2009 was one of the worst years for the airfreight and cargo industry in the country as a result of the global recession and the recent typhoons that hit Luzon.

Despite the sudden rebound in the demand for air cargo in late October this year, there was a lack of aircraft that could fill up the demand for charters.

“This was probably attributable to the pull-out of planes in the network or rotation by most airlines brought about by the poor cargo demand early this year,” an industry source said.

Carriers have to deal with the ups and downs of the market. When the demand was low, the major players pulled out of their capacity contracts with the carriers which left the airlines with no choice but to scale down their operations or pull out their planes in operations.

“It was really difficult for anyone to project or even make accurate market forecast due to the volatility of the markets which had never been experienced for years after the SARS virus incidents.”

In the past, cargo agents would rely on their blocked space allocation or guaranteed capacity agreements with airlines to ensure reliable uplifts but this year the timing was difficult to hold because of the depressed markets.

Another challenge for the airfreight industry is the erratic peak-and-through on the air transportation cost.

“It would be difficult for planning transport budgets because of the extreme movements of this lever. For a time, long-haul costs from Manila to Europe especially with Gulf carriers, was even below US$1.00.”

During the peak season, charter flights were sold at US$700,000 per 100 ton capacity which means the rate level per kg, was hovering around USD7.00 per kg.

“It is a good thing the fuel cost was not erratic otherwise it would have contributed to even higher transport costs,” the source said.

The country’s exports continued its downtrend with a 31.7 percent drop in the first seven months of 2009 compared to 2008.

Electronic products which accounted for 57.8 percent of the total export revenue in July 2009, registered a 25.2 percent decline to $1.915 billion. This was due to the 24.8 percent annual decrease in semiconductors which comprised 42.8 percent of the total exports.

Issues facing the industry

Stakeholders are hoping that the government would consider instituting a national policy that would create a liberalized environment for cargo transportation.

A good example is creating and positioning the Philippines as a transit cargo hub whereby procedures and processes are in place to ensure seamless transport.

“In this way, we create continued activities, more jobs and additional revenues for the government. As always the case during peak seasons, the growing demand out of China and Hongkong tend to spill over to most Asian countries and cargo capacity becomes a major problem for everybody,” an industry source said.

The Philippines could be a major gateway for cargo hubbing activities of the major airlines.

Airline companies would only invest in cargo terminals, facilities, and planes if they are assured that government agencies would strongly support and render services in all facets of business operations including the use of modern IT enhanced processes.

Another example is the multi-modal transport solutions – sea and air. “This will only happen if you have a determined national policy supporting this.”

Another issue that needs to be addressed is corruption in all fronts. Eliminating corruption would create transparency and the industry be able to adhere to global standards and processes without major investments in infrastructure resources.

2010 prospects

2010 would be another challenging year for the airfreight and cargo market. An official of the cargo forwarding company said he predicts a flat or no major growth in the cargo business unless the major markets would attain full economic recovery.

On the manufacturing side, this seems to be continuing trend as well. Without any other major activity happening, “we are probably looking into more declines in the future,” the official said.

On the positive side, one major development for the industry is the process outsourcing on a lot of logistics activities by more manufacturing companies. “This is the more practical alternative due to the need for more cost-cutting solutions in order to keep the business afloat.”

Global cargo demand is expected to grow by 7 percent to 37.7 million tons in 2010 following a 13 percent decline in 2009, according to the International Air Transport Association (IATA).

Total freight volumes would remain 10 percent below the 41.8 million ton peak recorded in 2007.

Cargo demand is rising faster than world trade as depleted inventories are rebuilt. Once the inventory cycle completes, growth is expected to fall back in line with world trade, said IATA.