Logistics Management - October 2011

A special supplement to logistics managementAccording to Jim Edgar, regionaldirector of cargo marketing for Boeing,China represents 40 percent of thetrans-Pacific cargo market, and HongKong is a key gateway for air cargo connectingChina with the world.“This area stands to benefit greatlyfrom future increases in air cargo traffic,”says Edgar. “Of local interest and inline with the cargo recovery, Hong KongAir Cargo Terminals Limited announcedthat total annual tonnage for 2010 hita new handling record of 2.9 millionmetric tons, an increase of 24.8 percentover 2009.”Tinseth says that rising cargo traffic iscreating pressure for fleet growth. Boeingresearchers say that airlines will need30,900 new passenger and freighterairplanes through 2030, valued at U.S.$3.6 trillion. Forty-four percent of theseaircraft will replace older, less efficientairplanes, while 56 percent will accountfor new aircraft needed to meet air trafficgrowth. The world fleet is projectedto expand twofold from 18,890 to36,300 airplanes during this span.“The near doubling of the world fleetsize is an indicator that airlines will notonly plan for growth, but will take theeconomically rational step of modernizingtheir fleets as a hedge againsthigh and unpredictable oil prices,” saysTinseth. “The global economic recoveryis helping airlines rebuild their balancesheets, leading toward a demand fornewer, fuel efficient, and environmentallyprogressive airplanes worldwide.”Growth in developing and emergingmarkets, and the need to replace agingfleets, are but two main reasons drivingthis trend, say Boeing analysts—anobservation being echoed by the top aircargo providers.At the same time, however, some analystsare sounding a cautionary note onthis strategy. Charles Clowdis, Jr., managingdirector of transportation advisoryservices for IHS Global Insight, says shippersmay opt for slower ocean carriage inthe trans-Pacific if the economic reboundScheduled freight tons per mileInternational6 Singapore Airlines 7,001 6 Hainan Airlines 421Graphic caption7 China Airlines 6,410 7 All Nippon Airways 417is not robust.“Even some high-end consumergoods are moving on water now,” saysClowdis. “If this trend continues, aircargo providers may have a hard timegetting this volume back.”“Flat world” strategyNevertheless, air cargo leaders maintainthat there’s no reversing a “flat world”business strategy.“We all benefit from a world that’smore connected than ever,” says FredSmith, chairman, president, and CEOof FedEx. “In fact, the largest economyin the world no longer belongs to asingle country but to the realm of globaltrade. It’s driven by emerging markets,such as China and India, and worldwidegains in manufacturing.”Smith says that global trade willcontinue to be the prime source ofgrowth for FedEx, especially in Asia,where they have the strongest transportationnetwork in the industry. But he’salso concerned that his company may beapproaching a tipping point, noting thathe expects higher margin revenue frominternational operations to approach—ifDomesticRank Airline Millions Rank Airline Millions1 Cathay Pacific Airways 9,587 1 FedEx 8,3222 Korean Air 9,487 2 UPS Airlines 4,9793 Emirates 7,913 3 China Southern Airlines 1,2954 Lufthansa 7,422 4 Air China 9045 FedEx 7,421 5 China Eastern Airlines 7138 UPS Airlines 5,215 8 United Airlines 4139 EVA Air 5,166 9 Japan Airlines 40510 Cargolux 4,901 10 Delta Airlines 363Source: World Air transport statistics (WATS)not eclipse—U.S. domestic revenues atFedEx Express for the first time in itshistory.“Our commitment to providecompanies of all sizes with access to newmarkets in every corner of the worldhas never been stronger,” adds Smith.“FedEx not only sits at the nexus ofglobal trade—we are indispensible toglobal trade.”But does this beg the question: Whoisn’t? Certainly, UPS must comprise anotherpiece of that pantheon. For ScottDavis, chairman and CEO of UPS,that means a more balanced air cargorelationship.“When it comes to trade, we’reletting other countries move to the forefront,”Davis cautions. “What is neededis much stronger economic growthfueled by U.S. exports.”Davis, who is also a member of thePresident’s Export Council, acknowledgeschallenges facing the U.S., includingunsustainable federal deficits and thepersistently weak job market. But hecounters this by advocating a series ofsolutions, including:• Streamlining export controls. ThisLogistics Management • October 2011 49S