2001. It was a year that affected many businesses in many ways, mostly negative. Given sluggish manufacturing lines, decreased shipping volumes and increased security measures following Sept. 11, the international airfreight business may have been one industry most directly affected by the maelstrom that was 2001. According to the Seattle-based aviation consulting firm the Air Cargo Management Group, worldwide freight traffic in 2001 was down roughly 8-10% compared to 2000. Going forward, carriers and freight forwarders are looking to chart new courses while shippers navigate through the newly changed international airfreight business.

From the very beginning, 2001 showed slumping volumes for freight, primarily domestic, but eventually the international market felt the pinch, too. Inventories grew and orders slowed until the events of Sept. 11, which brought air cargo in and out of the U.S. to a complete standstill for a week, forcing shippers to find other means of moving their freight.

Perhaps the biggest change in the international airfreight market is the implementation of new security measures that came as a result of Sept. 11. New regulations from the Federal Aviation Administration (FAA) redefined what can be considered a "known shipper" and changed the way freight forwarders and carriers enlist new customers. In the past, a shipper was required to only make three shipments with a carrier or forwarder to become a "known shipper." Those requirements changed late in 2001. Now carriers or forwarders need to make site visits to unknown shippers to confirm that they are, in fact, businesses with reason to ship things by air. These stricter requirements have made it slightly more difficult and more expensive to do business with new partners in the international airfreight market.

"After Sept. 11, the FAA said that if they had done fewer than 24 shipments with my company between Sept. 1, 1999 and today, they would be considered an unknown shipper," says David Duncan, owner of Duncan International Air Freight in Memphis, Tenn. "It doesn't matter if it's IBM. The only way to work around it is to make a visit to their facility in person and have them sign the forms and have myself or someone from my company inspect their facilities to verify they are who they say they are."

Eric Williams, vice president of international sales at Pilot Air Freight, Lima, Pa., says the new security measures pose concerns on both safety and cost fronts. "We want to be sure we're doing it right to avoid any more disasters," he says. "But how much will it cost and who will pay for it? Obviously, ultimately, the shipper pays the cost." However, Williams also suggests that site visits required by the FAA may help to build closer business relationships in the competitive international airfreight market. New shippers that may have shopped around among carriers and forwarders have less flexibility now and may be more likely to stick with specific carriers.

There are more direct cost concerns in the airfreight business. Air shippers were hit with a new surcharge in late 2001 as a result of the increased security measures taken by the airlines after Sept. 11. Just as the fuel surcharges that dominated 2001 were being eliminated thanks to declining fuel prices, airlines quietly implemented security surcharges in the $0.10-$0.13/kg range to cover the costs of investments in new technology and personnel needed to screen packages and baggage as well as increased insurance rates.

The new surcharges have met with some skepticism from forwarders who have to pass the cost onto their customers in a slow but still competitive market. Some feel the government bailouts to the airlines in the weeks following Sept. 11 should have been sufficient to cover new security expenses. And while fuel surcharges had clearer guidelines on when they would be eliminated based on published fuel indexes, the security surcharges are more vague as to the conditions under which they would be eliminated.

"I would say [the security surcharge] is something airlines used as a revenue generator to make up for the shortfall in business," says Rich Zablocki of Emery Worldwide of Redwood City, Calif. "I think it's no mistake it comes after the success of getting people to pay the fuel surcharge, as opposed to more standard rate increases that have not worked in the past few years."

Jerry Levy, vice president of marketing at freight forwarder BAX Global of Irvine, Calif., says this is the first time he's ever heard of a security surcharge and has no idea how long it will remain in place. "I don't see anything that indicates the security surcharge will be removed while the airlines and forwarders are investing in computer and X-ray equipment and new security personnel. I would be surprised to see the security surcharge eliminated in the next year."

Williams, too, feels the security surcharge is an "overreaction" by airlines and is concerned that additional personnel and equipment investments by airlines suggest they weren't doing all they could on security in the past. "Does that mean they were not adequately securing the freight in the past?" he questions. "I think they are trying to make up where they lost in other areas like passenger freight."

The current economic climate has most shippers looking to cut costs wherever possible with fewer "absolutely must be there tomorrow" shipments. As manufacturing lines slowed in 2001, international freight that once required overnight air was shifted to ground or ocean.

"Many shippers call now and tell us a certain shipment is not such a big hurry," says Duncan. "They want to know what it would cost to send it ocean or deferred air instead. They can take a week instead of a couple days to send it. Shippers just seem more patient now."

Levy says BAX Global's expedited truck product has seen growth while its expedited airfreight business has been in decline. "We also see growth in ocean cargo that should exceed the growth rate of international air," he says. "A few of the lower-value customers shipping air are now able to create delivery or supply chain infrastructures in foreign countries so they don't need to have shipments there in two days."

Some shippers are using the current economic climate as an opportunity to review or renegotiate contracts with carriers and forwarders hungry for business, despite the added complexities of being unknown shippers.

"This is a good time to renegotiate pricing on international airfreight contracts," Zablocki says. "If you've been shipping with a forwarder or integrator over the past couple years and you have not reviewed the contract with them for pricing, there is reason to be doing that. Price that business against others."

The outlook for international airfreight in 2002 varies depending on whom you talk with. Bob Dahl, project director at the Air Cargo Management Group, says 2002 will be flat after a decline of close to 10% in 2001. In 2000, ACMG expected the market to grow at 7% per year in the 2001/2002 time frame.

"So, by the end of 2002, we will be 20-25% below what we projected when we did our forecast in 2000," Dahl says.

Freight forwarders share some of these sentiments. "We will likely go through the year continuing on a flat trend with maybe some modest improvement as time goes on and people develop more confidence," says Zablocki. "The risk going forward is that airlines do more to reduce capacity. If the Asian and European carriers do that we will see prices rise on an import basis. That will have an effect on the export side as well."

Zablocki thinks 2002 may see price increases. He doesn't see evidence of this at the moment, but if the market stays slow through spring and there is a lot of added capacity in the marketplace, he feels there will be a shift in the demand and amount of space available.

Williams says it will be the summer of 2002 before volumes get closer to normal in the international airfreight business. "Summer tends to be weak in our industry anyway, but by then manufacturing and demand should come back," he says. "I think it will be gradual; it won't come roaring back. And I think shippers and not just carriers will become more sophisticated at reviewing security, which is good."