Air Cargo Industry - Research Paper Example

Air Cargo Industry Abstract The rapid advancement in the technological world of today made inevitable the extended and increasingly-becoming-prominent use of air cargo service. Most of this increase in air cargo demand has been observed in the last three to four decades of the twentieth century. Some events of the 19th century are also known be the root causes of the recent growth in the industry. One example of this was the introduction of jet planes in the commercial airline fleets. However, progress in the global telecommunications and transportations sector cannot be overlooked as a major factor contributing towards the swift enlargement of the air cargo industry. The term ‘courier’ meaning ‘running messenger’ roots to the late 1960’s while the first couriers delivered were mostly important official documents. But the demand for couriers by air grew and so did the operations of air courier service companies. By the 1970’s, DHL became an internationally dominating power in the said industry - followed by Skypak which seconded DHL to emerge as an international courier service. Soon after, many competitors took birth for instance World Courier, Airport Couriers, City Courier and London Aire. Although the industry has grown at faster than normal pace, there are many constraints in the path for it to continue as a sustainably developing industry. Prominent of these are Customs, Aviations and Postal law issues whereas increasing environmental concerns resulting from the vast increase in the number of cargo planes also pose a threat to the steady progress of the air cargo industry. Evolution and history With the world transforming rapidly into an integrated global village and the ever advancing technology, the need for a prompt, safer and economically feasible mode of transportation of goods and cargo was quite inevitable. And to cater this widely scattering need, the idea to transport goods via airplanes was introduced. The 20th century observed major reforms in the global air cargo industry as major airlines for the very first time started dedicating their entire flights for the carriage of cargo and the world saw the never-seen-before All-Cargo Flights. Cargo transportation has always been a salient feature in the recent global economic expansion. The demand for air cargo relates directly to the demand for resources, intermediary and final goods and services. (Bookbinder 2011) The rise of the air cargo industry links its roots to the 19th century developments in the telecommunications and air transportation fields. The induction of jet engine airplanes into commercial airlines’ armada in the 1960’s resulted in a major boost in international trade as the in-built risk of vast delays in transportation quite apparently got reduced. This in turn resulted in a major boom in the international trade during the period and also in the businesses of people who earlier could not afford to manage their commerce over long distances. Improvements in the telex technology and then developments in the fields of computer manipulation and telecommunication led way towards greater feasibility of keeping a track on individual consignments and shipments. Private courier and conveyance companies started to take advantage of the rising opportunity and gradually became more interested in setting up organizational structures to facilitate transportation of freight and cargo over long distances via ships as well as by air planes. The advancements in the technology which took place meanwhile, assisted them in achieving their purpose and helped these business groups to establish themselves as giant courier facilitators. The combination of technological ability and the motive to get instituted as a dominant courier service provider proved to be successful as the growing businesses now demanded more from the cargo transportation companies due to increased need to send and receive information and goods from and to distant places, for instance head offices, branches and franchises. (Campbell 2001) The first international delivery services were provided by the air courier companies. The term ‘courier’, with the denotation of a ‘running messenger’, originated in the fall of 1960’s in North America, Western Europe and the Pacific Rim when financial, engineering and shipping documents were delivered swiftly and reliably. The first ever couriers were transmitted from one city to another city in the form of air passengers’ baggage. However, quite soon the global logistic companies observed a greater need for carriage of freight by air. The rising volumes of air cargo made it quite inevitable for the cargo transmitting corporations to dedicate entire air planes for the delivery of cargo. That was the time when the world first saw the reservation of ‘all-cargo’ container planes on certain air routes. By the end of 1970’s, DHL, a delivery service named after the initials of its owners Adrian Dalsey, Larry Hillblom and Robert Lynn, was the dominating international carrier company which initially transported shipping and bank documents between western coasts of US and Hawaii. Skypak, an Australian courier service provider seconded DHL to emerge in the international market. The decade starting 1970 observed perhaps the most rapid advancement in the air cargo industry when many air courier companies for example World Courier, Airport Couriers, City Courier and London Aire commenced their businesses. Though the business of all these emerging companies was similar, some of them had their operations more specialized than others. For instance the Overseas Courier Services (OCS) began its business activities indulging in distribution of Japanese newspapers abroad. Similarly, IML, a British carrier incorporated in early 1970’s had the primary business to move urgent documents around Heathrow Airport. The rising trend of the air courier service provision also inspired established businesses in different fields to get a grasp on the extending transport industry. Purolator and Loomis, reputed armored car