LOS ANGELES: FedEx chairman and CEO Fred Smith has warned that the macroeconomic picture for world trade is "not good in the near term" as the world's 20 largest economies have increased protectionist measures 23 percent since 2009.
Speaking at IATA's 8th World Cargo Symposium in Los Angeles on March 11, the man who arguably knows more about how to expand global commerce than anyone told his audience: "All of us may wish for a return of the halcyon days of double-digit air cargo growth, but we are creatures of much larger forces and the winds are not favourable."
Noting that air cargo traffic grew two and a half times world GDP for over two decades, Smith said a number of factors that produced this success story have now reversed since the Great Recession of 2008.
He cited a fourfold increase in fuel costs and a resultant modal shift; low interest rates that have reduced the carrying costs for inventory on sea voyages just as ultra-large container ships have reduced unit costs; the growth in protectionist policies either because of politics or overzealous security considerations; the adoption by China of "indigenous innovation" that favours local companies over foreign competitors; the miniaturization of electronics - representing about half the tonnage transported by air - and a subsequent reduction in prices; the rapid expansion of passenger traffic that has produced low-cost underbelly lift; and the introduction of twin-engined freighters that have made all but the 747-8 freighter uneconomic.
Notwithstanding the Boeing view, Smith pointed out that current freighter capacity continues to exceed demand: "Given all these factors, 43 Boeing 747-400s are parked in the desert and six have been scrapped."
He said that one silver lining is the growth of door-to-door shipments of smaller packages thanks to the Internet-based e-commerce. "Thus, the global air express business continues to grow as does global sea trade, with both sectors gnawing at the traditional airport-to-airport air cargo market. Moreover, yields on this type of commodity traffic have been declining in real terms over 20 years making traditional freighter services' profitability very challenging."
Not so FedEx Corp. that reported second quarter net profits last December of US$500 million on revenues of $11.4 billion.