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ISSUES AND CHALLENGES IN AIRFREIGHT INDUSTRY

MOHD HAIZAL FARIS BIN JAAFAR

+Airfreight Industry

The air freight and logistics sector is defined consisting of revenues generated from freight and mail transportation by air.

The global air freight sector grew by 7% in 2007 to reach a value of $93.6 billion.

In 2012, the global air freight sector is forecast to have a value of $129.1 billion, an increase of 38% since 2007.

+Issues and challenges

1 – Global economy

2 – Fuel price

3 – Mode shifting

4 – Geography of freight movement

5 – Facilities

+1 – Global economy

The International Air Transport Association (IATA) announced global traffic results for July showing slower growth in freight, resulting from slow economic growth after the recession period.

Freight demand is 3.2% lower compared to the same month last year.

Airlines have responded to this slower growth environment by reducing the capacity added to markets, a move which has stabilized load factors at relatively high levels and provided some support for profitability in the face of high fuel price.

+2 – Fuel price

The average cost of a gallon of jet fuel has more than doubled, from 75 cents per gallon in 2001 to $2.01 in the first seven months of 2006—the equivalent of about $68 a barrel on average this year. At one point, jet fuel prices reached as high as $2.50 a gallon.

Two years ago, fuel represented approximately 22 percent of direct operating costs for airlines. Fuel price hikes are being driven by a number of factors: increased demand from India, China, and the Third World Country

+ According to the Bureau of Labor Statistics, the price of

jet fuel has increased by 250% from 2000-2005 alone.

+3 – Mode shifting

Shippers are increasingly optimizing supply chains to rely on cheaper ground and ocean shipments supplemented by occasional air express shipments.

These truckers offer two- to three-day time-definite service, which is adequate for many domestic shippers.

Companies are considering ways to avoid expensive air transport and shift to regional manufacturing, assembly, and distribution.

This shift favors substituting air demand with truck, or using new services such as the accelerated ocean-truck service.

+4 – Geography of freight movement

Cost reducing – organizations tend to change their production country to the nations with lower cost, ex China

Freight movement changes from other region to, from China towards other nations

+5 - Facilities

Airport and its related facilities are currently built by the Government through its holding companies such as MAHB due to its high cost in building it.

In a packed area whereby the facilities are not able to be expand anymore, it have to be built outside the area where the cost could be much higher because of the development or cost of movement from the airport to the facilities outside the airport area.