he United Kingdom may be in good economic shape, but as an air cargo market it is clearly in sharp decline. Never before has the British market been in such a steep nose-dive. That's the bad news for U.K. air cargo players. The even worse news is that some believe it is not going to get any better - ever.

That is the prognosis, at least, of Geoff Corpe, managing director of U.K. freight management at Exel. "The British market has changed profoundly in the last couple of years," says Corpe. "We have seen a month-on-month decline in export traffic flows. I check the figures every month, not to look for signs of recovery, but just to see how steep the dive is getting."

The latest gradient of fall shows that in May there was a 17.7 percent drop-off in outbound tonnage compared with the same month last year.

"That is the worst I have seen it," says Corpe. "But it comes as no real surprise.

The U.K. manufacturing base has effectively been exported abroad to China and other parts of Southeast Asia and it will never come back."

He points to key air cargo sectors, such as the auto and high-tech industries, where the impact has been at its most severe.

Despite such a hemorrhage, Exel, according to Corpe, has managed to build its share of U.K. business by 5 to 8 percent in the same time frame. It ranks second only to DHL Danzas Air & Ocean as the market leader and the two companies combined - well, they were talking about that.

"We have obviously had to get a lot smarter about the way we do business and the way we retain existing business," says Corpe. "That means concentrating on key sectors such as pharmaceuticals and printed matter, which are still strong out of the U.K., and on particular traffic lanes."

While North Atlantic routes from the U.K. have become basket cases for rates, Corpe says certain other traffic lanes, such as to Dubai, are showing good growth. But fuel surcharge impositions are hurting the overall market, he says.

"We are now looking at passing on surcharges of 30-34 pounds a kilo, which can often be higher than the base cargo rate," he says. "It is no wonder that shippers are looking at every alternative first rather than use air freight."

He also says that the U.K. market remains bereft of direct freighter lift in many key markets.

"We have no alternative but to look to the European market and do as we are now doing and that is to truck a lot of traffic across to Holland to pick up a far wider choice of freighter lift out of Amsterdam," he says.

British Airways World Cargo can't be accused of abdicating from the freighter market, with four 747-400 freighters now trawling the globe, but it still appears not to be enough. The British carrier, obviously aware of the sharp traffic declines in its own backyard, seems determined to re-focus its homegrown efforts.

It recently appointed Adam Carson to the new post of area manager for the U.K. He admits he is working in a shrinking market, but that does not mean that BA World Cargo can't buck the trend.

"By our estimates, tonnages on the North Atlantic ex-U.K. have fallen away by 12 percent in the last year," Carson says. "But other markets such as to the Middle East, Japan and Asia have held up. There is still good high-tech avionics, aerospace and pharmaceutical traffic moving out the U.K. on these routes."

Carson says that overall volume has declined but individual shipments have also reduced in size. "We may no longer be moving larger shipments, but what we do move tends to be in smaller packages and that has helped us to increase our yields," he says.

In fact, BA World Cargo has bucked the trend to such an extent that in the first quarter of the year it expanded its U.K. business by 10 percent.

The British carrier owes some of that success to its unique position in the U.K. Outside of its top echelon of multinational service-provider clients in the U.K., with whom it deals directly, the rest of BA's "regional" freight business is handled through British Airways Regional Cargo. Created a couple of years ago, BARC has extended and developed the existing relationship between BA World Cargo and Dunwoody Airline Services.

According to Pat Pearse, managing director of the regional operation, BARC enables BWAC to maintain a strong relationship with the "grass roots'" market.

"The market in general tends to get swept along with the idea that our business today is all about the airlines working with the global service providers," says Pearse. "In actual fact, in the U.K. a substantial part of BA's business still comes from the smaller and medium-sized forwarders and it is our job to deal with them on their terms.

There is some added reassurance for these regional clients in that BARC is also directly responsible for the airline's cargo handling operations outside of the inner sanctum of London. This means handling traffic through Manchester, Birmingham, Belfast and Glasgow.

