The trajectory is pointing up. Most agree that 2014 will be better than last year and much better than 2012. But the larger question is whether this is the beginning of a sustained growth period in air freight or merely an interlude between slumps? A cursory look at any airport totals shows that air freight tonnage is moving up. Boeing in their annual review of the industry is optimistic about the future of air freight traffic. The giant-aircraft builder isn’t alone in their appraisal of the market as IATA (International Air Transport Association) echoes the view that the sector is looking up. So why is there pessimism among airlines, air freight forwarders, integrators and others involved in the supply chain? The answer lies in whether increases in air freight tonnage will keep pace with capacity, as larger aircraft and new routes build lift capacity. It is worth noting that for the past two decades freight yields have declined at an average rate of 2.3%. A figure that often sparks grabs for market share over organic expansion. Globally, there are just under 200 air freight operators flying around 1,645 aircraft with nearly half of these operators based in North America. North America, Asia-Pacific and Europe combined represent 86% of air traffic. At the moment around 55% of the world’s air cargo traffic is carried by freighters the other 45% is carried as belly cargo on passenger planes. The ratio has been over 60-40 at times but rarely has the freighter segment fallen below 50% even on a quarterly basis. This ratio between freighter-belly freight is due in part to the contributions by integrators like FedEx and UPS to the all freighter movements. In the US market the ratio is even more evident as integrators dominate the market with belly cargo representing less than 30% of the freight carried. Interestingly freighters are the preferred carrier in the East-West markets. In the Europe-Asia trades 72% of the cargo is carried by freights while in the Asia-North America trades it is even higher at 80%. In the North America-Europe trade route freights account for 43% of the business. Market wise the ability for capacity to expand and contract against demand along with additional capacity regularly being added in the form of newer and larger passenger aircraft has dampened freight rates. Overall, cargo revenue represents approximately 14% of total air traffic revenue on average with airlines earning nearly 35% of their revenue from cargo. 2013: Turning Point? The figures for both IATA and Boeing agree that the market has been flat lining for the past three years. IATA notes that since 2011 the growth in freight tonnes was only .063% per year, and Boeing showed negative growth for five consecutive quarters spanning 2012 until the second quarter of last year. There really haven’t been a lot of good years for the air cargo industry since the financial crash in 2008. But was 2013 [specifically the 2nd quarter] the beginning of an up turn in the air freight market? The air freight sector tends to closely follow global trade trends and signs are still very positive for market growth, albeit with numerous geo-political issues. For 2013, IATA figures showed a 1.4% expansion of global freight tonne kilometers (FTKs) over 2012. The real push upward began in the second half of 2013. Unfortunately for the industry, capacity grew faster than demand at 2.6% and as a result load factors were weak at 45.3%. Boeing showed an increase of .5% for scheduled air freight in 2013. In some respects it was a year of haves and have-nots. Middle Eastern and Latin American carriers saw demand grow (12.8% and 2.4% respectively). Conversely, Asia-Pacific carriers, which have nearly 40% of the global air freight market, saw cargo decline by 1.0% over the year. IATA in its analysis of the 2013 figures noted that the largest share by routes were within Asia Pacific (21.6%), Europe-Asia Pacific (12.3%), North and Mid-Pacific (10%). Boeing in their recently released “World Air Cargo Forecast” expects that this year [2014] air cargo traffic will “rebound” over last year with an increase of 0.9%, largely buoyed by improvements in Middle East-Europe (13.6%), domestic China (6.5%) and Latin America-Europe (3.7%). The larger question is whether this is the beginning of a sustained growth period in air freight or merely an interlude between slumps. The Future: Upward Mobility European consortium aircraft builder Airbus in their annual market analysis forecasts an average annual freight traffic growth rate of 4.8% over the next 20 years. Boeing in their forecast believes freight will grow 4.8% per year over the next two decades. Predicting global traffic will grow from 207.8 billion RTKs in 2013 to more than 521.8 billion RTKs by 2033. Airbus in their annual market analysis points out that the global middle class is expected to rise to nearly 3.6 billion people by 2022 and more than 5 billion by 2032. Considering that air freight moves only about 1% of the total freight moved, it is an industry built for premium products designed for luxury goods or freight that is time sensitive. However air freight’s one-percent today accounts for about $6.8 trillion worth of goods or by value 35% of total trade. Unlike containerized shipping (14% of trade volume) which has grown by expanding into other segments ranging from low cost hay to high priced iPhones, it’s difficult (but not impossible as heavy lifters prove) to grab from other transport sectors. Future demographics favor an increase in demand for air freight. The expanding middle class in emerging countries will foster traffic between developed to emerging. Asia Pacific (including India and the PRC) currently represents 36% of the world freight traffic and according to Airbus will account for 42% by 2032. China’s share of the air cargo market is now around 15% and is expected to rise to 22% by 2032. Conversely, Europe/CIS and North America combined accounted for 51% of the total traffic in 2012 and by 2032 will see its cut drop to 45%. IATA, whose forecast period is shorter than Airbus and Boeing, predicts that the U.S., China and the UAE (United Arab Emirates) will each add more than 1 million metric tons of freight by 2018. As part of the shifting demographics the UAE will replace Germany as the world’s third largest market. IATA forecasts routes between the Middle East and Asia will be the fastest expanding among the international markets at 6.2% a year, followed by markets within the Middle East (4.6%), from North America to South America (3.9%) and Europe to Southern Africa (3.8%). All the forecasts are pointing skyward but protectionism and geo-political disputes could easily undermine these optimistic forecasts. For the short term, while yields on the freight side have been low, the air freight business has been surprisingly resilient despite the bumps in the ever-changing economic conditions.