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Trends in the air-freight business

Trends in the air-freight business

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WHEN people think of air travel they picture planes full of passengers. But air cargo is as vital—perhaps more—to the global economy. Only 1% of exports by volume go in aircraft but because they tend to be the most expensive goods, they account for 35% of global trade by value. Nearly everyone has used products delivered by aircraft, from vaccinations in poor countries to smartphones in rich ones.

WHEN people think of air travel they picture planes full of passengers. But air cargo is as vital—perhaps more—to the global economy. Only 1% of exports by volume go in aircraft but because they tend to be the most expensive goods, they account for 35% of global trade by value. Nearly everyone has used products delivered by aircraft, from vaccinations in poor countries to smartphones in rich ones.


Cargo airlines such as FedEx Express and Emirates Skycargo have had a difficult few years. Global trade growth has stalled, and along with it demand for air freight. Inanimate air cargo mostly rides in the same planes as the live sort; when rising passenger demand encouraged airlines to buy more planes, the additional cargo capacity flooded the industry, causing air-freight prices to slide. Industry revenues have fallen from a peak of $67bn in 2011 to $50bn now, according to IATA, a trade group. Yet the mood at the World Air Cargo Symposium in March in Abu Dhabi was cautiously optimistic. For the first time since the global financial crisis in 2008, demand for air freight has started to expand quickly again.

The industry-by-industry variations within this overall context of rising demand are striking, however. Custom from companies that make high-value electronics has plummeted, according to Marco Bloemen of Seabury Consulting, an airline-consulting firm. In the 1990s and 2000s, large volumes of electronic goods were flown to impatient consumers in the West from cheap manufacturing locations in Asia. But since 2007 the total volume of electronics being air freighted has fallen by a tenth and is still going down. Over the past two years alone the total weight of laptops and tablets being delivered by plane has fallen by 50%. The drop is partly because computers and smartphones are shrinking in size and heft, but much of the fall is accounted for by the increased proximity of final assembly lines to customers, as manufacturing localises and as Asian demand for electronics has risen.

The market for fresh food, in contrast, is a thriving one for air-cargo companies thanks to the globalisation of eating habits. The volumes of perishables being flown—fruit, vegetables, flowers and suchlike—have risen by a third since 2007, more than for any other category of product. A decade ago the Chinese used to eat seasonally, for example, but now they can afford to fly in red cherries from Chile for the Chinese New Year (which falls between late January and mid-February). In the past year alone the weight of fresh food travelling by air increased by a tenth, while the weight of computing equipment riding in planes fell by the same amount. Flowers, salmon and milk powder, all hankered after by Asian consumers, have seen some of the strongest growth.

Another bright spot is express-parcel deliveries. Shoppers are going online to buy direct from producers across the globe. Fashion items, as well as jewellery and milk powder, are particularly popular. The total value of online shopping sent across borders increased in value by a third, to $400bn, in the past year and is set to increase to more than $1trn annually by 2020, according to a joint study by Accenture, a consultancy, and AliResearch, the research arm of Alibaba, a Chinese e-commerce company. Most of it will travel by air.

In spite of these more positive trends, the air-cargo business has one big worry: the likelihood of sharply lower trade if Donald Trump enacts genuinely protectionist policies. “It’s our number-one threat,” says the boss of one cargo airline. And one that China’s year-round taste for cherries would not be enough to offset. 

reference:http://www.economist.com/news/business-and-finance/21720901-fewer-electronics-are-being-flown-instead-planes-are-full-fresh-produce-trends?zid=302&ah=601e2c69a87aadc0cc0ca4f3fbc1d354

Cargo airlines such as FedEx Express and Emirates Skycargo have had a difficult few years. Global trade growth has stalled, and along with it demand for air freight. Inanimate air cargo mostly rides in the same planes as the live sort; when rising passenger demand encouraged airlines to buy more planes, the additional cargo capacity flooded the industry, causing air-freight prices to slide. Industry revenues have fallen from a peak of $67bn in 2011 to $50bn now, according to IATA, a trade group. Yet the mood at the World Air Cargo Symposium in March in Abu Dhabi was cautiously optimistic. For the first time since the global financial crisis in 2008, demand for air freight has started to expand quickly again.

The industry-by-industry variations within this overall context of rising demand are striking, however. Custom from companies that make high-value electronics has plummeted, according to Marco Bloemen of Seabury Consulting, an airline-consulting firm. In the 1990s and 2000s, large volumes of electronic goods were flown to impatient consumers in the West from cheap manufacturing locations in Asia. But since 2007 the total volume of electronics being air freighted has fallen by a tenth and is still going down. Over the past two years alone the total weight of laptops and tablets being delivered by plane has fallen by 50%. The drop is partly because computers and smartphones are shrinking in size and heft, but much of the fall is accounted for by the increased proximity of final assembly lines to customers, as manufacturing localises and as Asian demand for electronics has risen.

The market for fresh food, in contrast, is a thriving one for air-cargo companies thanks to the globalisation of eating habits. The volumes of perishables being flown—fruit, vegetables, flowers and suchlike—have risen by a third since 2007, more than for any other category of product. A decade ago the Chinese used to eat seasonally, for example, but now they can afford to fly in red cherries from Chile for the Chinese New Year (which falls between late January and mid-February). In the past year alone the weight of fresh food travelling by air increased by a tenth, while the weight of computing equipment riding in planes fell by the same amount. Flowers, salmon and milk powder, all hankered after by Asian consumers, have seen some of the strongest growth.

Another bright spot is express-parcel deliveries. Shoppers are going online to buy direct from producers across the globe. Fashion items, as well as jewellery and milk powder, are particularly popular. The total value of online shopping sent across borders increased in value by a third, to $400bn, in the past year and is set to increase to more than $1trn annually by 2020, according to a joint study by Accenture, a consultancy, and AliResearch, the research arm of Alibaba, a Chinese e-commerce company. Most of it will travel by air.

In spite of these more positive trends, the air-cargo business has one big worry: the likelihood of sharply lower trade if Donald Trump enacts genuinely protectionist policies. “It’s our number-one threat,” says the boss of one cargo airline. And one that China’s year-round taste for cherries would not be enough to offset. 

reference:http://www.economist.com/news/business-and-finance/21720901-fewer-electronics-are-being-flown-instead-planes-are-full-fresh-produce-trends?zid=302&ah=601e2c69a87aadc0cc0ca4f3fbc1d354