LOG355 Air Freight Management

Study Unit 1
The Air Freight Industry and Market
Schedule
 Objectives

At the end of this study unit, you are expected to:

1. Show the developments and trends in the air freight business.

2. Illustrate the performance of airports in air cargo throughput.
3. Interpret the demand for air freight in global supply chains.
4. Indicate the developments in air freight related to multi-modalism and modal
competition.

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 1.1 Global Air Freight Trends
Major trends in international air freight (FTK) between 2005 to 2016

• Freight tonne kilometres (FTK) as preferred measure for air freight demand
because it captures both weight and distance transported.
• Trend shows lower rate of growth (3.7%) for period 2005-2016 compared to
period 1995-2005 (5.3%).

• Average distance
transported by air
remained quite constant
averaging 5,100 to 5,600
km.

• Reflects air freight usually

carried on long-haul routes
particularly between Asia
and Europe, and Asia and
North America.
Growth rate for 2017: 9.7%
Figure: Freight versus Passenger GFC
Growth rate for 2018: 3.5%
Trends for Scheduled International
Services (2005-2016)
Source: Morrell and Klein (2019).
Prepared by WY Yap for SUSS
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 Global Air Freight Trends
Mail traffic

• For international mail traffic, trend shows higher rate of growth for period 2005-2016
(4.8%) compared to period 1995-2005 (2.2%).
• Attributed to wider use of post offices for delivery of mail and internet shopping items
which may be more expensive if they were to go via express.
• Share of scheduled
international mail Revenue
Tonne Kilometre (RTK) fell
from 68% of total freight
traffic in 1938 to 21% by 1970
and 2.2% in 2016.
• Reflects success of integrators
and rapid growth of freight
market.

Figure: International Freight versus

Mail Traffic Growth Rates (2005-
2016) GFC

Source: Morrell and Klein (2019).

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 Global Air Freight Trends
What factors contribute to growth in air freight?

Key contributing factors supporting air freight market growth:

– Surging e-commerce sector
– Rising import-export trade

Prepared by WY Yap for SUSS Source: [Link]

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 Global Air Freight Trends
Important trends

• To grow demand, air freight industry sees need to continue with

digitalisation efforts (use of IT).
• Aim to gain strong foothold and market share in e-commerce and
transportation of temperature and time-sensitive goods such as
perishables and pharmaceuticals.
Important trends:
(a) Expected rise in demand for
temperature-sensitive products
(b) Rise in popularity of air cargo
digitisation (change from analog
to digital form)
(c) Increased focus on autonomous
vehicles in logistics sector
Source:
[Link]
170927005671/en/Top-3-Emerging-Trends-
Prepared by WY Yap for SUSS Impacting-Air-Cargo
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 Global Air Freight Trends
Compare air freight - All-cargo flights vs passenger flights

• Share of all-cargo flights remained relatively small (2015: 4.4%).

• For tonnes of air freight transported, passenger flights averaged 4.4 tonnes per
flight.
• All-cargo flights averaged almost ten times higher at 43.7 tonnes per flight.

• Mail almost entirely

carried on combination
carriers using wide-
bodied passenger
flights flying to many
destinations around the
world.

Table: International Cargo Traffic

by Service Type (cargo tonne-
kms reflects FTK)

Source: IATA (2017).

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 Global Air Freight Trends – Notable Trends
What happens during GFC

• Global Financial Crisis saw widespread grounding of freighter planes to minimise

removal of freight capacity on passenger flights.
• Proliferation of low-cost carriers which transported little or no cargo contributed
to low volume of air freight tonnage carried on passenger flights.
• All-cargo flights and
passenger flights see
declining cargo weight
load factor.
• Decline for passenger
flights more severe,
due to higher
passenger load factors
for long-haul passenger
flights.
Table: International Cargo Traffic
by Service Type (cargo tonne-
kms reflects FTK)

Source: IATA (2017).

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 1.2 Regional Air Freight Trends
Where are the major trade lanes? Why?

• Largest trade lanes: Transpacific (20.0% share), Asia-Europe (19.9%), Transatlantic

(9.8%), intra-Asia (9.7%), Asia-Middle East (6.2%) and Europe-Middle East (5.1%),
generally leaning towards exports from Asia.
• Trade imbalance led to shortage of capacity on primary leg and excess capacity
on return journey.

Figure: Distribution of Global Source: IATA (2017).

International FTK by Trade
Prepared by WY Yap for SUSS
Lane (2016)
10
 1.3 Economic Cycles and Air Freight
Is there a correlation between air freight and trade performance? So?

• Close correlation between industry-wide FTKs and goods trade.

• Data on air trade usually available before trade or global GDP data and air trade
data often used as proxy for identifying potential turning points in global trade
and economic cycle.
• Cyclical downturn in air freight in 2008 preceded downturn in international trade
by 4-5 months.

