Chapter 10
Introduction to Air Cargo
Dr. Rohafiz binti Sabar
Transport and Logistics Department
College of Business
Room 257 , Main Building of COB
D/l: 04-9283664
email:
[email protected]1 Transport and Logistics Department July 2009
Definitions
Cargo = Freight + Mail (Express & courier?)
Consignment: one or more pieces accepted on one air waybill
Air waybill: receipt of goods from airline; not a document of title
Consolidation: Freight forwarder benefits by booking bulk space
(container loads) at lower unit rates, carried on Master air waybill.
Fills space with multiple pieces or shipments from different shippers
(each gets House air waybill)
Measures of traffic: Shipments (Integrators), Cargo tonnes and
tonne-kms, Unit Load Devices (ULDs)
Measures of capacity: Cargo Available Tonnage Kilometres ( ATKs,)
weight payload or volume available
2
But air cargo is only 20% (US$44 billion)
out of total US$225 billion total global
logistics and transport industry
Source: Boeing
3
Air cargo accounts for 34.6% of non-land
international trade in terms of value, but only
6% of the weight
Source: The impact of the air cargo industry on the global
economy, by John Kararda et al, paper presented to TIACA Air
Cargo Forum 2006: www.tiaca.org
4
The demand for air cargo
Air cargo is a derived industrial product
Air represents 3% of world trade tonnage and 40% of trade values (OECD)
Strong surface competition
Demand a function of speed, cost, reliability, security
Pricing a function of the relationship of volume to density
Increasingly service sensitive
Often a door to door service is required
Late afternoon pick-ups, early morning delivery
Directional bias is common
Function of balance of trade
Cause of reduced yield on route
Less seasonal than many passenger markets
5
Air freight directionality by major flows
Express
Europe to/from N.America Standard
Asia/Pacific to/from N.America
Asia/Pacific to/from Europe
0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00
Ratio of heavy to light directional flow (tonnes)
Source: MergeGlobal Inc. in Aviation Strategy, October
2005
6
Impact of 9/11
Cargo had already started to turn down at the
end of 2000, due to bursting of IT bubble
US passenger airlines lost all lower deck mail of
over 16 ounces (embargo still in force)
Loss of lower deck capacity from cancellation of
passenger flights: shifts to freighters
Strong air cargo recovery was underway in 2004
especially in Asia; IT/PC replacement needed (3-4
years from Y2K), but recently appears to have
stalled (in 2005)
7
Air freight suitability
High value to weight ratio products
Companies do not want high value inventory in transit
Density (167 kg/cubic metre is cut-off for charging)
Main deck range from 120 kg/cu.m for AZ to 240 (Emery)
Lower deck range from 128 kg/cu.m (CO) to 208 (UA/Emery)
Bulk loaded range from 152 to 160 kg/cu.m
Urgency
Perishability
Physical (fruits, flowers, etc)
Economic (fashion, newspapers, magazines, etc)
Geography
Lack of suitable surface transport
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Other air cargo characteristics
Shipments do not identify themselves when lost: thus
tracking systems required
Tends to be less regulated than passengers; but often faces
customs barriers
Can be containerised, but heavy direction in many markets
No preference for non-stop flights
Size and density problems
Booking and loading
Pricing
Special handling for some cargo
9
The 10 US industries with the largest air exports
Pounds of freight
exported by air
Rank Industry (millions)
1 Computers and office equipment 384.0
2 Electronic components 134.0
3 Motor vehicles, parts and equipment 133.8
