The global air cargo industry has had its ups and downs in recent years, and, like carriers in other transportation modes, has suffered from overcapacity and low rates. The low rates may have benefited shippers in the short run but the overcapacity has motivated carriers to withdraw capacity from some trade lanes, leaving shippers with fewer options and concerns about the reliability of their transportation providers.
The oil and gas industry has experienced turbulence in recent years, thanks to low prices, a phenomenon which has hit the oil-rich Middle East more so than some other regions. And yet, despite all of these seemingly negative conditions, air cargo capacity to and from the Middle East is still growing.
That state of affairs should be of benefit to US exporters, at least in the short term. In the longer term, they need to be concerned about whether carriers are over-expanding and will eventually take steps to correct the capacity equation, leaving shippers with the same dilemmas they face in other regions of the globe. On the other hand, a resurgence of the oil industry with an increase in prices and/or an uptick in air freight rates could obviate those potential problems.
“Middle East carriers are still growing capacity and volume to and from the United States,” said Michael Blaufuss, senior vice president for air freight at Agility, a global logistics provider based in Kuwait. “This is a very healthy part of the industry.”
Middle East and European carriers are fighting for market share in the Middle East because it’s still growing, despite the prolonged downturn in oil prices, noted Blaufuss. “The growth is fueled by consumer demand and by the fact that there are still a few large projects taking place in the region,” he added.
Freighter capacity from the US to the Middle East is driven largely by certain Middle East carriers, including Emirates, Qatar Airways, Turkish Airlines, and Etihad. “The Middle East is one of the world’s largest air cargo markets and is well served both with bellyhold and freighter capacity,” said David Kerr, senior vice president, Cargo at Etihad Cargo, which is based in Abu Dhabi.
Emirates SkyCargo offers export capacity of nearly 2,000 tons every week from the United States. “We carry almost everything from Seattle cherries to heavy equipment from Houston,” noted Duncan Watson, an Emirates cargo vice president.
Destinations in the US served by Emirates include Atlanta, Boston, Chicago, Columbus, Dallas, Fort Lauderdale, Houston, Los Angeles, New York, Orlando, San Francisco, Seattle and Washington, D.C. Globally, the Emirates SkyCargo network encompasses 155 destinations in 83 countries across six continents. “That means that a shipper in the United States can reach out to a wide global audience through Dubai,” said Watson. “Emirates SkyCargo is an important facilitator of international trade by connecting exporters with customers across the globe.”
That’s part of the value proposition also offered by Etihad, according to Kerr. “We complement our capacity with partner connections over European gateways on both passenger and freighter aircraft,” he said. Outbound cargo from the US to the Middle East on Etihad includes a significant perishables component, with fruit, strawberries and grapes making their way from the West Coast in large volumes, primarily in the bellies of passenger aircraft.
Freighter volumes were once dominated by oil and gas-related cargoes which have slowed considerably in recent years, especially when it comes to new production. But exports to support current production have warranted maintaining freighter capacity out of Houston, although, as Kerr put it, “the market is quite challenged.”
The continued importance of consumer markets in the Middle East is illustrated by Etihad’s recent bump-up of freighter service out of Rickenbacker International Airport, an all-cargo facility in Columbus, Ohio. The addition of a second weekly flight that began on May 12—operating on the route Colombo-Columbus-East Midlands-Abu Dhabi—was done at the behest of Trinity Logistics, which carries apparel from the Indian subcontinent to US retailers. Trinity also secured two new major US customers exporting to Europe, the Middle East and Asia. Etihad, which operates Boeing 777F aircraft on the route, began weekly flights out of Rickenbacker in the summer of 2016.
In the increasingly competitive air cargo market, one of the major trends is the movement toward specialized offerings for different sectors. Air cargo carriers work closely with shippers and forwarders to understand their requirements. Emirates has redesigned several of its product offerings including for pharmaceuticals, perishables and the automobiles. Etihad runs a service specializing in the transport and delivery of horses, an offering the carrier plans on expanding.
“We launched Emirates SkyPharma to ensure secure transportation of temperature sensitive pharmaceuticals,” said Watson. Emirates SkyWheels specializes in transporting premium and luxury cars, while Emirates SkyFresh helps keep perishables fresh during transportation.
“Our modern fleet of over 250 wide bodied aircraft and our dedicated fleet of freighter aircraft also mean that we are able to transport heavy or outsized goods,” said Watson. “We expect that the trend towards specialization and customization of transportation solutions in air cargo will continue over the foreseeable future.”
Shaky geopolitical and trade conditions have air carriers playing a cautious game, and US exporters are advised to pay attention to these conditions. “I’m concerned about political factors that have created uncertainty,” said Blaufuss, “including the US administration’s mixed signals on trade, the fallout from Brexit, a volatile North Korea, and the ability of ISIS to continue to pose a threat. It’s important to watch the capacity provided by airlines for air freight. You can see some of them cutting back by taking aircraft out of rotations, dropping monthly flight hours from 450 to 350 in order to prevent rates from falling.”
But Kerr believes that air cargo rates have already hit rock bottom and are now increasing slightly over their recent historic lows. The question is whether that represents a blip or a sustainable trend. If the latter, shippers may have to pay more, but reasonable air freight rates provide the assurance that carriers will not cut capacity and compromise exporters’ abilities to meet their customers’ delivery requirements.
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