Lessons from 2007
Question: What dominant issues has the airfreight industry faced during 2007 and how can they be overcome in 2008?
Expert: Aleks Popovich
Global head of cargo, IATA
Up to speed
Since 2001, the air cargo industry has been reinventing itself in the search for greater efficiency and reduced costs. Highlighting this, the past six years has seen airline industry labour productivity improve 56%, fuel efficiency go up 16.5% and non-fuel unit costs go down 15%.
As a result, the airline industry is poised to make a profit for the first time since 2000, albeit a small one of US$5.6 billion - most notably $200 million of which will derive from the Middle East. This is an important milestone, but cargo carriers cannot afford to relax as 2008 will have its share of challenges.
Rising fuel costs top the list. The industry fuel bill in 2007 will come in at $132 billion and next year it will climb even higher. While we are forecasting an industry net profit of $7.8 billion during 2008, the impact of the credit crunch along with high fuel costs put some question marks over the industry's overall performance in the new year.
Another tricky issue to manage will be the trade imbalances resulting from the concentration of cargo growth in Asia. By 2010 intra-Asia freight will amount to 8.3 million tonnes, which is 26% of total international freight. In addition to the imbalance there is a concern that limited gateways in China could cause bottlenecks. To overcome these challenges, airlines and cargo operators must address the issues of safety, security, e-freight and the environment.
At the end of the third quarter of 2007, the accident rate, in terms of Western-built Jet Hull Loss, had increased to 0.90 accidents per million sectors flown, in comparison to 0.65 in 2006. It was found that 19% of all accidents involved cargo carriers and the majority (29%) of cargo accidents involved Latin American operators.
Historically, most cargo accidents are not the result of loading or mishandling of shipments. IATA's Operational Safety Audit (IOSA) will help drive improvement, which all IATA airlines, cargo included, must complete by the end of this year or face exclusion from the body. In light of recent accidents, IATA is revaluating its safety strategy as part of its 2008 programme.
Security suffers from fragmentation, which adds costs and reduces effectiveness. There is lack of understanding from regulators on how the supply chain functions. Rather than applying the same approach to security that is applied to baggage, cargo security must be considered throughout the whole transport network.
This is why IATA and 24 other supply chain trade associations have established the Air Cargo Security Industry Forum to unify messages on cargo security and influence regulatory developments.
The forum is pressing for the mutual recognition of standards, controls and programmes.
The e-freight initiative
E-freight will improve efficiency, enable $1.2 billion in savings, help air cargo improve its competitive position and make it easier to do business worldwide, in particular in China. IATA's approach is to lay a solid foundation with effective industry participation from the air cargo supply chain. Standards, processes, and documents have all been developed and in November, IATA launched six e-freight pilots for cargo on key trade routes connecting Canada, Hong Kong, the Netherlands, Singapore, Sweden and the UK.
The locations were selected because they have the right business, technical, and legal environment to operate e-freight. IATA is currently conducting a detailed assessment in Australia, Dubai, Germany, Korea, Luxembourg and Spain to identify locations for the next wave of e-freight territories.
Finally, the air cargo industry must take a closer look at environmental issues. Consumers are starting to evaluate carbon emissions generated to transport fruits, vegetables and flowers, all of which constitute a large part of the cargo business. IATA is encouraging neutral bodies to gather more facts for analysing the air cargo industry carbon footprint in comparison with other modes of transport, and also to campaign against the misleading aspects of food miles (distance food travels from origin to consumer) and other initiatives targeting airfreight.
Aviation has a strong environmental track record. In the last four decades emissions per passenger kilometre dropped 70% and the continuous capital invested by airlines in more fuel efficient aircraft will deliver a further 25% improvement by 2020.