February 2007 | News | Global Logistics

Global Logistics

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Pursuing profitable growth pays off.

That's the valuable lesson the global air cargo industry learned in 2006, says Giovanni Bisignani, CEO of the International Air Transport Association (IATA). IATA's recently released 2006 data shows air cargo growth increased from 3.2 percent in 2005 to 4.6 percent in 2006.

Although the increase remains below the historical growth trend of 5.6 percent, more importantly, the industry's bottom line improved, says Bisignani.

On a regional basis, the Middle East was 2006's fastest-growing air cargo region, recording full-year growth of 16.1 percent. The key markets of Europe and Asia, on the other hand, were relatively subdued at 1.7-percent and 4.7-percent growth, respectively.

IATA blames high fuel costs and strong competition from other transport modes, particularly in Europe, for constrained growth in these regions.

North America was the most improved market—freight growth increased from 0.4 percent to 6 percent, as airlines switched capacity toward cargo.

Looking forward, IATA is focusing on efficiency. "Cost reduction, improved efficiencies, and careful capacity management have positioned the industry to achieve a projected net profit of $2.5 billion in 2007," reports Bisignani.

Not surprisingly, this increase in air cargo traffic has benefited the airlines, forwarders, and express companies that offer air cargo service—their combined annual revenues exceeded $71 billion in 2006, according to the newly released International Air Freight and Express Industry Performance Analysis 2006, from Seattle-based Air Cargo Management Group (ACMG).

The revenue total was pushed up by traffic growth, higher fuel surcharges, and currency exchange rate trends, finds the report.

In particular, express companies such as DHL, FedEx, UPS, and TNT continue to play a more prominent role in the international airfreight market, ACMG finds. International express volumes have increased steadily since 2000, and jumped 9.5 percent from mid-2005 to mid-2006 to reach 2.27 million shipments per day.

The ACMG report outlines two other industry trends to watch in the coming year:

1. Continuing consolidation in the airline, express, and freight-forwarding segments. Shippers, however, are showing resistance to the idea of the one-stop-shop, preferring to use multiple suppliers for their global transportation and logistics needs.

2. The potential shift of high-value goods to ocean transport as shippers seek ways to avoid high airfreight fuel surcharges. "The U.S. domestic market has seen a significant mode shift from air to ground, but a shift from air to ocean has not yet become a major factor for international shipments," notes Robert Dahl, ACMG project director.

Lufthansa Boosts Cargo Security

Cargo security is moving to the top of the 2007 priority list for Lufthansa Cargo. The air carrier has stepped up investment in aviation security, as a result of mounting global cargo security concerns among shippers and the general public.

Lufthansa plans to expand its Munich base into a security hub, and develop the Frankfurt hub into a showcase station for new security technologies. Both centers will be equipped with a combination of X-ray and explosives detection systems. In addition, Lufthansa Cargo's Johannesburg, South Africa, station is also being converted and equipped with modern security technology.

The company expects to complete the conversion work in Johannesburg and implement new security technologies in Munich and Frankfurt by summer 2007.

China Warehousing Set to Boom

China is not only the "promised land" for U.S. manufacturers and shippers; it is also a key market for warehouse and logistics facility developers. Global real estate developer ProLogis, for example, plans to spend $1.25 billion there by 2010, making China its second-largest investment destination behind the United States.

"China offers the greatest chance for future growth, as it will be the largest market globally in the next 10 years," says ProLogis CEO Jeffrey H. Schwartz.China will experience a rise in demand for international-standard distribution facilities, as the scheduled opening-up of its logistics sector encourages more international companies to invest in its economy, he notes.

ProLogis' latest China development project—the $300-million ProLogis Park Lingang in Shanghai—broke ground in January. The first phase of the project is scheduled for completion early next year. S

Since establishing its first China headquarters in Shanghai in 2003, ProLogis now owns and manages more than 540,000 square meters of distribution facilities in the Yangtze and Pearl River Delta regions. The U.S.-based company also plans to develop facilities in second-tier Chinese cities such as Hangzhou, Wuxi, and Foshan.

In addition to obvious revenue-generating potential, the company expects its China logistics parks to help the country set up international-standard distribution facilities, increase efficiency, and enhance the investment environment, according to Schwartz.

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