Forecast Models are as Footloose as the Air Cargo Industry

2018 shows robust growth
Dr. Van de Voorde heads the Department of Transport and Regional Economics of the Faculty of Applied Economics. “Air cargo has become very important for our de-partment as it is a kind of real-time laboratory for industrial economics,”, he ex-plained.
Citing the most recent figures he said that the beginning of 2018 has shown a ro-bust growth of 8%. Yields however, do not follow suit. After a downward evolution up until 2015, they seem to be climbing again. Yet, yields remain volatile. “Only in 2017-2018 they were above zero line” said Dr. Van de Voorde.
The evolution of the air cargo industry is set against a background of multiple fac-tors.  “Technology and business models developments are unfolding with increas-ing speed. Frequent market entries alternate with exits due to mergers and bank-ruptcies. On the governmental side, there are ecological and legal obstructions such as night bans.”

Commercial viability in jeopardy
All these elements added up, jeopardize the commercial viability of cargo airlines, the professor pointed out. “The yields are coming down through pressure from for-warders and integrators as well as competition from ocean carriers and road hauli-ers.”
He pointed out that it is the cargo-only airlines that usually have poor profit margins, whereas the other parts of the air cargo supply chain seem to be highly profitable or bring an important contribution to the revenues. Therefore it is very important to look at the importance of the chain as a whole.

Lessons from ocean shipping
Dr. Van de Voorde did not hesitate to point to the similarities between what hap-pened in ocean shipping, in this case the Port of Antwerp, and what is going on in the air cargo industry today.
“When MSC moved 200,000 teu (transport equivalent units, 1 teu equals 1 20-foot container, ms) from Felixstowe to Antwerp we were unable to measure the effect on the port as a whole. That goes just as well for the choice by a particular airline for a specific airport. Important is: who leads the decision making process about the transport mode, the consignee, the agent etc.”
As for global trends in airfreight, Dr. Van de Voorde warns that the growth pattern will not be the same for all airlines. “There are influencing variables both at the de-mand and the supply side, like the growth of global trade and technological progress and specialisation. Dr. Van de Voorde: “What will be the impact of 3D production? Or the impact of near sourcing on globalisation?”

Some developments may impact the whole game
According to Dr. Van de Voorde the days of thinking in terms of global alliances are gone. They have been substituted by bilateral alliances. Another observation is the frequent feeding of freight towards larger intercontinental hubs and the fierce com-petition between airports due to relatively easy access to price information.
“More than belly operators, full freighter carriers are confronted with geographical imbalances. Air cargo has a very footloose nature and few cargo airports have a unique catchment area. Do not forget that airlines have a very strong negotiating position.”
“There is also a constant shift in the value chain, he said referring to integrators en-gaging in forwarding, freight forwarders operating aircraft of their own, airlines and agencies  bypassing the forwarders and the ‘Amazon case’.
For airports the presence or lack of an integrator and/or a home carrier is very im-portant, as both have a generating effect. When all of this is taken into considera-tion, there is no such thing as a single unique airfreight model. It is a heterogene-ous and multi-various market.

Possible scenarios
A possible scenario that will govern the further development of the air cargo indus-try, is the business model of the average airline collaboration with other airlines or with freight forwarders freight handlers.
Looking back again to what happened in ocean shipping, Dr. Van de Voorde sees a market dominated by a limited number of large companies or alliances. “In ocean shipping  the top 7 container lines move 98% of the teu volume. This has had an effect on the stevedores. In the Port of Antwerp only 2 major players have remained. So in air cargo as well, a degree of concentration may be discerned among freight handlers.”
Referring to what has been going on at Amsterdam Airport, Dr. Van de Voorde warned that giving long-haul passenger flights priority in slot allocation and slot trading bear the risk of crowding out of full freighter operators.

Forecast models are wrong
Past forecasts always turned out wrong, the professor said. Weighing the air cargo growth rates against GDP growth, is certainly not the way forward. “The growth path of merchandise export and airfreight is much higher than GDP’s and industrial pro-duction’s. GDP includes services and air cargo should be linked to flows not to ser-vices.”
So, as a conclusion, he urged the various players in the industry to make their own analysis. “Observe, calibrate and adjust. Avoid the creation of ‘black boxes’ in your forecasts that prevent the identification of the variables.”
Other elements to think about are the chances for airfreight to become more than the way to survive for an airline and the crowding-out effect mentioned above.
“Calculate the consequences of scale increase for the actors involved in the airfreight chain. And observe the changes in the airfreight decision making pro-cess.”

Marcel Schoeters