• Sharp contraction in air

freight demand in 2009
attributed to slump in
consumer spending:
• Led to huge inventory
overhang for retailers and
manufacturers.
GFC
Figure: FTK Growth versus New
Export Orders (1991-2017)
Source: The Blue Swan Daily (2018).
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 Economic Cycles and Air Freight
How air trade data is used as proxy for identifying potential turning points

• For early indicator of air freight performance, we can use purchasing managers’
confidence (Purchasing Managers Index) which can lead air cargo developments
by 2-3 months.
• Changes in manufacturers’ inventory to sales ratio usually linked to changes in air
freight traffic.
• E.g. drop in inventory Note the
to sales ratio associated negative
to rise in air freight and values

vice versa (because

when inventory drops
to low level, restocking
usually done by air
transport).

Figure: Inventory to Sales

GFC
Ratio and Global FTK

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13
Exercise

What did you take away from LO-1?

Think about the developments and trends in the air
freight industry
Takeaways (LO-1)

• Air freight demand was significantly affected by the Global Financial Crisis
(GFC) of 2008 and recovery was slow.
• Global Financial Crisis saw the widespread grounding of freighter planes to
minimize removal of freight capacity on passenger flights.
• Factors like fast-growing e-commerce and temperature and time sensitive
products are expected to support the growth in demand for air freight.
• Largest trade lanes: Transpacific (20.0% share), Asia-Europe (19.9%),
Transatlantic (9.8%), intra-Asia (9.7%), Asia-Middle East (6.2%) and Europe-
Middle East (5.1%), generally leaning towards exports from Asia.
• Air freight performance is closely correlated with goods trade.
• Air trade data is usually available before trade or GDP data and is used as a
proxy to identify turning points in global economic cycles.
• Inventory/sales ratio is a good indicator of turning points in air freight
 Objectives

At the end of this study unit, you are expected to:

1. Show the developments and trends in the air freight business.

2. Illustrate the performance of airports in air cargo throughput.
3. Interpret the demand for air freight in global supply chains.
4. Indicate the developments in air freight related to multi-modalism and modal
competition.

Prepared by WY Yap for SUSS

15
 1.4 Airports and Air Cargo Throughput
Which airports have the largest volume of air freight? Why?

• Airports with biggest volume of air freight are either Asian hubs or key hub of US integrator.

• All major airports are hubs for

combination carriers with many of
these operating a big fleet of freighters
on top of transporting freight on their
passenger flights.
• Among top 10 airports by volume of
freight handled, five (5) are Asian hubs;
two (2) are hubs of integrators, FedEx
(Memphis); UPS (Louisville)

Table: Total Air Freight Traffic

Source: Airports Council International (2019). * Includes transit freight.

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 Airports and Air Cargo Throughput

Table: Total Air Freight Traffic Table: Total International Air Freight Traffic

Source: Airports Council International (2019). * Includes transit freight.

Singapore as hub for Singapore Airlines, DHL and FedEx.

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 Airports and Air Cargo Throughput

Table: Total Air Freight Traffic Table: Total International Air Freight Traffic

Source: Airports Council International (2019). * Includes transit freight.

HKG as hub for air freight consolidation and distribution in Southern China (hub for Cathay Pacific and DHL).
PVG as hub for Yangtze River Delta region and also base for DHL to cover North Asia (hub for China Eastern).
HKG faces keen competition from CAN (FedEx’s intra-Asian hub) and SZX (Shenzhen hub for UPS).
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 Airports and Air Cargo Throughput

Table: Total Air Freight Traffic Table: Total International Air Freight Traffic

Source: Airports Council International (2019). * Includes transit freight.

ICN as hub for Korean Airlines and Asiana.
DXB as hub for Middle East, Africa, Europe and C. Asia (home to Emirates), faces competition from DOH (QR).
TPE hosts China Airlines, EVA Air and UPS; NRT hosts Japan Airlines and All Nippon Airways.
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 Airports and Air Cargo Throughput

Table: Total Air Freight Traffic Table: Total International Air Freight Traffic

Source: Airports Council International (2019). * Includes transit freight.

Lufthansa in FRA, Air France-KLM in CDG and AMS and British Airways in London Heathrow LHR.
CDG also serves as European hub for FedEx.
Shift of DHL to hub at LEJ led to airport making into top 20 list at expense of BRU.
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 Airports and Air Cargo Throughput

Table: Total Air Freight Traffic Table: Total International Air Freight Traffic

Source: Airports Council International (2019). * Includes transit freight.