4 Construction machinery 123.5
5 General industrial machinery 117.5
6 Communications equipment 112.9
7 Measuring and controlling devices 103.6
8 Aircraft engines and parts 103.2
9 Medical instruments and supplies 92.8
10 Drugs and pharmaceuticals 89.3
Source: MergeGlobal Inc, in GAO/R/RCED-97-13
10
Perishables (Cool chain sector)
Europe imported 858,000t in 2005, with 8% pa
growth between 2000 and 2005
US imported 523,000t in 2005 (1% pa growth 2000-
2005)
Asia imported 501,000t in 2005 (2% pa decline 2000-
2005)
Flowers/plants fastest growing segment
Some switch to surface transport, especially by sea, with better control facilities
Peru to US asparagus market changed in past ten years from 80% by air to
80% by sea
Source: International Freighting Weekly, 11 December 2006, p.10
11
Air cargo flows: total 770,000 tonnes
(Source: Boeing World Air Cargo Forecasts, 2006-07)
Latin America to North America
23%
29%
Fish
Flowers
Vegetables & Fruit
Small packages
Clothing
7% Other
21%
9%
11%
12
Air cargo flows: total 2,154,000 tonnes
(Source: Boeing World Air Cargo Forecasts, 2006-07)
Asia to Europe
16%
Clothing
43%
14% Industrial machinery
Electrical goods
Small packages
Office machines
10% Other
8% 9%
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Major freight traffic flows by FTKs
International Scheduled FTKs as a percentage of IATA scheduled freight F
Europe
14.2% 26.0%
1.2%
North America North America
2.1%
Asia 0.3% 4.2% 24.9%
23.9% 1.0% Asia
0.6% Middle East
11.1%
Central America 0.4% 3.4%
SW Pacific 3.3%
0.7% 0.00% 3.1% 0.8%
0.2 2.0%
Africa 0.8% SW Pacific
% 2.2%
South America 0.1% 0.2%
0.2%
Source: IATA, WATS, 2008 Long-haul: 86.5% (vs 77.2% for
Pax-kms)
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World International Air Cargo Traffic by carrier in
2007
RTK (m) % total
Cargolux 5,482
Nippon Cargo 1,873
Polar Air 1,817
Volga-Dnepr 123
CAL Israel 383
Astar (USA) 47
Cielos Peru 44
Total all cargo carriers 10,532 7.1
FedEx 6,507
UPS 5,077
DHL (incl. EAT) 590
TNT Belgium 433
Total Integrators 10,997 7.4
IATA all-cargo (not in above) 57,759 38.9
IATA passenger flights 69,014 46.5
World total 148,302 100.0
Source: IATA WATS 2008
15
Top 10 country pairs for intra-Asia air
cargo
Japan/Hong Kong (267,000t) Top ten account for around
Japan/China (231,000t) 50% of total intra-Asia air
cargo flows
Japan/Korea (228,000t in 2003)
Hong Kong/Taiwan
Japan/Taiwan
Japan/Singapore
Japan/Malaysia
China/Korea
Australia/Singapore
Hong Kong/Singapore Source: Boeing World Air
Cargo Forecasts, 2004
Top intra-EU for flown cargo: East Midlands/Cologne-Bonn with (from website)
47,000t
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The supply of air cargo services
Scheduled services offered in:
Lower deck of passenger services - by product
Combis - joint product
Freighters – dedicated product
Charter services (freighters)
Integrators (freighters)
Time guaranteed small parcel delivery
17
Top 10 Air Cargo Carriers in 2007 (Domestic +
International)
Cargo % of total % RTKs on all-cargo
FTKs (m) RTKs flights
Fedex 15,710 100 100
UPS 10,968 100 100
Korean Air 9,568 65 87
Lufthansa 8,348 40 59
Cathay Pacific 8,225 53 72
Singapore 7,945 48 56
China Airlines 6,301 67 88
Air France 6,126 34 52
Emirates 5,497 39 32
Cargolux 5,482 100 100
Source: IATA WATS 2008
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Air cargo supply chain
Integrators
Scheduled Airlines
All Cargo
Belly Hold
Consignor Forwarder Forwarder Consignee
Non Scheduled Carriers
Postal authorities
Customs interact
at origin and
destination
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With whom do you organise your air cargo needs?
