fter staging a comeback in March 2016, air cargo traffic volume has continued to edge up. While growth has moderated from the high of 9.7 per cent reached in 2018, it is still trending up on global trade expansion and increase in cross-border e-commerce.
Speaking at the Cargo Handling Conference in Brussels in September 2018, McKinsey partner Ludwig Hausmann said that world trade growth is currently still running at a multiple of 1.4 times GDP growth, creating a baseline world trade growth of around 4.1 per cent annually. If the United States under President Trump were to expand on its “go it alone” trade policy by imposing tariffs on all trade partners, the multiplier will fall, perhaps to a multiple of 1.
“Trade that does not involve the US is still big enough,” Mr Hausmann noted.
The spike in e-commerce, which is enjoying strong double-digit gains, is bolstering growth.
Earlier fears of a modal shift from air to sea or rail transport have eased. McKinsey’s research indicated that currently 80 to 90 per cent of demand for air freight is not at risk of being lost to other modes. Over the next seven years possibly 10 to 15 per cent of the total cargo carried by air could make a switch to ocean freight, and 1 to 3 per cent to rail.
Concerns about the loss of significant volumes of air cargo to 3-D printing are also unfounded. Based on an analysis of the kinds of products which are suitable for 3-D printing, McKinsey concluded that between 2 and 5 per cent of cargo overall, and between 2 and 4 per cent of products currently carried by air, will be produced by 3-D printing by 2025.
Since 2016, the cargo business has been making a bigger contribution to airline revenues, helping to offset falling passenger base fares. As airlines open up new trade lanes to connect to ever more cities, the contribution of air cargo to economic development around the world has also increased. In 2018, airlines added over 1,300 new city pair connections, bringing the total to more than 21,000. These connections have more than doubled in the last 20 years.
In the near term though, growth has eased, weighed down by geopolitical factors. The International Air Transport Association (IATA) has revised its growth forecast for 2019 downwards to 2 per cent from its earlier estimate of 3.7 per cent.
“Protectionism, trade friction, BREXIT, and anti-globalisation rhetoric are part of a genre of developments that pose real risk to our business…and broadly across the economies of the world,” IATA chief executive Alexandre de Juniac remarked at the 13th edition of the World Cargo Symposium in Singapore on 12 March 2019.
Developing in Sync with Global Industry
Singapore Changi Airport – the most connected international airport in Asia and the eighth most connected airport globally – has developed in tandem with the airfreight industry. After a 7.9 per cent increase to reach a record 2.12 million tonnes in 2017, increase in air cargo traffic through Changi Airport moderated to 1.4 per cent in 2018 to reach 2.15 million tonnes. Transhipment volume accounted for almost half of the total throughput.
In spite of near-term uncertainties, the outlook is good. Speaking at the opening of the World Cargo Symposium, Dr Lam Pin Min, Senior Minister of State for Transport, said, “The outlook of the air cargo industry remains optimistic, especially in Asia Pacific. This can be attributed to two key trends. First, we see emerging growth opportunities in Southeast Asia. With dynamic and growing populations, countries like Thailand and Vietnam are emerging as strong manufacturing hubs. This will fuel more air cargo movements in the region.
“Second, the rising affluence and consumption of Asia’s rapidly growing middle class and the increased business activities in Asia will drive demand for goods. Fast-growing verticals like e-commerce, pharmaceuticals and perishables will continue to grow strongly as a result of the expanding middle class. These cargo verticals require strong air cargo hubs with efficient and quality cargo handling.”
For the current year though, cargo handled through Changi Airport is continuing to moderate. As a trading nation, with the highest trade-to-GDP ratio in the world, Singapore is feeling the sharp end of the anti-globalisation rhetoric and ongoing trade friction between the United States and China, dealing a blow to its export figures. Enterprise Singapore expects non-oil domestic exports (NODX) for 2019 to weaken to 0 to 2 per cent, down from 8.8 per cent and 4.2 per cent increase in 2017 and 2018, respectively.
As an expression of its confidence in the future of airfreight and its vital role in its economy, Singapore is pressing ahead to develop its infrastructure and advance policies to foster trade growth. As part of the Changi East expansion, a new airfreight facility will be built, which will almost double its annual cargo-handling capacity at Changi Airport from 3 million tonnes to 5.4 million tonnes. Slated for completion in 2030 when Changi T5 opens, the future Changi East Industrial Zone (CEIZ) presents the Changi Airport Group (CAG) with new opportunities to transform its cargo processes, infrastructure and facilities.
Said Dr Lam, “The future air freight terminals will be highly automated and data-driven. To realise this vision, the air cargo community is working closely with CAG and the government, to re-design our air cargo operations, improve productivity and raise the efficiency of the sector.”
As part of its liberal aviation policy, Singapore is also continuing to pursue air services agreements (ASAs). Two more were concluded with Panama and Peru in 2018, bringing the total ASAs concluded to over 140 states and territories, of which over 70 are open skies agreements. The ASAs allow signatory nations to operate any number of passenger and cargo services between the two countries as well as beyond to any third country, with no restrictions on capacity, frequency, aircraft type, or routing. In addition, cargo carriers from both countries will be able to use the other country as a hub for operations to any third country.
Singapore is also working closely with other ASEAN countries, as well as with ASEAN Dialogue Partners like China, Japan and the European Union, to enhance the breadth and depth of air connectivity. “This will allow airlines to fly more freely within the region and around the world, and improve the speed and efficiency of air cargo delivery,” said Dr Lam.