International trade stifled by protectionism, says Fred Smith

12 / 03 / 2014

  • FEDEX founder Fred Smith

    FEDEX founder Fred Smith

FEDEX founder Fred Smith has warned that 'the golden age' of double-digit air cargo growth is unlikely to return due to trade protectionism, higher fuel costs and the rapid growth in bellyhold capacity.

Smith told the IATA World Cargo Symposium in Los Angeles: "The big reason why international trade is not growing is the rise of protectionism, not just in China but in the rest of the world."

In a keynote speech, Smith cited a 23per cent increase in "trade inhibiting measures" by the leading nations since the economic crisis year of 2009, naming countries as diverse as Argentina, Russia and Canada in adopting ‘beggar thy neighbour’ restrictions on trade.

He called on the airline industry to put pressure on politicians to end trade protectionism, which "stifles competition and innovation while limiting consumer choice".

Other factors, which have seen air cargo volumes falter include the miniaturisation of electrical products, "with less weight being transported and with less value per pound," says Smith.

In addition, "fuel prices have grown fourfold in the last four decades and lower interest rates have decreased the cost of ocean freight inventory, while ocean freight has become more reliable."

A later presentation to the WCS by consultants Seabury estimated that air cargo has lost 5.4m tonnes of freight per year to ocean carriers since 2000.

Smith added that the ‘rapid growth’ in passenger aircraft volume - around 6 per cent per year - with fuel efficient twin- engined jets, had created "low cost underbelly freight" and more origin and destination route pairings.

Modern freighters were adding to the pressure, with a B777F on a Hong Kong-to-Anchorage-route being cheaper to run by US$30,000 compared to a B747-400F on the same route with a comparable payload.

As a result of these flight economics, some 43 B747-400Fs were idled in the desert, with a similar fate for up to 60 MD11s, most of which were being scrapped.

In contrast, the integrators such as FedEx, continue to grow their parcel business, due to dense networks and highly efficient pick up systems, although they do use the "prolific underbelly capacity" of passenger carriers for less urgent consignments.

Air cargo's golden age of the 1990s is past, says Smith, adding: "We may wish for double digit growth, bit the winds are not favourable."