Air cargo rises as clients look to beat slump

An inclination among clients to order less volumes of goods but with a higher frequency has diverted volumes earlier transported on ships to air, said Dubai-based heads of logistics firms.

"This interesting trend has evolved during recession," said Hussein Hachem, Aramex CEO for Gulf and Middle East.

"Customers who were earlier ordering bulk volumes of cargo are now ordering smaller amounts. However, the frequency of demand for such service has increased. And this has ushered in a greater demand for air cargo as compared to sea cargo," he said. Aramex recently entered into a deal with low cost carrier Air Arabia to launch its 'Value express' to meet individual customer demands in the Gulf at lower costs.

The United Parcel Service (UPS), UAE, has witnessed a similar trend and has increased the number of cargo flights to Dubai, said senior executives with the company. "It is a new trend that has emerged during recession. Ship volumes have been transferred to air cargo," said John Tansey, UPS General Manager for UAE.

Tansey said the company will maintain double-digit growth in the region this year and the next. "We are especially happy about the demand in this region."

Ram C Menen, Divisional Senior Vice-President with Cargo, Emirates, recently told Emirates Business that air freight volumes were up 10 per cent in the third quarter of 2009 over the last quarter of 2008.

The air cargo industry has changed in the past seven to eight months, as the cost of inventory management has shifted to vendors, said Menen. Inventory management has evolved in such a way that shippers do not want to hold inventory on their books.

So they are opting for vendor-managed inventory, which helps them shift the cost of inventory on vendor. They can then draw from the inventory as and when required.

"This has propelled air volumes. People are now ordering as and when require. This calls for a quicker means of transport. And that's how freight transport by air has picked up," said Hachem.

He said even though freight volumes have declined globally, they have remained stable in the region. Shipping companies have been ruing markedly lower volumes, even as the International Air Travel Association (Iata) said volumes globally increased 10 per cent.

Jorn Hinge, the CEO of United Arab Shipping Company (UASC), recently told this paper that freight volumes in the GCC have dropped between 10 per cent and 25 per cent as compared to a year ago period.

Air cargo executives expect a further rise in freight volumes by 2010, but caution that costs including fuel are rising. "A high fuel cost makes operations difficult for us," said Tansey.

"Since the low point was hit last December, air freight volumes have risen by 10 per cent," said Iata's latest quarterly cargo market analysis.

Automobiles, pharmaceuticals and electronics items remain the prime exports driving the air cargo, said industry executives.

But part of the rise came at the expense of yields, which fell by nearly 20 per cent in the first half of 2009, as revenues on international air freight markets plunged by about 40 per cent over levels a year ago. Stronger growth under way in many Asian economies has boosted domestic air freight markets in the region, it said.

Air freight data on both domestic and international markets now point to a consistent picture of stabilisation in the first quarter, followed by an upturn in the second quarter which has continued into the first part of the third quarter, said Iata.

"However, the upturn remains fragile until the economic recovery broadens out from an inventory cycle to stronger consumption and business investment," Iata said in the report.

The changes in inventory cycle are highly correlated to changes in air freight, according to the Geneva-based body which represents

230 carriers. The recent rise in air freight volumes has been associated with a drop in ratios of inventory to sales in the US and elsewhere, it said.

"The key issue is whether de-stocking really has come to an end since, in the absence of a near-term revival in consumer and business spending, the inventory overhang still looks large."

 

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