Trends in Air Cargo
The movement of air cargo is a complicated process, often with numerous firms involved, and is continually evolving as market forces and other factors change. In the 1980s and 1990s, air cargo grew rapidly as U.S. businesses pursued the timely delivery of valuable goods. This growth, in turn, created greater demand for truck and inter-modal services, since most air shipments begin and end their journey by truck. However, since the mid-2000s, air cargo shipments in the U.S. and around the world have dropped drastically. The U.S. air cargo industry is not expected to sustain the high growth rates experienced in previous decades and it is clear that the market for air cargo has changed. This decline in air cargo and its maturity can be explained by the following:
- Increased jet fuel costs over the last 15 years
- Decline coinciding with global recession
- Increased shipment security
- Slowing domestic growth resulting from mature market
The cost of fuel has a direct impact on the demand for air cargo. High fuel prices have slowed demand and negatively impacted air cargo carriers, just as it has impacted passenger airlines. Many carriers, including FedEx, are replacing older aircraft with fuel efficient aircraft and changing route structures to maximize fuel efficiency.
Demand for air cargo can be expected to rise and fall with global economic trends. Air cargo traffic fell dramatically during the recent global recession which began in 2007. There are indicators that the recovery from the recession is occurring, but slowly.
In August 2010, new security rules went into effect requiring 100 percent screening of all cargo transported on U.S. domestic passenger aircraft, creating an additional obstacle for providers of air cargo belly space.
The U.S. air cargo industry is not expected to produce high growth rates in the future and is considered a mature industry based on these primary factors:
- Vertical integration:
- Modal shift:
- Declining availability of belly space on U.S. carriers:
- Decrease in USPS mail volume:
Vertically integrated carriers like DHL, FedEx, and UPS operate networks that consider all parts of a package shipment from pick-up to consolidation to line-haul to delivery. These carriers often have the competitive advantage over non-integrated carriers that work with several other companies and freight forwarders to ensure timely delivery.
In order to maintain profit margins over the last decade, there has been a shift in shipper demand. Seeking less costly alternatives, more and more customers are diverting overnight air shipments to ground deliveries via truck and many global deliveries are increasingly switching to sea freight.
Few wide-body aircraft are in use on domestic routes in North America, therefore only a small percentage of air cargo is carried on domestic passenger aircraft. The increased use of regional jets and small narrow-body jets offers limited cargo capacity. Higher load factors, which mean more passenger baggage, further reduce belly cargo capacity.
The amount of USPS mail that moves via air has declined over the last 15 years due to increased use of technology including email and smartphones. In addition, historically mail that travelled over 500 miles was flown; this has now increased to up to 800 miles.
While there are trends that are reducing the demand for air cargo, there are others that are increasing demand. Continued increases in air cargo volume are expected because of the diversity and high priority of items shipped. The U.S. and global markets have dictated a need for just-in-time or next day delivery of products. As the world economy continues to strengthen, it is anticipated that the amount of cargo shipped via airport will increase. Boeing, Airbus, and the FAA project that air cargo will continue to grow over the next 20 years (through 2035) for both domestic and international shipments.