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May 12, 2014

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10 THE JOURNAL OF COMMERCE www.joc.com MAY 12.2014 COVER STORY AS MORE SHIPPERS shift freight from express to deferred services or even to ocean vessels to better manage inventory and cut logis- tics costs, it's natural to conclude that the air cargo industry is in a tailspin. Industry leaders, including FedEx founder and CEO Frederick W. Smith, describe a price-ser- vice flashpoint that favors slower means of transportation and warn of growing pro- tectionism. The rise of near-shoring and near-sourcing shortens supply chains, reduc- ing the need for long-distance air transport. Weak demand, coupled with increased belly capacity on passenger planes, helped pull down the industry's yield in 2013 for the third straight year, according to the Inter- national Air Transport Association. Volume handled between 2010 and 2013 increased by less than 1.1 million tons industrywide, while revenue shrank 10.4 percent, to $67 billion, in the same period. Despite these headwinds, don't be sur- prised if the air cargo industry's share of total global freight in a decade is little dif- ferent than it is now, according to various sources. The industry's profitability will likely decline, as more shippers seek deferred service in the bellies of passenger planes. But air cargo still will be a major force in the global supply chain, even if what carri- ers move and how it moves differs greatly from today. The air cargo industry moves only a frac- tion of total global freight annually, but the value of those goods is more than 30 percent of all cargo transported, said Greg Smith, an By Mark Szakonyi After a decade of market share losses, the air cargo industry looks to stem the shift of freight to other modes air cargo and logistics industry veteran and enterprise consultant at Tech Mahindra, a $16 billion information technology company. "The air cargo industry will stay important. Having said that, you have seen some areas shrink," Smith said. The industry's market "may change a little, but it won't change dramatically." According to Boeing, the air cargo mar- ket's share of total freight has stayed around 2 percent since 2000. The data doesn't support the belief that air freight has lost significant ground to other transportation modes, said Daniel da Silva, Boeing's vice president of modifications and conversions for commercial aviation services. "You have to understand that we are such a small portion of the total tonnage transported out there that any blip causes wild swings in our industry," he said. "So that is why we see the kind of variability in demand for air cargo that we see today." The share of total global container- ized or unitized cargo transported by

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