Cargo industry faces dilemmas, opportunities
Pacific Business News (Honolulu) - by Prabha Natarajan Pacific Business News
Starting Aug. 27, the U.S. Postal Service will use FedEx Express planes to carry outbound mail from Hawaii. That translates to airlines and other cargo carriers losing nearly 70 percent of their mail business.
Local air cargo carriers say there's both a positive and a negative to FedEx taking over, and they hope eventually the positives will outweigh the negatives. And for the air cargo industry, this adds one more factor to its growing litany of problems. The industry says it's looking for more business locally, as there is more space than before.
FedEx will set up drop boxes in post offices. The deal will generate $1 billion each year for FedEx during the seven-year contract.
The arrangements come after USPS expressed its disappointment at services provided by airline carriers. Mail is a big part of cargo carriers' business as all airlines, except Hawaiian and Alaska, were obliged to make mail a priority over other cargo, according to federal regulations. And during peak seasons like Christmas, the carriers had to be ready to dump their regular load to accommodate the mail.
For cargo shippers, the new Postal Service agreement means they get more cargo lines open when leaving the islands. Traditionally, though, the problem has stemmed from overcrowding of flights coming in rather than leaving.
However, on an island like Hawaii, the previous arrangement left many businesses dependent on air cargo stranded. For example, fresh fish exporters from the island knew that during the Christmas season their cargo wasn't priority and they had to think of alternatives.
The inbound flights face a bigger problem during Yuletide, as regular cargo takes a back seat. But FedEx can't take the USPS bulk as its flights inbound are full, but the outbound has more space.
This adds an unexpected twist to air cargo carriers' plans. Usually, the fourth quarter with Christmas is the maximum revenue earner for the carriers. Cargo shippers nationwide expect to lose 70 percent of their mail to FedEx, and USPS is a known, regular-paying client.
Many feel that there will be enough for FedEx and other contracted air taxis to carry. However, airlines will not get a share of the pie. The onus now is on them to get new customers for the outbound routes from the islands.
"It opens up an opportunity to air cargo customers to get prime evening flights that were previously full," says Sharon Hurd, cargo sales account manager with Delta Air Lines.
The main products brought in by air include produce and perishables, newspapers, animals and specialty items for a movie set or a job. Estimates indicate that air cargo brings in about 3 percent of total cargo, but 40 percent of dollar value.
In 1999, total air cargo handled by the state airport system was at 525,000 tons. The state also projects a 54 percent increase in air cargo tonnage by 2020.
The new planes added by United, Delta and others have added more belly space to passenger flights. Cargo sales executives say there is nearly three times more capacity now. However, getting cargo to fill up that space remains a challenge.
United, which invested millions in a new facility, is thinking of new strategies to fill up space. For one, the airlines offer significantly lower rates to cargo leaving Hawaii than inbound.
Also, United and other airlines flying into Honolulu have begun aggressive campaigns to educate and encourage local businesses to fly their products rather than shipping them. They realize that the industry has a tough task ahead to convince businesses they can offer comparable rates to shippers.
Studies indicate that when it comes to international cargo, airlines are cheaper. While shipping to the U.S. mainland, sea freight might be a cheaper route. But Brian Suzuki, president of Hawaiian Air Cargo, a freight forwarder, says the added expense of trucking and storing in a warehouse are part of the added costs that businesses need to keep in mind.
Suzuki, also president of the Air Cargo Association of Hawaii, stresses the advantages of a just-in-time management, and reduced warehouse storing of shipped goods.
On the international front, Japan Airlines, which flies in newspapers and computer goods, uses Honolulu as a transit hub. Some of the goods are offloaded here, while others head to Los Angeles or Houston on U.S. carriers. On the outbound flights, candy, macadamia nuts and specialty products for the Japanese market head out.
Each JAL passenger flight can carry eight pallets or a maximum of 40,000 pounds. JAL has 12 flights daily to Honolulu, but the airline is doing only 60,000 to 70,000 pounds a day now.
"The cargo situation is very bad now," says Tatsuro Masuda, cargo sales supervisor for All Nippon Airways Co. Ltd.
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