Action to improve air cargo competitiveness

The International Air Transport Association (IATA) laid out an agenda for the air cargo value chain to improve its competitiveness with a four point agenda. “The air cargo value chain must offer better quality and improved efficiency with operations that are safer and even more secure,” said Giovanni Bisignani, IATA’s Director general and CEO, in his opening remarks to 900 air cargo executives gathered in Istanbul for the IATA World Cargo Symposium.

“An efficient air cargo industry is in everybody’s interest. Transporting 35% by value of goods traded internationally, it is critical to the global economy. Improving competitiveness to more effectively connect the world requires a team effort across the air cargo value chain. Airlines, forwarders and shippers must work with governments on common goals to solve air cargo’s key issues,” said Bisignani.

IATA specifically addressed the following issues:

Security: Bisignani noted significant progress in collaboration with the US Department of Homeland Security in 2010. He also rang a warning bell that many governments and politicians are working on change to air cargo security that dramatically impacts the business. “IATA is taking the lead to engage governments with industry knowledge and expertise. Our message to governments is clear. We must resist the knee-jerk call for 100% cargo screening. The industry must be secure with effective measures that facilitate the speed needed to support global commerce. Air cargo security must be based on a combination of three measures—supply chain security, scanning technology and better use of e-freight data,” said Bisignani.

IATA’s vision for air cargo security includes a supply chain approach that keeps shipments secure from the time of packing to loading. IATA’s Secure Freight initiative helps industry and governments to work together on investment, processes, technology and risk assessment to implement a supply chain approach. Secure Freight is being piloted successfully in Malaysia and the target is for two other countries to implement in 2011, including the United Arab Emirates. Second, new certified screening equipment is needed to supplement the supply chain security process and handle oversize items and pallets if required. And third, to facilitate effective risk assessments, better use must be made of electronic information.

e-freight: The IATA Board of Governors has targeted 10% e-freight volumes on capable trade lanes by the end of 2011, and 100% by 2015. “The e-freight network covers 80% of cargo volumes. But e-freight penetration stands at just 2.8%. Most governments have legislation that recognizes electronic documentation. The exceptions include Thailand, Indonesia, Russia and Vietnam which much catch-up fast or risk being left behind in this important business, “said Bisignani. The IATA e-freight program was started in 2004 with the aim of saving the industry $4.9 billion by converting 20+ shipping documents and the processes behind them to electronic format. “It’s a no-brainer. If we can be faster, cheaper, more accurate and secure we need to get it done,” said Bisignani.

Quality: “Cargo is a competitive business—98% of the volume goes by sea and 2% by air. Customers who pay a premium to ship by air demand premium quality. Cargo 2000 has developed cargo standards. These should not be the property of a club of a few committed airlines and freight forwarders. Customers want to know that their shipments are on time and if they are not, they need to know when to expect them to plan around the delay. This is an example of basic good business practice that air cargo needs to adopt if it is to maintain or improve its competitiveness. My vision is to evolve these to global quality standards by the end of this year,” said Bisignani.

Safety: With one accident for every 1.6 million flights in 2010, safety as measured by Western-built jet hull losses achieved a historical low. Benefitting from the IATA Operational Safety Audit (IOSA) as a condition of membership, IATA airlines outperformed the industry with one accident for every 4 million flights. “Safety is our number one priority. The positive numbers from 2010 show the strength of our commitment. This commitment includes constant improvement and there is an emerging risk with internet based commerce that we must address. Individual sellers through websites are not professional shippers. They don’t know their responsibilities to label, pack and declare dangerous goods. All air cargo stakeholders must find a way to bring these websites to action to inform their customers of their responsibility. And we must do this fast, before we have a catastrophe,” said Bisignani.

A Fragile Industry

Last week IATA revised its 2011 financial outlook. Air cargo is expected to generate $68 billion to the industry’s $594 billion revenues. Volumes are expected to grow by 6.1% for a total of 46.2 million tonnes of air cargo in 2011. Stronger demand indicated by upwardly revised GDP forecasts of 3.1% and careful capacity management are expected to see cargo yields grow by 1.9% in 2011.

Along with the rest of the aviation business, air cargo is expected to be hit hard by rising fuel costs. IATA raised its assumption on the oil price to $96 per barrel from the previously forecast $84. Taking into account hedging levels of about 50% of anticipated consumption, this added $10 billion to the industry’s fuel bill. This drove a 46% cut in global profits to $8.6 billion from the $16.0 billion that airlines made in 2010.

“Aviation remains fragile. With an expected 2011 profit margin of just 1.4%, any crisis or shock could knock us off balance. We must protect and strengthen the 11% of airline revenues derived from air cargo. Working together as an entire value chain to improve competitiveness has never been more important,” said Bisignani.

View Giovanni Bisignani’s full speech