The air freight volumes of Asia Pacific carriers have, since 2010, remained relatively flat. Indeed the trend has been one of slow decline from a high of 5,839 FTK in October 2010. The cause of such malaise has generally been considered to be economic stagnation in Western markets, for which air freight so often provided the means of transporting higher value, lighter goods. Troublingly, a trend has emerged that is pushing commodities that were the traditional preserve of expensive air freight carriers into the hands of the shipping companies. More concerning still is the problem of overcapacity and its effect upon profitability.
However, the Association of Asia Pacific Airlines (AAPA) has reported the April traffic figures of its members en masse and the figures reveal a year-on-year growth rate of 4.7% for international air cargo measured in FTKs. AAPA attributes this growth to an escalation of demand for Asian imports from a recovering global economy. Indeed demand is said to have grown by 4.2% compared to the same month last year.
The note of positivity was continued by Andrew Herdman, AAPA’s Director General, “The overall demand environment looks positive, underpinned by positive growth in the global economy. However, the region’s carriers continue to face intense competition in the marketplace with signs of overcapacity and the resulting yield pressures.”
But as Herdman suggests, this is not a champagne moment for the air freight industry in the region. Problems persist, the most pertinent being self inflicted and ongoing capacity expansion. This is putting freight load factors under pressure and undermining profitability. Indeed, even with volumes rising by 4.7% the international freight load factor fell by 0.4 percentage points compared to April 2013, slipping to an uninspiring 64.3%. Largely this is a consequence of capacity expanding by 5.3% over that same period.
Overcapacity is driven by a number of factors that could be said to lie outside of each individual company’s control. Firstly, the relative boom in the air passenger industry is causing many carriers to swell their passenger fleets. These fleets add considerable belly capacity into the market and very often on routes with relatively low demand for cargo, pushing load factors and freight rates down.
Secondly, fierce competition within the air freight market drives two causes of fleet expansion, the imperative of fleet efficiency and need to offer coverage to prospective forwarders. The imperative of fleet efficiency means that no party can afford to take the chance of letting their fleet age. The fear that the efficiency of a rival’s more modern aircraft will allow it to undercut pricing in the future guarantees this. The need to offer coverage causes each company to vie to offer the greatest capacity on the most routes. They do so in order to attract more business from forwarders, many of whom may wish to work with select carriers who can offer the most comprehensive coverage to their customers.
Each of these factors pushes up capacity and unfortunately, with the market in its current guise, it appears inevitable that this will continue. However, as long as there is volume growth in the market the problem of over capacity can be disguised, indeed even eliminated if growth were to soar. With the current outlook for growth for Asia Pacific carriers looking good it would seem that this, rather than any change in business strategy, is the best hope for air freight providers’ profits. Some might call that winging it.
For more information on Asia Pacific air cargo please visit the Ti Dashboard.
GLOBAL SUPPLY CHAIN INTELLIGENCE (GSCi)