As 2011 draws to a close, a handful of air cargo leaders have taken the time to reflect on a tumultuous year. From supply chains ravaged by the Japanese tsunami to economic instability permeating the U.S. and the eurozone, the airfreight industry has taken numerous hits throughout 2011. But can the lessons gleaned from these difficult times be used to avoid similar fates in the future?
In the final installment of the three-part series (view parts one and two here), Hong Kong Air Cargo Terminals Ltd. Managing Director Mark Whitehead and Emirates Airline’s Divisional Senior Vice President, Cargo, Ram Menen discuss the past year and their projections for 2012.
What was the most significant storyline of 2011?
Mark Whitehead: Amid the Japanese tsunami and its commercial aftershocks, the New Zealand earthquake, squabbles with the Transportation Security Administration over deadlines to meet their heightened security requirements and the ongoing saga of surcharges, the dominant storyline for us in 2011 was falling tonnages on major routes — particularly those out of Hong Kong.
But we are not convinced that this swath of negative coverage is really justified — we feel there have been too many comparisons to 2010, leading to the impression that 2011 has turned out to be much worse than it should. In Hactl’s own case, we could fall farther and yet still beat our previous peak of 2007, which would be no small achievement.
2010 was a post-recession bounce fueled by global restocking, so it was always going to be hard to beat. But many in the air cargo industry thought 2010 was a sign of even better things to come and budgeted for incremental growth in 2011. They now have a major problem.
Ram Menen: The market slowdown is, obviously, the topic that has dominated the industry. But what is most remarkable about 2011 is the number and diversity of factors that contributed to the slowdown. Natural disasters, such as the tsunami in Japan and the Thai floods, were major events that not only impacted exports and imports in those countries directly, but also hit global supply chains. Production lines in factories were halted due to the sudden shortage of vital components.
Economic instability has also been a significant issue, with the various crises across Europe and the politicalization of the deficit ceiling in the U.S. all rocking consumer confidence. We also can’t forget the sustained high cost of fuel, which is an ongoing challenge for the air cargo industry. On the plus side, it was good to see the Boeing 747-8F enter service, while the Arab Spring heralds a new beginning for many businesses in the region and will stimulate international trade.
What lessons have you learned in 2011 that will help you have a successful 2012?
Menen: You can never trust forecasts. Old rules don’t apply, and the new rules haven’t been written. The industry is becoming less predictable every year, with more and more challenges arising. Of course, the price of oil is always something we have to contend with, but, worryingly, natural disasters seem to be happening at a more frequent rate, while increasingly more national economies are struggling. We are continually learning, and every challenge helps us become better prepared to manage whatever new challenges 2012 brings.
Whitehead: As a relative newcomer to this industry (I became Hactl’s managing director in September 2010), but a long-term observer of others while working at a senior level, I have quickly learned how sensitive air cargo is to the health of the global economy and how reactive it is to consumer demand.
Air cargo is a business that can boom in response to the release of a single, new piece of consumer technology (i.e, the iPhone 4, the latest Playstation or the Kindle) or crash because fears of defaults in one small economy have threatened to upset the currency of 16 others. I now realize that the major strength of air cargo — its ability to respond to sudden changes in consumer demand — is also its major weakness.
I’m developing the view that any prediction in air cargo is pointless if it’s based only on a recent or short-lived trend (like the one displayed in 2010), rather than the extrapolation of a long-term picture that has been proven right by history. You could say that this risks missing the next major opportunity, but I don’t think so. It avoids the equally serious risk of assuming lots of additional overhead that could quickly become a millstone if predictions fall short.
History usually repeats itself, and long-term trends of the past, which incorporate past peaks and troughs, are a much better basis for predicting future trends. That alone is not enough, however. The trick is surely also to factor in additional growth from real prospects of business gains that are within your influence and consider the possible effects of any real or probable threats. But you must also accept that the short-term picture may still be impacted either positively or negatively by totally unforeseen events beyond our control. After all, that’s air cargo.