A special supplement to:

Special Report: Leading Air Cargo Carriers Hong Kong calling

World air cargo traffic will triple over the next 20 years, with most of the growth being driven in the Asia Pacific marketplace. Is it any wonder that the biggest players in the industry are investing heavily in the region?

By Patrick Burnson, Executive Editor

n the course of providing a detailed over- surprise to the Boeing Company—China’s leading view of trends shaping air cargo today, provider of aircraft—which maintains that the Asia the recent World Air Transport Statistics Pacific region’s air traffic growth will exceed the (WATS) report notes that Asia will con- world average by a “large” margin over the next tinue to be at the forefront of the freight in- two decades. dustry, expanding at a pace approaching 7 percent Randy Tinseth, vice president of marketing Iby the end of 2029. for Boeing Commercial Airplanes, says the region A cursory look at WATS figures tells the rest of will account for one-third (10,320) of new air- the story. Of the top 10 international and domestic plane deliveries worldwide over the period. “This leaders, only one—Cargolux—is a relatively new is sweet music to an airplane manufacturer’s ears,” player in this marketplace. This comes as scant says Tinseth.

48S October 2011 • Logistics Management A special supplement to logistics management

According to Jim Edgar, regional Scheduled freight tons per mile director of cargo marketing for Boe- ing, China represents 40 percent of the International Domestic trans-Pacific cargo market, and Hong Rank Airline Millions Rank Airline Millions Kong is a key gateway for air cargo con- necting China with the world. 1 Cathay Pacific Airways 9,587 1 FedEx 8,322 “This area stands to benefit greatly from future increases in air cargo traf- 2 Korean Air 9,487 2 UPS Airlines 4,979 fic,” says Edgar. “Of local interest and in 3 Emirates 7,913 3 China Southern Airlines 1,295 line with the cargo recovery, Hong Kong Air Cargo Terminals Limited announced 4 Lufthansa 7,422 4 Air China 904 that total annual tonnage for 2010 hit 5 FedEx 7,421 5 China Eastern Airlines 713 a new handling record of 2.9 million metric tons, an increase of 24.8 percent 6 Singapore Airlines 7,001 6 Hainan Airlines 421 over 2009.” Graphic caption 7 China Airlines 6,410 7 All Nippon Airways 417 Tinseth says that rising cargo traffic is creating pressure for fleet growth. Boe- 8 UPS Airlines 5,215 8 United Airlines 413 ing researchers say that airlines will need 30,900 new passenger and freighter 9 EVA Air 5,166 9 Japan Airlines 405 airplanes through 2030, valued at U.S. 10 Cargolux 4,901 10 Delta Airlines 363 $3.6 trillion. Forty-four percent of these Source: World Air transport statistics (WATS) aircraft will replace older, less efficient airplanes, while 56 percent will account is not robust. not eclipse—U.S. domestic revenues at for new aircraft needed to meet air traf- “Even some high-end consumer FedEx Express for the first time in its fic growth. The world fleet is projected goods are moving on water now,” says history. to expand twofold from 18,890 to Clowdis. “If this trend continues, air “Our commitment to provide 36,300 airplanes during this span. cargo providers may have a hard time companies of all sizes with access to new “The near doubling of the world fleet getting this volume back.” markets in every corner of the world size is an indicator that airlines will not has never been stronger,” adds Smith. only plan for growth, but will take the “Flat world” strategy “FedEx not only sits at the nexus of economically rational step of modern- Nevertheless, air cargo leaders maintain global trade—we are indispensible to izing their fleets as a hedge against that there’s no reversing a “flat world” global trade.” high and unpredictable oil prices,” says business strategy. But does this beg the question: Who Tinseth. “The global economic recovery “We all benefit from a world that’s isn’t? Certainly, UPS must comprise an- is helping airlines rebuild their balance more connected than ever,” says Fred other piece of that pantheon. For Scott sheets, leading toward a demand for Smith, chairman, president, and CEO Davis, chairman and CEO of UPS, newer, fuel efficient, and environmen- of FedEx. “In fact, the largest economy that means a more balanced air cargo tally progressive airplanes worldwide.” in the world no longer belongs to a relationship. Growth in developing and emerging single country but to the realm of global “When it comes to trade, we’re markets, and the need to replace aging trade. It’s driven by emerging markets, letting other countries move to the fore- fleets, are but two main reasons driv- such as China and India, and worldwide front,” Davis cautions. “What is needed ing this trend, say Boeing analysts—an gains in manufacturing.” is much stronger economic growth observation being echoed by the top air Smith says that global trade will fueled by U.S. exports.” cargo providers. continue to be the prime source of Davis, who is also a member of the At the same time, however, some ana- growth for FedEx, especially in Asia, President’s Export Council, acknowledg- lysts are sounding a cautionary note on where they have the strongest transpor- es challenges facing the U.S., including this strategy. Charles Clowdis, Jr., manag- tation network in the industry. But he’s unsustainable federal deficits and the ing director of transportation advisory also concerned that his company may be persistently weak job market. But he services for IHS Global Insight, says ship- approaching a tipping point, noting that counters this by advocating a series of pers may opt for slower ocean carriage in he expects higher margin revenue from solutions, including: the trans-Pacific if the economic rebound international operations to approach—if • Streamlining export controls. This

