Cargo
US economic recovery has been modest, but that does not fully explain the slower growth in domestic air cargo volumes at Memphis. A reorganised US trucking industry, moving cargo at a fraction of the cost, now captures many products and shipments that previously went by air. The US domestic air cargo market may also be approaching maturation, at least temporarily. MEM never owed its prominence to the output of its region’s manufacturing firms. Rather, its cargo pre-eminence resulted, decades ago, from FedEx’s pioneering hub-and-spoke strategy for parcels. FedEx chose Memphis because of its mid-continent location, which is well-suited for an air express hub. MEM, however, has been approaching
capacity limits at critical times. FedEx’s hub-and-spoke strategy means that the airport is furiously busy for a few hours each night, creating tremendous air and ground peaking. This peaking can also be caught
between turbulent weather and a commitment to deliver on time. Accordingly, FedEx decided over two decades ago to geographically disperse its hub functions, with Indianapolis serving as a complementary mid-continent hub and a number of regional hubs emerging as traffic allowed. Establishing regional hubs diverted considerable FedEx cargo from Memphis to alternate US airports. And now there’s a strong and growing competitor for traditional international air cargo – ocean shipping – which is striving to siphon greater shares from airlines and airports.
Air cargo’s challenges According to former chairman of the US Federal Reserve Bank, Alan Greenspan, the per capita weight of US economic production remained roughly constant throughout the second half of the 20th Century. However, the price-adjusted value of
US trade per pound rose by approximately 4% annually. That latter statistic helps explain the basic value proposition of air cargo: moving high value-to-weight products from places of production to places of consumption in a timely, cost-effective manner.
GLOBAL AIRPORT CITIES Image courtesy of Hactl.
The growth of high value, low-weight production would seem to bode well for the demand for air cargo – and it has. Between 1950 and 2008, along with the introduction of large jet aircraft, air cargo grew from only 730 million ton-kilometres to 156,309 million ton-kilometres – approximately a 200-fold increase – and all signs suggest continued growth in the long-term. But by some measures, the market
share of cargo captured by air has been flat for over a decade.
Figure 1 illustrates the market share of international air cargo over the past two decades using data on the value of US imports, the largest air cargo market in the world. Through the end of the 1990s, air
cargo was both increasing in volume and in market share compared to other transport modes. Over the last decade, air cargo lost market share to ocean shipping, despite generally increased volumes of air cargo through 2008.
Conversely, after losing market share for much of the 1990s, ocean shipping increased its share in the first decade of this century. That increase is not due to a changing mix of traded products. The general pattern holds for many of air cargo’s staples.
A new generation of larger ships
reduced ocean-shipping costs, but three other factors also played a role. The first was a continuing spread of containerisation, which allowed a broader range of products to be successfully shipped by sea. Containerisation has also made inroads in perishables – a market segment formerly thought to be securely dependent on air cargo. The second was an increase in port efficiency, partly brought on by port congestion in the 1990s.
Goods, which might have once waited for days, if not weeks, before moving inland, can now be processed in a matter of hours. The third was a re-optimisation
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