companies also tried contributing to the air cargo industry but the transition did not prove much fruitful for them. (Campbell 2001) While air carrier companies dominated on the international routes, national express companies systematized trucks and small aircrafts to cater delivery of urgent official documents within the domestic economy. An express company is the one that uses a relatively faster than similar, normal mode of transportation, for instance an express train. An air express company became known as the one which utilized its own transportation and conveyance vehicle to transmit documents and parcels on urgent basis to places far away, without relying on the carriage services of scheduled passenger flights. A renowned example of this was Federal Express, incorporated in United States in 1972 by Fred Smith. Whereas in Europe, XP prominently emerged as a pioneer in the field of air express cargo transportation in 1981. The most essential secret of success of the courier and express service provider companies was perhaps the innovative organizational techniques used by them which enabled them to cope up with the ever-progressing transportation and communication technology and adapt according to the optimum-results approach. This innovative use of advancement in technology helped them to bring up a more reliable and faster mode of pickup and delivery service than the traditional postal service. Handling air cargo volumes and huge orders is a sophisticated task as monitoring consignments, individual carrier vehicles and tracing, tracking and coordinating them while abiding by the strict deadlines was a job quite difficult for the carrier companies. (Bookbinder 2011) Modern techniques used by the express cargo companies, however, made possible for them to feasibly keep a track of and the ability to trace the parcels and consignments which resulted in increased ability to coordinate transmitting of consignments to even far off corners of the world. (Campbell 2001) However, by the end of 1980’s, the distinction between express carriers and courier companies began to fade away. This was largely due to vast number of mergers and acquisitions that took place in the air cargo industry. Couriers started operating air flights on intercontinental routes whereas domestic express companies initiated utilizing courier services to deliver goods as the mode of passage was not ample to serve the needs of dedicated cargo delivery routes. DHL acquired Calico and a part of Securicor; TNT Skypak purchased XP; Federal express acquired Gelco/Loomis while United Parcel Service, the principal US parcel company purchased IML. These mergers and acquisitions proved to be a key factor in the global air cargo industry combining together in the form of four major structures; DHL, Federal Express, TNT Skypak and United Parcel Service. In 1996, massively privatized Dutch Post Office entered into a joint venture and was formed into TNT Post Group. This was the first ever amalgamation of postal and express operations in the world on international level. Soon after that, postal service industry saw a sink into the ocean of increasingly prominent and rapidly developing air cargo industry. On March 2009, Fred Smith, Chairman and Founder of Federal Express commended the advancement in the courier and express industry and linked it with the economic development of the United States. According to his point of view, the air express industry served as a ‘facilitator’ in the global economic progress as air transport constituted less than 2 percent of the mass of goods shipped internationally but constituted 40 percent of the total value. According to Smith, no country could be on the front position in trade or operate successfully the modern economy of the 21st century without having a reliable and efficient air express service. As was evident from his speech, by the year 2000, massive progression in the air cargo and freight industry had indeed revolutionized the global delivery services structure. (Campbell 2001) Today, the increased time constraints and greater demand for transfer of goods, papers and documents abroad, the concept of intermodal transportation has emerged. Likewise, much of the air cargo is first conveyed by road to the airport and subsequently delivered to its final destination. Subsequently, it may again be transported via in-city water routes or rail or road networks to be finally delivered to the intended party. The intermodality signifies the height of human need to transmit cargo, documents and other consignments. (Leinbach 2007) Challenges faced by the industry Although it emerged rather rapidly, the air cargo industry did however need more regulatory and statutory reforms in order for it to sustain its development and advancement. In the United States, there was no proper law which provided guidelines regarding the courier and express services. Hence, customs, aviation and postal laws summed up to become an impediment for the sustained growth of the industry. (Campbell 2001) Customs law reinforced the obstacles put forward in the way of international trade via air routes. The customs law have an in-built objective of protecting national security and accumulating customs duty. When the parcels and documents which had to be delivered within strict deadlines came across the traditional customs procedures, long delays in the delivery were inevitable, rendering a negative effect on international trading of goods. (Campbell 2001) Another salient barrier for the industrial growth were postal laws. The goods being delivered to a different nation or continent had to abide by the provisions of national postal laws as well as of the Universal Postal Convention. Moreover, long-lived resentment in the hearts of local postal officials for the private courier companies led the officials to believe that the expansion of private courier service was rather an attempt to “steal away” their income from domestic postal services. (Campbell 2001) Adding to these, aviation laws also acted as a blockade. The international aviation