MEM home to FedEx and SDF to UPS.
Anchorage a major point for transit traffic and serves as important refuelling stop on long transpacific routes.
MEM and SDF focused on domestic market.
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 Activity 1.1
Singapore handled 1.5 million tonnes of air freight in 2020 which
represented a decline of 23% from 2019. With the impact of COVID-19
pandemic, assess Changi Airport’s performance in terms of air cargo
handled for 2020 and 2021.
Cargo handled
200000
2019 2021
180000
160000
140000
120000
100000
2020
80000
60000
40000
20000
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2019 171,3 136,5 184,7 156,4 171,7 161,8 170,2 169,0 170,2 169,6 177,5 174,6
2020 156,8 146,8 149,4 95,83 103,1 111,6 118,9 120,1 124,5 129,0 140,0 147,6
2021 145,9 123,9 157,3 155,1 159,7 160,9 163,5 165,4 171,3 182,0 177,4 183,8

2019 2020 2021

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23
Download data from Department of Statistics

Follow instructions given in the word file (from CANVAS)

Data from Dept of Statistics Singapore:

Air cargo handled at Changi Airport from 2019 to 2021
Month 2019 2020 2021
Jan 171,304 156,865 145,957
Feb 136,504 146,828 123,914
Mar 184,764 149,444 157,388
Apr 156,480 95,837 155,141
May 171,756 103,122 159,727
Jun 161,880 111,665 160,959
Jul 170,226 118,912 163,550
Aug 169,031 120,115 165,475
Sep 170,233 124,524 171,302
Oct 169,689 129,083 182,035
Nov 177,532 140,029 177,416
Dec 174,698 147,676 183,824

Total 2,014,097 1,544,100 1,946,687

Change (%) -23.3% 26.1%
Activity 1.1

• Discuss in your GBA groups (10 min)

• Present findings (10 min)
• Choose one person to present
• Total (20 min)
 Discussion: Impact on air cargo handled at Changi
Airport

• Big dip in tonnage occurred in Apr-20

and May-20 coincides with lock-down Cargo handled
• Gradual recovery in air cargo handled 200000
2021
2019
coincides with people going online (e- 180000

commerce) to make purchases e.g. 160000

masks, sanitisers (medical supplies) 140000

Big
from overseas 120000 dip
100000 2020
• Govt began gradual reopening from 80000
mid May and business activity recover 60000
(as govt receive vaccines and people
40000
undergo a vaccination program)
20000
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2019 171,3 136,5 184,7 156,4 171,7 161,8 170,2 169,0 170,2 169,6 177,5 174,6
Reference: Changi Airport: A Leading Air
2020 156,8 146,8 149,4 95,83 103,1 111,6 118,9 120,1 124,5 129,0 140,0 147,6
Cargo Hub 2021 145,9 123,9 157,3 155,1 159,7 160,9 163,5 165,4 171,3 182,0 177,4 183,8
[Link]
2019 2020 2021
e/partnerships/[Link]
Discuss: What strategies can Changi Airport adopt
to grow cargo volumes?

Changi Airport Group

[Link]
ml#ouroperationalexcellence

Strategies
Attract more airlines to support expansion in air cargo
connectivity.
Improve infrastructure. New terminal 5 will have higher cargo
handling capacity at 5.4m tonnes/year, up from 3m tonnes/year
Build expertise: Cold chain logistics e.g. SATS Coolport, dnata
Coolchain
Seize opportunities in growing E-commerce market e.g. SATS
eCommerce AirHub
Attract major express players e.g. DHL, FedEx, UPS. Currently
these companies operate regional hubs in Changi Airport
 1.5 Seasonality in Air Freight

• Seasonality is a perennial feature in the air freight business.

• Seasonal dips seen to occur regularly during early periods of the year, due to decline in air
freight movements post end-of-year and beginning-of-year holidays. In Hong Kong,
February has lowest air cargo traffic because of factory closures during Chinese New Year.
• February also has least number of days in a month.
• Seasonal peaks seen in periods towards end of year, due to building up of inventories
leading up to holiday seasons.

• Variations can also be seen during the

week as well as over course of a day.
• E.g. in Europe, weekdays can be twice
as busy as weekends.
• Can also be the other way round.

Figure: Seasonal Fluctuations in

Industry-Wide FTK (2014-2019)

Prepared by WY Yap for SUSS

Source: IATA (April, 2019). 27
 Activity 1.2
Singapore is ranked as the 15th busiest airport in 2019 by air cargo
handled. Can you analyse and explain the monthly seasonality that exists
for Changi Airport?

