our access to such a large network of planes and transportation modes, we are not forced to fly half-full cargo planes.”
He also cites UPS’ investment in Automatic Dependent Surveillance – Broadcast technology on all of its B757 and B767 craft as key to its profitability. Crediting this aircraftspacing technology with saving 1 million gallons of fuel in a year, Aubuchon says that UPS was the world’s first carrier to deploy it.
“We were also the first U.S.- based carrier to use the LIDO flight planning system, which calculates the most efficient flight path between two points based on outside factors, such as weather and terrain,” Aubuchon says. “And our Worldport hub [at Louisville International Airport in Kentucky] utilizes Surface Management System software, which monitors the ground movements of our aircraft, saving an estimated 400,000 gallons of fuel a year from taxiing.”
Competitor FedEx is also undertaking initiatives to reduce fuel consumption. In addition to operating fuel-efficient Boeing 777Fs on its international routes, FedEx has announced plans to procure even more of these aircraft in fiscal year 2012, an investment valued at $4.2 billion.
FedEx President and CEO Fred Smith says that his company is also scrupulous about ensuring demand meets capacity. “Unlike our competition, the 777s fly nonstop from Asia to the contiguous U.S. with a full payload,” he says. Still, Smith doesn’t discount the impact fuel prices have had on carriers’ bottom lines.
Acknowledging that such costs have impeded airlines’ growth, he says that the problem is subsiding as fuel prices continue to fall from their April high. But if there’s anything good that has come from the worldwide focus on fuel prices, experts say, it’s the research into alternative, sustainable fuel sources.
To decrease their dependency on oil, officials from many carriers are investing in the development of biofuels. But biofuels, which blend jet fuels with algae fuels, promise more than just cost-savings; they also save considerable resources.
According to Boeing estimates, such technologies could lower airlines’ carbon emissions by a whopping 60 percent to 80 percent. And despite still being in the development and testing stages, IATA is fully championing their usage.
Before handing over the reins to Tony Tyler, IATA Director General Emeritus Giovanni Bisignani spoke out about biofuels, calling for worldwide regulations to propel their deployment. “Governments need to come on board and set a fiscal and legal framework to support growth in the biofuel industry and ensure that aviation will have access to adequate supply,” Bisignani said at the time.
Whether his wish is granted in the near future or not, one thing’s for certain: Airlines are increasingly concerned with promoting sustainability. It’s an objective echoed by the top five cargo carriers on IATA’s list.
Ram Menen, divisional senior vice president of cargo at Emirates Airline, says environmental responsibility is part of his corporate culture. “Our focus is becoming an ecologically efficient organization — growing our business to be economically sustainable, while using fewer resources and creating less waste and pollution,” he says. “Emirates’ commitment to ecoefficiency means multibillion-dollar investments in the most modern, ecoefficient technology available — in aircraft, engines and ground equipment.”
No. 5 carrier Cathay Pacific also devotes resources to economic sustainability, maintains James Woodrow, general manager of cargo sales and marketing for the airline. Along with placing orders for 97 fuel-efficient planes, including 10 747-8Fs and eight 777-200Fs, Cathay is spearheading initiatives to reduce its carbon footprint, Woodrow says. One of these endeavors is searching for a sustainable and cost-effective energy source, Woodrow says. It’s a push Cathay Pacific “emphasizes in every aspect of our day-to-day operations,” he says.
FedEx officials aspire to make biofuels 30 percent of the firm’s jet fuel use by 2030. Although lofty, it’s an initiative backed by some of the biggest names in aviation, Smith maintains. “We are working with the [Federal Aviation Administration], the Department of Energy and the Commercial Aviation Alternative Fuel Initiative to develop certification standards for biofuels,” he says. “We’re also collaborating with the U.S. Department of Agriculture and other agencies.”
The initiative now has a proposed deadline: December 31. The U.S. Transportation Security Administration has tasked the global aviation industry with screening all U.S.-bound cargo on passenger aircraft by the end of the year. It’s a feat the TSA already accomplished on all freight originating in the U.S. via airline screening and its certified cargo screening program, as mandated in the 9/11 Act of 2007.
Although the TSA’s Jim Fotenos has been quick to point out that December 31 is a guideline — not a mandate — this push for tighter security is casting carriers into the spotlight. Woodrow endorses this initiative wholeheartedly. In fact, he says, “Cathay Pacific stringently applies all the regulations applied by the various government bodies around the world, including the TSA.”
Another carrier with a strong focus on security is Korean Air. Chan Ho Lee, a member of Korean Air’s cargo strategy and alliance team, says his employer goes to extreme means to prevent any safety breaches. In addition to complying with industry ordinances, Korean Air regulates itself beyond protocol, Ho Lee says.
Safety is promoted throughout the carrier’s cargo terminal at Incheon International Airport. Korean Air also recently installed a new X-ray machine and explosives trace detection system to add other layers of security to cargo screening. It’s a practice Korean Air takes very seriously, Ho Lee explains. “We make every effort to prevent dangerous situations from occurring,” he says.
The other freight carriers topping IATA’s list also hold Korean Air’s view on security. UPS, for instance, complies with all FAA and European regulations, including the European Community Customs Code Import Control Systems, which was launched earlier this year, Aubuchon says. UPS and competitor FedEx might get a further push as the TSA and other regulatory bodies contemplate applying the 100-percent screening guideline to freighters. Whether or not industry rumblings prove correct and this happens, however, it’s safe to say that antiterrorism initiatives are here to stay.
None of the representatives for the carriers topping IATA’s list deny the blows being dealt to airfreight operations. Ho Lee, for one, points to how the current economic climate is cutting into airline’s profits. “Uncertainty and depression of the world economy is one of the biggest challenges to airfreight carriers right now, and depression leads to decreases in purchasing power and air cargo demand,” he says.
Emirates’ Menen concurs. Citing how recent natural disasters have impacted supply chains, he says certain sectors, such as high-tech goods, have been hit harder than others. The political strife plaguing the Middle East has also disrupted freight operations, he says.
Despite the bleak picture, cargo carriers remain optimistic about the future. “Going forward, we see stronger economic growth,” FedEx’s Smith projects. “We believe the industrial sector will lead growth in the U.S. and overseas in the next two years, supporting shipping demand.”
Smith, along with the rest of the industry, is also eyeing Asia as a key region for growth. Crediting Asia with housing FedEx’s strongest transportation network, Smith anticipates this continent playing an increasingly important role in his company’s airfreight business. It’s a projection echoed by IATA. Association officials expect the Asia- Pacific to post the highest cargo growth of any region in 2011.
To Bisignani, this success is attributable to a number of factors, namely Asia’s 40-percent market share in the airfreight industry. “Asia has policies to promote and support growth,” he said at IATA’s 67th Annual General Meeting in June. What’s more, he anticipates the Asia-Pacific overtaking both Europe and North America as the global aviation hub in the near future. “In place of our traditional leaders, I’m convinced that China and India will soon become the driving force of aviation in this century,” Bisignani said. “They will grow aviation stronger through change, replacing artificial barriers with commercial opportunities.”
It’s a feat the top 50 carriers on IATA’s list hope to accomplish, as well.