Logistics Management • October 2011 49S Special ReportReport: Leading Air Cargo Carriers A special supplement to logistics management would boost U.S. GDP by $64 billion Safety benefits and increased efficiency through and create about 160,000 manufac- turing jobs over the next eight years. greater choice of route selection “That’s low hanging fruit,” says Davis. The International Air Transport Associa- fuel and a reduction of 2,150 tons of • Passing job-creating free trade agree- tion (IATA) announced the successful CO2 emitted. ments with South Korea, Colombia, and completion of the first iFlex trial between A more flexible routing structure also Panama, which he said were “stuck in the Johannesburg and Atlanta. The iFlex provides a safety benefit in that airlines have more options to avoid adverse mud of partisanship” in Washington. concept provides for a greater and more flexible choice of routes on long-haul weather. Routing decisions can be “We have the means to compete operations which cross multiple flight in- taken at the planning stage to avoid with any country in the world and win,” formation regions to deliver shorter flight potential tactical en-route deviations that Davis says. “Let’s clear away the barriers times, improved fuel efficiency, and can significantly increase controller and to exports and let global commerce shift reduced CO2 emissions while maintain- pilot workload. “This initiative demonstrates just into high gear and create much needed ing safety. With iFlex, airlines will be able to what can be achieved when we work jobs here at home.” fly more optimum routings that take together as an industry to reduce avia- maximum advantage of wind conditions. tion’s impact on the environment while Airlines remain optimistic While airlines have long planned flights at the same time enhancing efficiency This bullish attitude seems to be shared considering wind conditions, air traffic and safety,” says Guenther Matschnigg, IATA senior vice president, safety, by the airlines themselves. “Forward management restrictions often limited flexibility within fixed corridors on parts operations, and infrastructure. “We look bookings are not showing signs of weak- of routings. The innovation that iFlex forward to future successes based on ening, and they remain strong…as does brings is the flexibility to extend this this first trial.” overall pricing,” says Dahlman Rose practice consistently across the entire The iFlex implementation did not investment bank analyst Helane Becker. journey. change existing air traffic management procedures, separation standards or At the same time, however, they’re Delta Air Lines reported that the implementation of the iFlex concept communication, navigation, or surveil- managing the sluggish economy with ca- between Johannesburg and Atlanta lance requirements. In certain areas, pacity cuts and less competition because resulted in average time saving per short cuts (direct routings) given by dif- of airline consolidation. The most recent flight of 8 minutes, equating to 900 kg ferent air traffic control authorities, on a was Southwest Airlines acquisition of of fuel and 2.9 tons of CO2. Annual- day-to-day basis, were formalized. This formalization provides better situational AirTran Airways. ized and on the basis of two daily flights, this translates to savings of awareness for all airspace useres. In the U.S., the industry has gone some 100 hours of flight, 690 tons of —Patrick Burnson, Executive Editor from 12 major carriers to seven, includ- ing the combinations of United and containers and cooling systems are among over the past 10 years reveals that our Continental Airlines and Delta Air Lines the most positive players in our industry projections for long-term market growth and Northwest Airlines. But shippers say today. They see tremendous growth in the tend to be conservative, compared to that this is no cause for alarm. “There’s future.” actual industry performance,” says Tom plenty of capacity for existing demand,” Which brings us full circle back to Crabtree, who oversees Boeing’s cargo says Becker. a forecast made by that other global industry forecasting effort. Brandon Fried, executive director of mega-manufacturer, Airbus. “The Boeing has been admirably accurate, the Air Forwarders Association, says his aviation sector is an essential element however, on the crucial forecast of the constituents are reporting that ocean for today’s global economy,” says John market share that each airplane size cat- carriers are relieving the pressure for the Leahy, Airbus COO. “Geographically, egory will capture. “High fuel costs are time being. “This trend, though, is go- over the next 20 years, Asia-Pacific compelling airlines to accelerate replace- ing to be reversed soon,” he says. “This is will account for approximately 34 per- ment of older airplanes,” says Crabtree. a cyclical business, and we see high-tech cent of demand, followed by Europe “In addition, the increased capabilities and the fashion industry as drivers for (22 percent) and North America (22 of the latest long-range airplanes cre- future demand.” percent).” ate opportunities for operators to take Fried also pointed to American Airlines But tellingly, both Boeing and Airbus advantage of the ongoing liberalization as taking the lead in anticipating emerg- are now saying that it’s not just about of air transport markets to open new ing markets for high-end perishables in Asia leading the way. Aircraft manufac- nonstop routes.” M food and pharma. “Maintaining cold turers are anticipating a rebound around chain integrity is going to be key in the the world during the next decade. ­—Patrick Burnson is Executive Editor of recovery,” says Fried. The manufacturers of “Looking back at our forecasts Logistics Management

50S October 2011 • Logistics Management