Cargo handled 2016 to 2019

200000
190000
180000
170000
160000
150000
140000
130000
120000
110000
100000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2016 157,8 136,0 171,1 164,5 157,5 163,0 161,4 163,1 167,1 176,9 173,1 177,3
2017 158,6 146,8 188,6 171,7 177,3 172,0 179,5 180,5 183,5 185,8 191,6 188,7
2018 175,5 148,9 187,5 179,4 180,4 170,5 183,3 183,7 184,7 189,7 189,1 181,6
2019 171,3 136,5 184,7 156,4 171,7 161,8 170,2 169,0 170,2 169,6 177,5 174,6

2016 2017 2018 2019

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29
Download data from Dept of Statistics, Singapore

Follow instructions given in the word file (from CANVAS)

Data from Dept of Statistics Singapore:

Air cargo handled at Changi Airport by month from 2016 to 2019

Month 2016 2017 2018 2019

Jan 157,859 158,691 175,593 171,304
Feb 136,096 146,865 148,934 136,504
Mar 171,183 188,626 187,547 184,764
Apr 164,531 171,716 179,410 156,480
May 157,513 177,336 180,488 171,756
Jun 163,071 172,040 170,551 161,880
Jul 161,446 179,551 183,337 170,226
Aug 163,146 180,594 183,756 169,031
Sep 167,102 183,559 184,707 170,233
Oct 176,958 185,829 189,786 169,689
Nov 173,174 191,676 189,151 177,532
Dec 177,355 188,742 181,619 174,698
 Activity 1.2

• Discuss in your GBA groups (10 min)

• Present findings (10 min)
• Choose one person to present
• Total (20 min)
31
Tonnage handled Y2016 to 2019 (Before COVID-19)
Class Discussion & Presentation

A. Tonnage handled dipped

seasonally in early part of year Cargo handled 2016 to 2019
– Jan/Feb because of holidays A
200000
and factory closures during
190000
CNY
180000
B. Tonnage increases from mid 170000
Jul/Aug to Dec as retailers 160000
placed orders to stock up for 150000
the year end holidays 140000
130000 B
120000
110000
Reference:
100000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
[Link]
2016 157,8 136,0 171,1 164,5 157,5 163,0 161,4 163,1 167,1 176,9 173,1 177,3
repository/publications/economic- 2017 158,6 146,8 188,6 171,7 177,3 172,0 179,5 180,5 183,5 185,8 191,6 188,7
reports/air-cargo-market-analysis-- 2018 175,5 148,9 187,5 179,4 180,4 170,5 183,3 183,7 184,7 189,7 189,1 181,6
-december-2022/ 2019 171,3 136,5 184,7 156,4 171,7 161,8 170,2 169,0 170,2 169,6 177,5 174,6

Air Cargo Market Analysis ([Link]) 2016 2017 2018 2019

 1.6 Capacity in the Air Freight Business
Short-haul routes

• Short-haul routes usually operate with passenger aircraft in the day. But the timing is not
suitable for air cargo unless aircraft operates at night. Expensive to operate freighter aircraft
on shorter-haul routes if utilisation is restricted to night flights.
• To complement such services, road feeder services (RFS) are employed particularly in
Europe.
• Some airlines may choose to consolidate truck loads at selected points before sending
aircraft compatible Unit Load Devices (ULDs) to the airport hub.

Table: IATA Member Airlines

Cargo Load Factors (2016)

Source: IATA (2017).

Load factor for all-cargo flights as 65.7% and mixed flights at 36.3%.

Load factor: actual traffic compared to payload weights of aircraft.

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 Capacity in the Air Freight Business
Long-haul routes

• Long-haul passenger flights using wide-bodied aircraft able to handle air freight in lower
deck.
• Equipped to handle wide variety of cargo except dangerous items and outsized cargo.
• Flight frequency usually once a day with 3-4 times weekly operations as minimum.
• This enables express operators to offer delivery commitments of 2-3 days.

Road Feeder Service by Lufthansa

Source: [Link]

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 Capacity in the Air Freight Business
Where is the business for air freight?

• Freighter flights employed if insufficient capacity by passenger flights.

• Most evident from manufacturing centres in Asia to consumers in Europe and North
America.
• Common to operate on multi-sector routes to consolidate loads and improve load factors.
• E.g. Asian carriers (Korean Air) making a stop in central Asia while making their way to the
Europe.

Korean Air Cargo and Uzbekistan Airways Cargo Network

Source: [Link]

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 Capacity in the Air Freight Business
Largest integrator hub

• For integrators, largest hub is FedEx’s facility in Memphis, USA (also operate a second national
hub in US at Indianapolis).
• Departures of FedEx concentrated between 7-10am where about 80% of daily flights depart.
• Sorting of night arrivals would have taken place.
• Departures to CDG (Charles de Gaulle) and STN (London Stansted Airport) and transpacific
flights also occur during morning peak.

FedEx Network Map

Source:
[Link]
[Link]/as-guide-
down-straight-forward-
recommendations-security-
greatest-vicinity-short-
expressions-what-fedex-route-
map

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37
Exercise

What did you take away from LO-2?

Think about the performance of airports in air cargo
throughput
Takeaways (LO-2)

• Airports with biggest volume of air freight are either Asian

hubs or hubs of US integrators
• All major airports are hubs for combination carriers with many
operating large fleet of freighters in addition moving freight on
their passenger flights
• Expensive to operate freighter aircraft on shorter-haul routes
and cost of operating such aircraft increases if utilization is
restricted to night flights.
• Road feeder services (RFS) are employed particularly in Europe
to complete freighter service.
• Largest integrator hub in Memphis belong to FedEx
 Objectives

At the end of this study unit, you are expected to:

1. Show the developments and trends in the air freight business.

2. Illustrate the performance of airports in air cargo throughput.
3. Interpret the demand for air freight in global supply chains.
4. Indicate the developments in air freight related to multi-modalism and modal
competition.

