The biggest risk to the air cargo sector in the next decade is the potential continuation of historically high fuel prices. There are very limited tools for the industry to manage this quantum increase in our cost base — “slow steaming” does not work for the air cargo industry. The only positive aspect of the fuel-cost increase is that it is accelerating the move toward modern, more fuel-efficient planes.
The environmental benefit from new planes is obvious, with significant reductions in CO2 emissions per kilogram. Our industry will be forced to modernize, and we will significantly reduce our environmental impact. As technology continues to improve post-2020, we have a good chance of reaching our goal of reducing our CO2 emissions, as an industry, on an absolute basis.
The flipside of fleet modernization is that smaller operators who are unwilling or are financially unable to make large commitments to new aircraft will go out of business. There will remain small niches for operators of gas guzzlers; however, these will become few and far between, as global operators expand their passenger and freighter networks.
Another key trend moving forward is the growing percentage of cargo that will be transported in passenger bellies. The improved performance of the most modern Airbus and Boeing twin-engine, wide-body passenger aircraft does allow increased payload on all but the longest flights. The U.S. carriers have already made the move to become passenger-only operators, Japan Airlines has followed, and others have moved to a wet-lease arrangement with the likes of Atlas. The jury is out as to whether carriers that wet lease can operate profitably given the high capital cost of large freighters and the need for Atlas to also meet its margins.
Large freighter fleets will only make economic sense for a smaller number of mega-hub operators; smaller operators are likely to increasingly focus on optimizing their significant belly space. These modern, wide-bodied passenger aircraft are, after all, mini-freighters. Refocusing on revenue management of the cargo bellies has already proved to be a successful model for a number of carriers.
Security will continue to be a focus for the whole industry. Increasingly, the cargo side will follow the passenger side in pre-screening advanced information on shipments. This, overall, will increase the efficiency of the whole system and will focus resources on high-risk freight. A need will arise for even closer cooperation between shipper, forwarder, airline officials and the responsible government departments. Security will be the true driver of e-freight.
Regionally, manufacturers will continue to chase low labor costs and will be forced to continue to move around the area as economies develop and labor costs become unsustainable for their business model. Indonesia, the Philippines, Mexico, Turkey and India — places with large populations — will increasingly benefit. These are both risks and opportunities for carriers. Cathay Pacific has faced this first hand with the movement firstly of garment manufacturing from the Pearl River Delta to Vietnam and other areas with cheap labor; currently, high-tech manufacturers have moved first to the Yangzte River Delta and now increasingly to inner China. While this movement complicates Cathay’s model from being purely reliant on the YRD to being a true hub operator, it also brings huge opportunities. Our network expands exponentially with each new port, adding hundreds of additional flight combinations.
The growth of consumer consumption in Asia is also likely to deliver increasingly more balanced cargo flows — rates from Europe and from America into Asia are now increasing due to both capacity reductions from carriers and healthy export demand. Within the coming decade, it is likely that flows and rates on the main, long-haul trade lanes into Asia will equalize. China, while remaining a manufacturing superpower, will also be driving global consumer demand growth, particularly in luxury goods and perishables.
— James Woodrow is the general manager for cargo at Cathay Pacific Airways.