Airtrade Survey, October 2000
Europe Overall
Airline only Airline only
4% 4%
Forwarder & Forwarder &
Integrator Integrator
9% 12%
Integrator
Forwarder
only
only
24%
Forwarder Integrator 53%
only only
63% 31%
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Integrators and forwarders
Integrators take direct responsibility for:
Collecting shipments
Performing paper work (including customs clearance)
Flying (trucking) to destination
Delivering to consignee
Forwarders take direct responsibility for:
Collection and delivery of shipments
Assembly and consolidation of shipments
Contracts with airlines for capacity
Service may be uncertain
Belly freight competes with passenger loads
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Integrators
Companies that offer door-to-door service, with control
of and ability to track shipment over every part of
journey
DHL (38%), FedEx (21%), UPS (13%) and TNT (12%)
account for large part of global market (Source: Deutsche Post in
AirCargo World, Oct.2003)
Goods carried are documents, semiconductors, electronic
components, automotive spares, product samples,
pharmaceuticals
Documents now only 11.5% of above 4 integrators’ UK
traffic (AICES, June 2002)
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DHL
24%
European Courier,
Other
32% Express & Parcels
(CEP):
Market shares, 2006
Royal Mail UPS
2% 17%
La Poste
4%
FedEx
7% TNT
14%
Total market:
€12.1 billion
Source: Deutsche Post
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US Domestic Express revenues: 2004Source: Morgan Stanley
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European Post Offices
Commercialisation in three countries, but most
monopolies retained for mail services
TPG (Netherlands) acquired TNT
Deutsche Post (Germany) acquired shares in DHL and
Danzas/AEI
Consignia (back to Royal Mail!) has Parcel Force and GLS
Post Offices charter small aircraft for night flights
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Current trends
Globalisation means competition between supply chains and not between
companies; lean manufacturing and JIT
IT / Distribution / e-commerce
Barcoding / tagging of consignments and containers (eg RFID in Nokia phones)
Internet tracking and booking
Customs automation, but increased security
Electronic transmission of airway bills (currently only 43% of 35 million sent
globally)
Scheduled airlines introduction of time definite pricing
KLM Select 100 (1 day), 300 (3 days), and 700 (7 days)
Lufthansa time definite (td) - td.Pro (standard), td.X (express), td.Flash (fastest)
the last two have 100% money back guarantees
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Air Cargo Booking
Three portals competing for air cargo booking, but none yet
integrate ocean with air transport
Cargo Portal Services (more North America oriented)
Major backers Northwest Airlines, United and Air Canada
GF-X (more Europe focused)
Major investor American Airlines
BA achieved 5% of total bookings through GF-X in 2004
Ezycargo (more Asia focused)
Set up by Cathay, Singapore Airlines, Japan Airlines and Qantas
But freight forwarders might set up own integrated system!
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Airline performance benchmarking
Schedule integrity
Moved as booked/planned
Handling service levels
Mishandling rate
Telephone standards
Complaints and compliments
Data from other carriers? Include forwarders?
Staff incentives? IATA sponsored Cargo 2000
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Air cargo alliances
Strategic alliances driven by passenger
business needs
WOW alliances
Lufthansa, Singapore Airlines, SAS and JAL
Networks joined up, products harmonised, mutual handling,
joint freighters, but no sales representation rationalisation and
different e-booking policies
SkyTeam cargo alliance initially between
AF/DL/KE, but includes joint sales
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Joint Venture Cargo airlines in China
Lufthansa and Shenzhen Airlines set up in 2004 Jade
Airlines to operate A300 freighter services from
Guangzhou base: Shenzhen Airlines 51%, LH 25% and
German government agency KfW 24%
SIA Cargo took a 25% stake in May 2005 in Great Wall
Airlines, based in Shanghai. Singapore government
subsidiary holds 24% and China Great Wall Industry holds
51%.
Cathay Pacific has 17.6% stake in Air China and its wholly
owned subsidiary, Air China Cargo, with 5 B747Fs
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Review
Many combination carriers have treated cargo as a by-
product: strategic focus on passengers (eg alliances)
Developments in logistics concepts has lead to growth
in air freight; air freight develops new industries
Integrators have shaken up the market and suppliers
Airlines and forwarders have been combative but now
are beginning to work together to address the
competition from the integrators
Integrators are also customers of combination carriers
New technologies are being applied to the market
Alliances: passenger partners not always ideal for cargo
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Reading list
The global air cargo industry (April 2001)
DVB Bank Research .pdf file from their web site
Air Cargo News, especially ‘the Peter Conway Interview’
Airtrade (main library)
Air Cargo World (www.aircargoworld.com)
ATW, Airline Business (especially November issue), Flight
International, ATI
Various text books (eg Doganis, Wells)
Airline cargo web sites, especially Lufthansa’s
Orient Aviation, September 2002, p.16 (DAT library)
Journal of Air Transport Management:
Vol.9 No.2, March 2003 (Hong Kong air cargo hub)
Vol.8 No.5, Sept 2002 (air cargo liberalisation)
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