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 2.1 Demand for Air Freight
Understand segmentation of air cargo demand

• Demand for air freight transport is a derived demand and a derivative of trade.
• Air freight accounts for around 1% of global trade in tonnage terms and about 35% in value
terms.
• Reflects significantly higher unit value per kilogram of commodities carried by air. Rates for
air freight exceed surface modes by 10 – 15 times. High value to weight ratio means final
market price for commodities shipped by air less affected by transportation costs.
• Air freight demand is much more heterogeneous relative to passenger sector.
• Can range from document envelopes to bulky and heavy shipments weighing many tonnes.
• Improving transportation efficiencies enabled
global sourcing for components and products.
• Air transport is a key element of global value
chains, involving movements of component
parts.
• Countries producing consumer products with
high value-to-weight ratios are largest
exporters.
Figure: Air Commodities Accounted
Prepared by WY Yap for SUSS
for Less than 1% of Global Trade
Source: Boeing (2016).
40
 Main Commodities Shipped by Air
Type and value

Demand segmentation based on type and value of commodity:

• Electrical machinery
– Involves mostly high technology shipments and aided by ongoing miniaturisation of
technology.
– E.g. telecommunication equipment such as mobile phones and tablets, and
semiconductors and computers.
– Shipments take place around the year, usually peak in 4th quarter which reflects pre-
holiday season rush.
– Apple or Samsung tends to hold new product launches in September or October which
necessitate fast air freight transportation to minimise time to market.
– Keen competition from surface transportation.
– Estimated unit value: €166 per kg.

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 Main Commodities Shipped by Air

Demand segmentation based on type and value of commodity:

• Non-electrical machinery
– Includes investment goods and capital equipment used to equip factories that contain
high-value machinery.
– Direction of shipment from developed economies to places which are expanding or
building manufacturing capabilities.
– Keen competition from surface transportation.
– Estimated unit value: €115 per kg.

E.g. bottling machine

Can also go by containers.

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 Main Commodities Shipped by Air

Demand segmentation based on type and value of commodity:

• Clothing and footwear
– Expensive designer fashion originating from Europe and North America to other countries
to satisfy demand for luxurious items.
– Inexpensive items (fashion and footwear) densely stacked and exported from Asia (e.g.
China and Bangladesh).
– Keen competition from surface transportation.
– Estimated unit value: €27 per kg.
• Gold, coins and metals
– End-to-end protection as major concern.
– Safety and security are paramount with
highly customised operations.
– Susceptible to smuggling, insider theft and
illegal sourcing.
Source:
– Estimated unit value: €25,384 per kg. [Link]
Prepared by WY Yap for SUSS economy/three-arrested-over-brazil-airport-gold-theft
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 Main Commodities Shipped by Air

Demand segmentation based on type and value of commodity:

• Fresh or frozen vegetables and fruits and others
– Comparatively low unit value.
– Includes frozen food, tropical fruits, fish, fresh vegetables, fresh beef and other
perishables.
– Support weaker direction for a round trip, e.g. from Latin America to the US or Africa to
Europe.
– Tonnage for temperature-controlled goods fast-growing segment.
– Keen competition from surface transportation.
– Estimated unit value: €4-10 per kg.

Source: [Link]

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 Main Commodities Shipped by Air

Demand segmentation based on type and value of commodity:

• Flowers
– Major exporters: South America (e.g. Ecuador), Africa (e.g. Kenya, Ethiopia) and Asia (e.g.
Thailand).
– Distribution to consumers in Asia and Europe predominantly by flower shops supplied from
wholesalers.
– Distribution to consumers in
UK and North America
predominantly by
supermarkets.
– Peak demand just before
Valentine’s Day and Mother’s
Day in February and May
respectively.
– Estimated unit value: €3-5
per kg. Source:
[Link]
2716/[Link]
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 Main Commodities Shipped by Air

Demand segmentation based on type and value of commodity:

• Live animals
– Largest market is horses (mostly racehorses bought, sold and compete at international
venues with Middle East and Hong Kong as key markets).
– Also includes zoo animals and farm animals imported for breeding purposes.
– Documentation more complicated plus special regulations to make sure animals are
transported in suitable conditions
– Some animals require licence to be exported.
– Estimated unit value: €96 per kg.

