Air cargo business faces headwinds on protectionism and trade friction

Global air freight markets performance has had a positive turnaround in 2017 on the back of buoyant consumer confidence, exponential growth in e-commerce and broad-based economic upturn.The nearly 10% growth registered that year came after nearly a decade of air cargo sector remaining in the doldrums.But freight traffic data released by International Air Transport Association recently, raises concerns yet again about global air freight industry. Global air freight segment contracted 1.8% in January this year, IATA data reveal. And global year-over-year volumes fell 1.5% when compared to December 2017, which meant the year-end growth figure for 2018 was 3.3%.Clearly, the air cargo business now faces global headwinds with a bleak outlook.Protectionism, trade friction, Brexit uncertainties, and anti-globalisation rhetoric are part of a genre of developments that pose real risk to air cargo business…and broadly across the economies of the world.Industry experts say the decline in freight needs to be examined in the context of the increasing geopolitical instability and ongoing protectionism that has affected global traffic and trade. Industry performance in 2019 remains very uncertain as trade wars persist, the United Kingdom continues to work to exit the European Union, and relationships in key markets in the Middle East and China threaten to cast a pall on the global outlook.The United Kingdom and European Union have already prioritised the continuation of air connectivity regardless of the conditions on which the UK leaves the EU. But Alexandre de Juniac, IATA director-general emphasises on the need to convince the governments around the world to extend that concern to customs facilitation.  “Critical medicines, supply chain components, and time and temperature sensitive products must not fall victim to poor contingency planning,” he says.Cargo business generates nearly 10% of airline revenues, representing more than twice the revenues from the first class or premium segment, according to IATA. The value of goods carried by air may have exceeded $6.2tn last year. Airlines transport in excess of 62mn metric tonnes of goods a year, representing more than 35% of global trade.While the international e-commerce boom has been good for air cargo, the sheer volume of e-commerce packages throws up fresh challenges for both domestic and international shipments.One major challenge is the requirement of stakeholders in the air logistics chain — shippers, brokers, forwarders, air carriers and truckers — to execute flawlessly to accelerate the movement of goods, achieve quick clearances from customs and provide new levels of visibility to customers throughout the shipment lifecycle.Analysts say the speed with which e-commerce has grown seems to have devastated the retail world. In North America, famous brands like Sears and JC Penny have almost disappeared. They were pioneers in catalogue sales, but could not sustain as they were not able to get their heads around the e-commerce world.Although the global air freight outlook remains shaky, one estimate suggests air cargo volumes will increase by an average 3% every year for the next decade.However, there are two areas of change, which could impact the industry and its potential profitability. These are regulation and technology. These either have the ability to throw multiple wrenches in the works for air freight or improve efficiency and cost effectiveness to the point where it becomes the method of choice for sending goods across the globe.Traditional freight forwarders who are not on board with the latest technology could find themselves overtaken by more tech-savvy forwarding companies who are digitising as much of their chains as possible. As technology develops, so must regulation in order to keep up with new innovations and new challenges.Aviation brings people together, delivers 35% of global trade by value, foster commerce and makes the world a smaller and more accessible place.As such, aviation is closely linked to most of the UN’s Sustainable Development Goals. And it is a vector of globalisation, which has lifted a billion people from poverty since 1990.As trade facilitates prosperity, the aviation industry, air cargo in particular, is critically important to global economy. Therefore, the value of aviation needs to be continually recognised and impediments to global trade growth removed. History has taught us there are no long-term winners from trade wars or protectionist measures. The sooner we realise this, the better!* Pratap John is Business Editor at Gulf Times.