treaties and agreements resulted in the airline companies resisting to utilize passenger baggage capacity for cargo purposes as well as to letting the courier and express services from setting up their own air cargo delivery transportation structures. (Campbell 2001) Coming to the negative side of the air freight and cargo industrial growth, environmental concerns are a big reason to worry. Increased demand for air cargo and freight has increased in increased jet fuel consumption and demand which in turn results in greater amounts of air and land pollution. Apart from this, the increased greenhouse gas emissions resulting from increased number of air plane flights are also a big problem facing the industry. Along with the rapidly developing air freight industry, concerns regarding aircraft emissions have risen drastically and now people have started thinking seriously about whether to continue using aircrafts as the primary mode of transportation for their parcels and consignments. Air transportation can create environmental pollution in three ways. Firstly, at the time of landing and taking off, airplanes emit dangerous gases which cause both air pollution and increased contribution towards global warming. Secondly, during the flight of the carrier air craft, the plane emits gases which adds to the overall level of global warming. Moreover, noise and air pollution as well as congestion in the traffic are also observed near the airports. (Organisation for Economic Co-Operation and Development 1997) Apart from the environmental concerns, there are many other challenges faced by the global air cargo industry such as increasing fuel prices, tough competition from other modes of freight transportation, industry consolidation etc. Therefore, in order to ensure sustained and stable growth in the 21st century and onwards as well, major reforms in terms of new policies, restructuring and decision-making will be needed to be taken. Between 2001 and the first seven months of 2006, jet fuel prices showed a steep rising trend when they more than doubled, starting from 75 cents per gallon in 2001 to $2.01 per gallon in the first seven months of 2006. The fuel prices even went as high as $2.50 per gallon. Ned Laird, managing director of Air Cargo Management Group, Seattle expressed his concerns regarding the ever increasing fuel prices when he stated that the number one issue for the air cargo industry was the sky-rocketing fuel prices. The gravity of this problem was can also be denoted by Laird’s words when he stated that if the fuel prices follow the rising pattern and touch the $3.50 per gallon mark, the air freight costs could increase by 100 percent and a transition from aircraft cargo to boats would become the preferred option for the companies and businesses. Another threat is the security risks facing the freight transportation companies. In April 2006, an attempt was made to blow up 10 US passenger jets with liquid explosives hidden in the passenger luggage. Although the US government immediately brought up security measures concerning the issue, security still remains a major threat for the growing companies. The problem behind this issue is that to lower the security risks, greater number of cargo will now be screened before being transported to its destination which in turn means greater amount of time before the consignment is delivered, thereby increasing the delays in deliveries of freight. This factor may lead to potential transition of the commercial customers to ocean and road routes. The industry also faces a tough competition from other modes of freight transportation. For instance in the US, cargo transportation up to 1000 miles via ground routes is competitive to air route transportation. Another major characteristic of the air cargo industry is that, similarly to the transportation industry taken as a whole, it is going under the process of consolidation. Larger freight companies are acquiring smaller freight transportation companies and freight forwards. This has been the trend of this industry since its very inception and continues till today. The potential challenge here is that smaller cargo service groups and freight forwarder companies need to grow larger with freight companies which are acquiring them so that the power is not in completely accumulated on one end. Restrictions on cross border ownership have been placed in an attempt to reduce consolidation but still the air logistic companies follow the trend of entering into both overt and covert cooperation agreements and treaties rendering the ultimate purpose of the restrictions ineffective. Conclusion To sum up, the air cargo industry has shown pretty rapid improvements and advancements in the last three decades but the challenges facing it need to be taken into account if the industry is to sustain its development and growth. As Neel Shah, vice president, sales and marketing, United Airlines Cargo said that nothing is permanent in the air cargo business, and that the future of air cargo feasibility, vitality and sustainable growth depends on the economics; and more particularly the fluctuating –mostly rising – jet fuel prices. Therefore, in this world of today where change is the only constant, changes in the organizational structures of air cargo conveyance companies are deemed necessary for their prosperity and growth. (Harrington) References Campbell, J. I. (2001). The rise of global delivery services: A case study in international regulatory reform. Washington, DC: JCampbell Press. Bookbinder, J. H. (2011). Global logistics. New York: Springer. Leinbach, T. R., & Capineri, C. (2007). Globalized freight transport: Intermodality, e-commerce, logistics and sustainability. Cheltenham, UK: Edward Elgar. Organization for Economic Co-Operation and Development 1997. The Environmental Effects of Freight. Paris. Harrington, L. (n.d.). High 5: Air Cargo's Top Challenges - Inbound Logistics.Home - Inbound Logistics. Retrieved November 25, 2012, from http://www.inboundlogistics.com/cms/article/high-5-air-cargos-top-challenges/ Read More