Transporting racehorses
Source:
[Link]
/cargolux-is-a-thoroughbred-
air-cargo-operator/
Transporting racehorses
Source: [Link]
Prepared by WY Yap for SUSS that-transports-racehorses-2013-7?IR=T
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 Main Commodities Shipped by Air

Demand segmentation based on type and value of commodity:

• Chemicals
– Pharmaceuticals are main elements in this group. Strong growth seen in past ten years.
– Brand-name drugs under patent protection achieve higher unit values compared to generic
drugs.
– Keen competition from surface transportation.
– Estimated unit value: €139 per kg; for pharmaceuticals: €326 per kg.

Air Canada Cargo: Temperature-Sensitive Pharmaceutical Freight Services

Source: [Link]
[Link]/contractors/materials-handling/air-canada-cargo/

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 Main Commodities Shipped by Air
Segment by weight and volume

Demand segmentation based on weight and volume:

• IATA industry standard applies weight-volume ratio of 1:6.
• One tonne (or 1,000 kg) of freight equals to six cubic metres (or 6,000,000 cubic cm) of
volume.
• Alternatively, one cubic metre corresponds to 166.67 kg.
• Customer pays either for space or weight to transport the consignment whichever is higher.
• Calculation for air freight:
Length (cm) x width (cm) x height (cm) / 6,000 (being equal to volume weight in kg)
• Low-density cargo: shipments with lower weight-volume ratios.
• High density cargo: shipments with higher weight in relation to volume.
• Observations:
– Air express shipments tend to get smaller before year-end holiday season.
– Fast growing e-commerce shipments which are smaller in size and of lower density could
alter weight-volume ratios historically observed.
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 Main Commodities Shipped by Air
Segment by urgency of transport

Demand segmentation based on urgency of transport:

• Four key types of commodities ranked by price-sensitivity:
(1) Emergency freight
– Speed of transportation is essential whereas cost of shipping and actual value of
commodity are relatively unimportant.
➢ “Operating emergency” situations which include transportation of urgently required
spare parts
➢ “Marketing emergency” situations which concern shipments needed to be delivered
within specific tight deadline

Flying to the Rescue

Source: [Link]
to-the-rescue-12ba20845384

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 Main Commodities Shipped by Air

Demand segmentation based on urgency of transport:

• Four key types of commodities ranked by price-sensitivity:
(2) High value freight
– Goods with ultra-high value relative to their weight (e.g. gold, jewellery and artwork).
– Security and speed are determining factors
– Aim to minimise exposure time for the goods.
– Exclusively served by air freight and transportation costs are usually inconsequential.

Polish central bank airlifts 8,000 gold bars (100 tonnes)

from London to Warsaw
Source: [Link]
manly/polish-central-bank-airlifts-8000-gold-bars-100-
tonnes-from-london-to-warsaw/

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 Main Commodities Shipped by Air

Demand segmentation based on urgency of transport:

• Four key types of commodities ranked by price-sensitivity:
(3) Routine perishable freight
– Includes physically perishable items like cut flowers or foodstuffs and commercially
perishable goods like fashion toys, clothing or newspapers
– Critical to minimise time from production to the market.
– Fresh fruit, vegetables and flowers can also be transported using refrigerated containers
by sea.
– Air freight an option provided consumer willing to pay the premium.

(4) Routine non-perishable freight

– Comprises fragile high-value items, machinery, apparel and semi-manufactured goods.
– Subjected to strongest competition from surface transportation.

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 Activity 1.3
• Select a type of product or commodity which you are familiar with that is
shipped by air freight in Singapore.
• Can you describe from the transportation perspective, countries, cities and
companies involved?
• Can you offer reasons why surface transport alternatives are not used for
the product or commodity?

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Activity 1.3

• Discuss in your GBA groups (10 min)

• Present findings (10 min)
• Choose one person to present
• Total (20 min)
Class Discussion & Presentation

Product: Sanitisers, masks via DHL express

SIN –> SHG
No competition from surface transport – consumers not willing to
wait and willing to pay

These air freight products are

Increasing in value (masks sell for $2 /pc. Normal price 20c)
Based on volume weight = 166.66 kg/m3
Urgent – people need for protection from Covid-19 virus infection
 2.2 Demand for Charter Services
Small but important segment

• Bulk of air freight shipments transported on scheduled services on passenger and freighter
aircraft.
• Charter services account for 4.2% of IATA airlines’ FTK.
• Cargo charters typically operated by all-cargo aircraft as demand is driven by requirement to
air freight to a destination instead of passenger needs.

• 5 types of charter services:

➢ Regular charter flights
o Operations similar to scheduled flights.
o Capacity on board aircraft sold exclusively to one customer or small group of
customers.
o Flight schedules, airports and plane configurations adapted to customer’s
requirements.
➢ Seasonal charter flights
o Supplements to scheduled flights to address increased demand during high seasons.

