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Shipping & Logistics

Tough times for air freighters as fuel cost set to hit $200bn

Air freight companies will be forced to adjust
Air freight companies will be forced to adjust to the increasing fuel prices in order to still earn a profit and meet demand. FILE PHOTO | NMG 

The global airline fuel industry is projected to hit $200bn (Sh20.4 trillion) this year, accounting for about a quarter of operating expenses, according to a report released last month by the International Air Transport Association (IATA).

“In 2019 the fuel bill is forecast to be $200 billion, accounting for around 24.2 per cent of operating expenses at $65 (Sh6,630) per barrel of Brent, while the industry net profits are forecast to reach $35.5bn (Sh3.6trn).

This is an increase from 2018, where the global airline industry’s fuel bill totalled to $180bn (Sh18.4trn) accounting for 23.5 per cent of operating costs and a profit of $32.3bn (Sh3.3trn),” reported IATA. This will, in turn, affect their revenues and lead to air freight companies looking for measures to curb transport expenses, especially during this horticulture peak season in Kenya.

The first quarter of each year sees increased demand for horticulture products in Europe, mostly flowers, due to Valentine’s Day in February and Mother’s Day in March.

“During this season we double our flights from five to 10 a week in order to accommodate the high demand which can double to reach 700 tonnes of flowers to cities in Europe,” said an industry insider.

Therefore, the increase in fuel prices is likely to lead to higher operating costs for freight companies, which is in contrast to 2017 when forwarders enjoyed lower operating costs.

According to a 2018 study on Kenya’s air freight market conducted by the Netherlands Enterprise Agency, in 2017 — when the global fuel bill was 20.5 per cent lower than in 2018 — freight companies were able to recover from losses experienced in previous years.

“The fall between 2014 and 2016 in airline cargo revenues was driven mainly by lower oil prices, with the drop in fuel costs reflected in lower surcharges — in turn lowering gross yields.

“The effects of such yield drops had different effects. Freight operators saw their lost revenues partly recovered through lower fuel costs. For forwarders and ultimately shippers, the reduction in surcharges meant lower costs of doing business,” reported the Netherlands Enterprise Agency

Air freight companies will be forced to adjust to the increasing fuel prices in order to still earn a profit and meet demand.

For instance, in the 2001 to 2010 period, when there were global fuel fluctuations, international freight company FedEx reduced the use of its less fuel-efficient planes and increased fuel-efficient planes in order to cut costs.

In a study on the impact of oil prices on the air transportation industry released in 2014 by the US National Centre of Excellence for Aviation Operations Research, the company increased its use of McDonnell Douglas DC-10 and Airbus A300 for transportation as they were more fuel-efficient. It decreased the use of Being 727 and Cessna 208.

Over the 11-year study period, the share of departures made by FedEx using the Cessna 208 dropped from 36 per cent at the beginning of 2000 (and a high of 40 per cent ) down to 30 per cent by the end of 2010 (a 17 per cent reduction).

The share of departures performed by the Boeing 727 dropped even more, from over 26 per cent to less than 12 per cent over the same interval (a 56 per cent reduction). It dropped from the second most flown aircraft type to the fourth.

“Two aircraft types that saw the biggest increase in their share of departures were the McDonnell Douglas DC-10 and the Airbus A300.

The DC-10’s share increased by nearly 50 per cent (from 12 per cent of the total to 18 per cent), while the A300’s share of total departures increased by 83 per cent (from nine per cent to 16.5 per cent),” reported the researchers.

- African Laughter

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