The air cargo industry has been riding high for almost the past two years. Volumes have grown, airlines report full bellies and have started to bring back once dormant all-cargo aircraft to cope for the demand. Despite a slight decline in growth during the past six months, demand is seen to continue unabated.
What about yields?
It’s all well and good when demand for capacity is up, but is the industry, mainly the shippers, caring that much about whether airlines are now getting a fairer deal as far as revenues are concerned and more importantly - yields.
This subject has been broached by carriers for some years who have seen yields drop to a level where sometimes it was not worth carrying cargo at the prices thrown on the market. Compensations were strived for by introducing the famous fuel surcharges and security fees. This, in a round-about way was the airlines‘ answer to partly increasing net yields. Regulatory bodies and shippers mainly forced carriers to abandon this practice. Sometimes by taking carriers to court for alleged collusion on rate fixing.
The market is booming, especially with the enormous increase in the temperature controlled products as well as the e-commerce, which is still in its infancy.
So, one would expect that net yields for the air cargo industry as a whole would have risen accordingly!
Uneasy political movements and rising fuel prices
One could be correct in saying that the world is going crazy and the political uncertainty across the globe may put an enormous damper on world trade.
One of the results of the present unrest and political bashing has been that oil production has been cut back - hence increasing fuel prices for both ocean and air transport.
A recent IATA survey taken with the airline bosses and their CFO’s, seems to suggest that airlines already in Q2 of this year are seeing operating profits coming under strong pressure - mainly due to increasing fuel prices. This can only mean that net yields may drop again although many airlines believe that they have never generally reached the level they should be for a really profitable operation. Many carriers have during the past two years reverted to strict operating cost reductions in the form of staff layoffs, deferred investments and so on. This cannot be healthy for the airlines cargo departments who should be going all-out to gear themselves properly for the e-commerce trade in the future as well as fine tuning facilities for this trade sector as well as the pharma sector.
Are shippers and forwarders willing to pull along?
This was a question posed to us some time ago with regards to whether shippers and forwarders were willing to pay more for the day to day carriage of air cargo.
The answer is probably - yes, now they are!
It was ironical however to see that in the past shippers were willing to pay more-or-less any price to pin down full charter capacity during peak times, but maybe not willing to enter a serious dialogue with the carriers to pay a few cents more.
This it seems has changed and hopefully it will stay that way.
Yields for air cargo started to rise during the second half of 2017 and the IATA study shows that there were further increases in Q2 of this year. Good for the carriers.
Although the industry is doing well a dark cloud wanders over the horizon due to the uncertainty surrounding the world trade in the next years if sanctions and other factors take hold. More important for the carriers is the development surrounding fuel prices. Much of the airline business costing is centred around this element and it is obvious that they are rising too fast.
John Mc Donagh
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