55
 Demand for Charter Services

➢ Ad-hoc charter flights

o Addresses sudden demand surges or individual events.
o E.g. Formula One teams, concert equipment, drilling equipment and product launches.
o Outsized cargo require large wide-body aircraft such as Boeing 747F with nose loading
ability.
➢ Humanitarian aid
o Lift for emergency medical supplies and food aid at short notice.
o Some airlines such as Lufthansa have master agreements with German Red Cross to
provide space as quickly as possible in event of crisis or catastrophe.
➢ Military charters
o Commercial airlines used by military to support logistics needs in other countries.
o Defence charters are profitable business for airline or freight forwarder although volatile
nature of this business means it cannot be relied upon to sustain the company.

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57
Exercise

What did you take away from LO-3?

Think about the demand for air freight in global supply
chains
Takeaways (LO-3)

• Demand for air freight transport is a derived demand and derivative of

trade.
• Improving transportation efficiencies enabled global sourcing for
components and products.
• Air transport is a key element of global value chains, involving movements
of component parts
• Different methods of segmenting air freight demand are:
– Type and value
– Weight and Volume
– Urgency of transport
• Charter services account for a small percentage 4.2% of IATA airlines’ FTK.
There are Five (5) types of charter services

Go further: Boeing World Air Cargo Forecast

[Link]
 Objectives

• At the end of this study unit, you are expected to:

1. Show the developments and trends in the air freight business.

2. Illustrate the performance of airports in air cargo throughput.
3. Interpret the demand for air freight in global supply chains.
4. Indicate the developments in air freight related to multi-modalism and modal
competition.

Self study

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 2.3 Air Freight and Multi-modalism

• Airports are few and far in between.

• Results in air freight being an intermodal or multi-modal business by nature.
• Multi-modal refers to transport of cargo from origin to destination under contract with a
single carrier but involving several modes of transport.
• Inter-modal refers to transport using several modes and organised through individual
contracts with different carriers pertaining to each leg of the journey.
• 3 common modes of transport involved: trucking, sea-air and rail-air.
– Trucking:
Cargo moved by trucks to departure airport from various origins.
Distributed using trucks to final destinations from arrival airport.
Airlines may operate scheduled trucks registered using their own flight numbers to
increase coverage of their network beyond their respective home bases.
Airlines may also offer direct pickups or deliveries from facilities of their customers or
actual shipper or consignee.

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 Air Freight and Multi-modalism

– Sea-air:
For long-haul routes.
Sea-air about 30-35% cheaper than direct air services.
Take about 13 days while direct air shipments take 2-3 days.
Going by sea will take 18-22 days.
Given short product life cycle, first batch may go by air while second batch by sea-air and
third batch by sea.

– Rail-air:
For hub airport with freight rail access.
Regional distribution of air cargo by rail.
E.g. Frankfurt Airport. Freight train access
in CargoCity South

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 Activity 1.4
In a presentation at the IATA World Cargo Symposium, Seabury (2014) estimated that the
share of tonnage going by air had declined from 3.0% in 2000 to 1.7% in 2013 (see chart
below). Evaluate the main factors driving the choice between air and sea freight.
 2.4 Modal Competition to Air Freight
Air or sea?

• Keen competition from containerised sea freight.

• Share of tonnage shipped by air declining.
• Reasons:
– Commodity mix effect where products shipped by sea experience higher growth rates
compared to those flown by air (e.g. raw materials with strong growth rates).
– Value effect where new technologies and productivity improvements led to falling unit
values for most commodities (e.g. lower-value products shift from air to sea).
– Mode shift effect where products which have matured are usually moved from air to sea
transport.

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 Modal Competition to Air Freight

Main factors affecting choice between using air and sea freight:
(1) Cost versus delivery time
o Minimise total distribution costs (TDC) rather than minimising freight charges alone.
o TDC comprises transport and inventory related costs.
o May require using combination of various transport options.
(2) Reliability
o Container shipping improved ability to offer guaranteed arrival times at much lower
rates.
o Reefer containers allow seamless door-to-door service needed for temperature-
controlled transport of pharmaceuticals.
o However, air transport is able to offer time-definite products and sophisticated
tracking tools for integration into just-in-time supply chains.

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 Modal Competition to Air Freight

Main factors affecting choice between using air and sea freight:
(3) Frequency
o Air freight has advantage in frequency of service and choice especially for landlocked
destinations.
o Most evident for emergency shipments.
(4) Security
o Air mode seen as more secure due in part to shorter time of transport.
o Reduces exposure of cargo to various types of risk.
(5) Environment
o Sea freight seen as more environmentally friendly due to lower emissions and higher
fuel efficiency.
o Shippers and forwarders attempting to reduce carbon footprint may prioritise sea
freight over air transport.

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 Modal Competition to Air Freight

Other types of competition with air freight:

• Trucking
Preferred mode of transport for short-haul freight due to versatility to reach many
destinations.
• Rail
E.g. long-range trains in Belt and Road Initiative for Asia-Europe trade.
• Nearshoring
E.g. importing high tech products from Asia into the US may be substituted by nearshoring
production in Mexico.
• 3D/4D printing
May affect e.g. aerospace and automotive subassemblies, spare parts, prototypes, electronics
assemblies.
Enable goods to be produced closer to end users and involve less lead time and shorter
supply chains.