"These are the type of companies which might not necessarily get a credit line with a major airline in normal circumstances or who may require more extended payment terms," he says. "We can work with them on this issues and at the same time maintain a direct link with the core business of BA World Cargo."

Pat Bohan, general manager of cargo sales and marketing at bmi cargo, admits that the U.K. market is "difficult," but says it's hard to define any single factor for the cause of the malaise.

"We just have to work the market all that bit harder and go looking for freight where others perhaps had not looked before," says Bohan.

Bohan has trans-Atlantic lift to fill in the form of bmi A330 services out of Manchester to Chicago and Washington. A "high-roller" service to Las Vegas can be added to that equation, and bmi cargo provides trucking links from Las Vegas to Los Angeles.

Bohan says that with a weakened U.K. market the airline has been using its intra-European network and trucking services to feed traffic into Manchester, particularly out of Germany and Italy. The airline has also recently started-up services to Mumbai, India out of London Heathrow.

"That has provided as with a good source of textile and leather goods for through traffic to the U.S.," says Bohan.

But he has not given up on the home base.

"It is surprising that you can still talk to British shippers who have never used or considered using air freight and who are genuinely surprised when you explain that the higher costs can sometimes easily be recovered by the time saving involved," he says. "Of all the possibilities, we recently convinced a U.K. manufacturer of bottling plant equipment to use air freight for the first time. We now have a new regular customer."

Evidence that the U.K. air cargo market is shrinking not only in size but also in dimension is provided by wholesaler Air Menzies International, which lists a client portfolio of more than 1,300 forwarders in the U.K.

"I think our segment of the business is a particularly meaningful barometer of industry trends and there is no doubt that an increasing number of forwarders are choosing to use the integrator-based services we offer over those provided by scheduled airlines," says Nigel Moolenaar, general manager commercial.

Moolenaar notes the volume of business AMI awarded to integrator suppliers rose by more than 25 percent last year while the company's tonnage with the scheduled carriers fell away by 8 percent. AMI now counts itself as a multi-million dollar customer of integrators such as FedEx, DHL and TNT.

"That to us reflects a strong shift in the buying habits of our customers who are switching to integrator services because they offer more value-added products, especially at lower rates," says Moolenaar. "The simple pricing structure provided by the integrators is another big attraction, with fewer cost elements and one rate per country or zone."

Moolenaar also notes the integrators are becoming hungrier for mainstream cargo business, which is at least provoking some response from the traditional carriers.

"Some airlines are certainly responding to the integrator challenge, notably those with time definite and express products," explains Moolenaar. "But in order to regain lost ground they need to improve their customer-facing IT solutions and they also need simpler and more stable pricing structures."

The integrators also appear to have taken the high ground within Europe, with AMI reporting its U.K. outbound tonnages of traditional air freight into Europe down by 16 percent in the last year. Much of the uptake has been claimed by the overnighters and road-based door-to-door services.

AMI has responded by extending its Eurotrux time definite door-to-door product that hitches a ride on the back of TNT's intra-European network. Business in the last year, says Moolenaar, has grown five-fold.

UPS Supply Chain Solutions believes the U.K. market to be one of increasing opportunity within the overall European market.

"Even though Europe is now a single trading bloc, the U.K., by its very geographic nature still retains unique trading and distribution elements, which need to be addressed separately," says Jens Poggensee, director of business development, Europe, for the UPS logistics division. "It is a market which is increasingly looking towards time-definite solutions for all aspects of shipping, whether it be by ocean or air freight, but at the same time looking for a single source to provide those solutions."

UPS has strengthened its position in the U.K. through organic growth and its acquisition of Menlo Worldwide Forwarding.

"It has helped us raise our profile in the traditional air freight sector and enabled us to extend our footprint in contract logistics across the U.K. market in general," says Poggensee. "Our greater access through U.S. gateways has also strengthened our position."