Air Cargo Industry

Role of Industry

Air cargo plays a crucial role in today’s world. Whether it’s through express shipments providing expedited service, cargo carried in the holds of passenger aircraft linking together businesses across the globe, freighters delivering cargo on high volume trade lanes, or chartered flights providing needed supplies on special service schedules, the air cargo industry serves as a key engine of economic growth and development. It supports trade and investment, promotes connectivity, and improves efficiency and competitiveness.

Air cargo represents a relatively small percentage by volume of world trade (less than 10%) – but its significance leaps by value, where it accounts for more than 30% of international trade. In other words, air cargo is oriented towards high value or time sensitive products.

For example, the express industry has enabled the widespread adoption of just-in-time practices by many businesses, which has resulted in significant savings in inventory and logistical costs. That said, air cargo continues to expand its clientele and now serves a diverse range of businesses and consumers. With time-definite international transactions, production flexibility and speed characterizing much of the new economy, it is nearly certain that air cargo will play an increasingly vital role in the global economy. No other means of transportation is better equipped to meet the economic realities of the new era where global sourcing and selling, and just-in-time logistics, require that producers receive and ship smaller quantities more frequently, quickly and reliably over long distances.

Air services help to improve the competitiveness of almost all aspects of companies’ operations, including sales, logistics and inventory management, production and customer support. By expanding the size of the market that can be served, aviation acts as a spur to innovation, increases sales and profits, allows more scope to exploit economies of scale and enhances competition.

Business in sectors such as technology, financial services, pharmaceuticals or business services increasingly require high speed delivery services to ensure they can respond to customers’ needs.  Around 60 per cent of air freight travels in the hold of passenger planes, so it travels at the same time as passenger flights do. The remainder is carried on specialist freight services, which includes express carriers. These often need to leave at specific times of day to make international connections…. Freight services are often pushed to more unsociable hours due to the demand for passenger flights at more traveller friendly times. Express services need to operate at such times to fit with customer need – e.g. end of business day collections, delivery by start of day.

High quality transport infrastructure is a prerequisite for sustained economic growth and for maintaining competitiveness in a developed economy. International competitiveness is driven by productivity growth which is underpinned by trade, foreign investment and innovative activity, all of which are facilitated by connectivity. The most innovative and productive firms tend to be those that are competing at a global level.

Air freight further facilitates trade by enabling businesses to operate in a more flexible and time-sensitive way. Global connectivity is particularly important for air intensive sectors: high-tech, pharmaceuticals, financial and business services, which place significant value on face-to-face relations, rapid delivery of high value goods, and supporting a mobile workforce. Air connectivity increases with the number of destinations served and the frequency of flights along these routes. This in turn will make a location more attractive to foreign investment and increase the potential for business efficiency, and ultimately generates a virtuous cycle of connectivity and economic growth.

Air cargo service has been a tremendous enabler for economic development. This is because air freight and integrated air express are critical to time-based competition – the frontier challenge for the world’s most-advanced firms. Air freight has also facilitated specialization and allowed the well-developed countries – their producers and consumers – to reap the benefits of ever-closer matches between demand and supply. This is due not just to the speed of air transport but to the geographic reach it allows which enlarges effective market areas to the point that increasingly small product niches reach the threshold of feasible production.

One area where air freight is particularly vital is in facilitating trade with the developing world – especially Africa. Air freight allows these developing countries to trade in fresh produce, such as food or flowers with Europe – a key area of the economy for many African nations. The distances involved usually make it impossible to serve these markets by sea freight due to the extra time that would take.

At the same time, air freight allows large pools of, especially Asian, labour to connect with the product needs of wealthy Western European, North American, and Northeast Asian markets. Using traditional ocean transportation, exporters (and their employees and suppliers) in most developing countries is at a considerable shipping time disadvantage to these markets compared to domestic producers. Air cargo, combined with the institutional mechanisms that allow the transfer of production knowledge, goes a long way towards levelling the temporal playing field for developing country producers. Air cargo potentially allows developing country producers 24- to 48-hour access to these markets, compared to the typical 30 days shipping time using traditional ocean transport.

Whether producing cut flowers, fresh vegetables, milk, or fish, air cargo has also allowed otherwise remote agricultural and maritime regions to access world markets. The accessible labor force of the world has expanded as air transport has come together with reformed institutions, rethought supply and distribution processes, and human resources.

Industry Players (Shippers, Forwarders, Airlines, Air Integrators, Airport Name etc)

The following agents along the chain of air cargo are all crucial to the efficacy of the air cargo process.

• Shipper (or Consignor): They request for service in transporting the cargo in other words they are the source node of the supply chain)
• Freight forwarder (or forwarder): They are analogous to a travel agent with passengers; the forwarder typically arranges for the transportation of cargo from the shipper’s warehouse, delivers (or has a contractor deliver) it to the departing airport, prepares the necessary paperwork, picks up at the arriving airport, and delivers (or contracts for the delivery) to the consignee.
• Carrier or Airlines: The firm who provides the air delivery of cargo from the origin airport to the destination airport. There are primarily two classes of carriers: cargo carriers that primarily carry cargo and freight (e.g. FedEx, UPS, DHL, Kitty Hawk, Cargojet Airways), and combination carriers that carry both passengers and cargo that is stored in the bellies of aircraft (e.g. Korean Air, Lufthansa, Delta). About 25% of all cargo is carried on commercial passenger planes with the remainder on freighter aircraft.
• Ground Handler: An agent at an airport that physically handles the freight; this usually refers to whenever freight is loaded, unloaded, transferred, stored, retrieved, broken down, or consolidated.
• Consignee: The receiving party that the goods are sent to (sink node of the supply chain)
• Air Integrator: They are a logical evolution of express couriers. They integrate a multimodal package of solutions, usually road and air services to pick up and deliver goods and documents to a final customer. This cluster is global and highly concentrated with four players competing on a worldwide scale: DHL International, FedEx, UPS and TNT with some minor regional providers.
• Airports: Airports assure significant logistic support in the movement of both short, medium and long-haul passengers and goods acting as gateways of in-bound and out-bound business and tourist traffic. A superior capacity, a quality package of support infrastructures and effective managerial practice will be key elements in the improvement of its competitive capabilities.