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67
Exercise

What did you take away from LO-4?

Think about the developments in air freight related to
multi-modalism and modal competition
Takeaways (LO-4)

• Airports are few and far in between, results in air freight being
an intermodal or multi-modal business by nature.
• Keen competition from containerised sea freight with share of
tonnage shipped by air declining.

Go further
• [Link]
8-round-fight-which-will-win-your-cargo/
 TOA 2023 Q2a
69

Seabury Capital and the International Air Transport Association (IATA) estimated in a
study that air freight’s share of total global containerized cargo in the period from 2000
to 2013 declined by 15.2 million tonnes as shown in the figure below. About 5.4 million
tonnes or one third is due to ‘mode shift’ meaning a product that was used to be
shipped by air freight is now shipped instead by sea freight.

(a) Using the shipment of hard disk

drives as an example, indicate the
factors that can drive shippers and
forwarders to choose ocean freight
instead of air freight.

In your answer, give three (3)

factors that may influence the
decision of shippers or forwarders
of hard disk drives to shift to ocean
freight. Use your own words and
avoid giving generic answers.
 TOA 2023 Q2a Feedback
70

(a) Most students were able to use hard-disk drives as an example to explain the mode
shift from air to sea. This product has reached a mature phase in its product life cycle.

As a result, the value of the product relative to its weight has fallen and reduced its
attractiveness for air freight. In addition, given the stability of demand, there is less
urgency for short delivery lead time by air.

By relating to these characteristics, students could provide good arguments comparing

cost of delivery vs delivery time between air and sea freight, and support with further
argument that reliability of sea freight has improved, and the fact that sea generally is
seen as more environmentally friendly.
 TOA 2023 Q2b
71

Seabury Capital and the International Air Transport Association (IATA) estimated in a
study that air freight’s share of total global containerized cargo in the period from 2000
to 2013 declined by 15.2 million tonnes as shown in the figure below. About 5.4 million
tonnes or one third is due to ‘mode shift’ meaning a product that was used to be
shipped by air freight is now shipped instead by sea freight.

(b) Suggest actions that key players

in the air cargo industry (e.g.
forwarders, airlines) should take to
limit, stop or reverse mode shift
due to the factors that you have
evaluated in (a).

In your answer, present three (3)

actions these key players should
take to overcome the challenges in
(a) so that shippers and forwarders
would return to air freight.
 TOA 2023 Q2b Feedback
72

(b) Most students did not relate their answers to the arguments they made in (a). They
could have pointed out that stakeholders such as airlines, forwarders can work together
to
• Improve the delivery time of air freight through digitalization (e.g., E-freight)
• Reduce costs by offering multi-modal solutions (e.g., Air-sea); and
• Promote greater use of sustainable aviation fuel to reduce carbon footprint.
Summary (SU-1 Chap 1)

• Volume of air freight vary with economic performance as well as seasonal

factors. Seasonality is a perennial feature in the air freight industry and can
occur on a monthly, weekly and daily basis
• Major trade lanes in the world for air cargo are Transpacific (20.0% share),
Asia-Europe (19.9%), Transatlantic (9.8%), generally leaning towards
exports from Asia.
• Air trade data (usually available before trade of GDP data) can be used as a
proxy to identify turning points in global economic cycles.
• Airports with biggest volume of air freight are either Asian hubs or hubs of
US integrators
• Air mode is a premium transportation option as it is much more costly to
operate an aircraft compared to a truck, railroad car or ship.
• The most compelling reason for customers to use air mode is that the air
cargo is characterized by high unit value per kg shipped.
Summary (SU-1 Chap 2)

• Demand for air freight transport is a derived demand and a derivative of

trade.
• Different approaches of segmenting air demand are Type and value; Weight
and Volume; Urgency of transport
• Charter services account for a small but important segment of the air
freight market. There are five types of charter services.
• Air freight being multi-modal in nature, transport of freight by air would
combine with other surface modes (road, rail, sea).
• Air freight faces strong competition from sea freight. The main factors that
affect the choice between using air and sea freight are Cost versus delivery
time; Reliability; Frequency; Security; Environment
• Air freight sector competes with road and rail services on short- to medium-
haul routes and competes with seaborne containerised transport providers
particularly for long-haul routes.
Assignments due

Assignment 1: Tutor-marked Assignment (TMA)

Submission Deadline*: 16 Feb, 2355hrs

Assignment 2: Group-based Assignment (GBA)

Submission Deadline*: 15 Mar, 2355hrs

* Marks are deducted for late submission

Examination
Please refer to examination timetable on Students' Portal.
 Feel free to post questions.
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