The term most used (or overused) to describe the air freight market in 2002 has been "turbulent." It's an obvious metaphor that aptly describes the changes that air freight shippers and carriers have been dealing with since the events of Sept. 11, but shippers want to know how long the instability in this market will last.

The most recent figures from the Air Transport Association show air cargo miles increased 5.9% in July 2002 over the same month last year, a rare positive sign for the industry plagued by plummeting volumes and overcapacity in nearly all markets. According to Robert Dahl, project director for Seattle-based Air Cargo Management Group, domestic air express market volumes have been basically flat for the first three quarters of 2002, which is very low considering that market has averaged in the neighborhood of 15-20% growth in recent years. Domestically, Dahl says there may be some year-over-year volume improvements in late 2002, mostly due to the dramatic slump in late 2001 and not because volumes will grow significantly in late 2002. The international air express market is seeing modest 5-8% growth this year, with exports out of Asia showing the strongest growth.

New security rules implemented after Sept. 11 put restrictions on the freight that can be carried on commercial passenger airlines, complicating the job of freight forwarders and forcing more shipments onto freight-only carriers. FedEx this year gained up to four million pounds of new business from the U.S. Postal Service when mail that weighed more than a pound was not allowed to fly on passenger aircraft, which could mean FedEx rates are not going to rise as much in January as UPS rates. The costly new contract UPS signed with the Teamsters union earlier this year could mean a larger than usual rate increase in January from UPS, which is often used as a gauge by much of the air freight industry on rate adjustments.

On the horizon is a "known shipper" database shared among carriers that will likely streamline some of the shipments held up when a known shipper at one carrier ships with a different carrier, but an ETA on that project is MIA.

Commercial passenger traffic fell off the table in 2002. The number of flights decreased so much that forwarders were left with fewer choices as commercial passenger airlines courted freight forwarders for more business. The overcapacity that kept rates low began to disappear this year. Experts say it is a very slim chance, but should the FAA decide that no passenger aircraft can carry freight or mail, the capacity at all-cargo carriers will fill up quickly.

"The number of flights had become so inflated by early 2001, capacity far exceeded the demand [in freight]," says Frank Perri, executive vice president at Pilot Air Freight in Lima, Pa. "That is coming down again with fewer commercial flights." The effect on cargo has been limited because many of the cancelled flights were daylight flights, which are not often used for cargo, but there was some effect nonetheless.

"We have also seen a sudden increase in interest from the commercial airlines in cargo revenue to replace the lost passenger revenue. A number of the airlines have long been forwarder-friendly, but now some smaller ones like Southwest have gotten aggressive about recruiting new business, focusing much more on price than service."

As commercial airlines see financial troubles and lower passenger levels, Dahl expects some carriers may move to a higher frequency, lower passenger-per-flight rate, using smaller planes and faster turnaround times at airports. That trend could severely limit the amount of freight passenger flights carry, as loading and unloading freight in smaller aircraft could take more time at stops.

The average size and frequency of an air freight shipment is changing as well. Carriers report seeing smaller packages travelling more frequently as more shippers move to low-inventory, just-in-time models. Some domestic shippers are diverting shipments from high-end express air services to improved LTL truckers with expanded services and other ground carriers to reduce costs where possible. As the ground networks at UPS and FedEx expand, their overnight ground coverage extends, making it more competitive with air services.

Also affecting air cargo volumes are the sign-offs that many shippers have implemented for overnight shipping to reduce costs. Inside many businesses today, an overnight or next-day air shipment needs to be approved by an executive manager or even the CEO.

In contrast to these trends, the threat of a strike by West Coast longshoreman for much of the summer and the earlier threat of a UPS Teamsters strike has driven some West Coast-bound freight from ground and ocean carriers to air this year.

Fuel costs are as volatile as ever with political unrest in the Middle East poised to put fuel costs into a tailspin. Not surprisingly, Airborne Express announced it will increase its existing fuel surcharge from 2.9% to 3.5% for all air express shipments moving through its transportation network, effective October 10, 2002. Airborne also planned to increase the existing fuel surcharge for its Ground Delivery Service and home shipments from 1.0% to 1.2%.