Middle East airfreight market is holding its own
The Middle East air cargo industry continues to be the bright spot in an otherwise depressed worldwide cargo market, which as a whole dropped 1% for the 12-month period ending last September. The Middle East market, in contrast, has remained relatively robust, growing 8.2% during 2011 and 14.1% for the first 10 months of 2012, according to Brad Hart, 's regional director for cargo marketing. Its growth is projected to continue at 5.7% per annum over the next 20 years, particularly as the region continues its movement toward economic liberalization.
While the Middle East itself is not a large origin-and-destination market, it sits astride the fabled “Silk Road,” the crossroads between Europe, Asia and Africa for trade goods moving not only east and west, but north and south.
This hub activity is becoming particularly significant with the growth of “on-demand” goods such as telecommunications equipment, which in turn is forcing a change in supply-chain management to meet the evolving market.
The Middle East is also home to three of the world's fastest-growing international air carriers—Dubai-based Emirates, Doha-basedand Abu Dhabi-based —all of which are aggressively promoting their cargo and passenger markets, along with the home-base airports that are spending millions to support that expansion.
The passenger operations of all three airlines are showing rapid growth, and they are ordering newer and bigger aircraft. These procurements relate directly to increased freight operations, since belly cargo accounts for about 70% of these airlines' total freight.
Emirates is the biggest of the “Big Three,” ranking second in tons carried among the world's airlines. Emirates operates, and 747ERF freighters, most leased from Dubai Aerospace, but it can put 10-12 metric tons of cargo in the bellies of its when operated with full passenger loads.
The carrier has had an aggressive global expansion program, particularly to the Americas, Europe and Africa, according to Ram Menen, divisional senior vice president for cargo. He notes that Brazil, in particular, is a growing market for Emirates, which now offers service to Rio de Janeiro and Sao Paulo. The airline launched 15 new routes in 2012, with the latest being Dec. 10 to Phuket, Thailand, giving it a total of 128 destinations.
Emirates is now the world's largest combination carrier in terms of cargo volume (second only to express-carrier Federal Express), and third in terms of freight ton kilometers (FTK), says Menen. While Emirates reported an increase of just 1.7% during its 2012 fiscal year, it saw a 16% increase in volume during the first six months of 2012. Emirates began service in 1985 and now handles more than 35% of the region's air cargo through its SkyCargo operations. For fiscal 2012, SkyCargo recorded $2.6 billion in revenue, an 8.4% increase over fiscal 2011 and 16.2% of the total Emirates Group revenue.
Etihad, which started service in 2004, reported a 21% increase in tonnage carried during the first six months of 2012. The airline moved to 19th in tonnage carried by the world's airlines in 2011 from 25th in 2010.
Qatar Airways, in comparison, is growing rapidly, with almost 200 aircraft on order, including Boeing 777 and Airbus-200 freighters. Qatar moved to 11th in tonnage carried in 2011 from 17th in 2010.
Saudia is another important cargo carrier, “although it has a bit more of a traditional approach to the business,” says Didier Lenormand, Airbus's head of marketing for freighter aircraft, “not so much focused on hub activities, with service to countries with large populations compared to population of any of the [Persian] Gulf states that are small.”
Saudia ranks 24th among international carriers for cargo volume. However, most of its cargo goes by freighter—71.1% main deck vs. 28.9% in the lower hold, compared to an average 27.8% by freighters for the Big Three. Saudia's tonnage grew by 13% in 2011 and by 16% in 2010, according to Boeing.
The two other largest cargo carriers in the Middle East, Egyptair and Gulf Air, ranked 47th and 50th, respectively, among the's top 50 airlines for freight tons carried.
Overall, airfreight traffic through the Middle East is expected to triple in the next 20 years, although at a reduced rate, according to Airbus's world forecast. Historically, it grew from just under five billion FTKs to just over 10 billion at a rate of 5.9% in the past 20 years, but it is expected to grow at a rate of only 5% to about 30 billion in the next 20 years, increasing by 2.8 times.
Overall, Airbus forecasts the Middle East fleet will increase to 42 midsized and 80 large freighters by 2031 from 19 midsized and 31 large freighters in 2012. However, the number of freighters being operated is not indicative of the market because the predominant percentage of cargo is carried in the bellies of the combination carriers.
While there are numerous reasons for the growth of air cargo in the Middle East, two of the major ones are simply a dedication toward growth by the major airlines and what Menen calls egocentricity. It goes back to the Silk Road concept.
“You have 5.8 billion people within eight hours' flight time [from Dubai]. Extend that up to 14 hours and you have about 6.2 billion. Two-thirds of those are east of [Dubai] and of that, two-thirds are [in] India and China. So that is the basic ingredient of the success of this region, why it has become a major hub,” says Menen.
The biggest market for the Middle East continues to be Western Europe, with 1.4 million metric tons of air cargo representing 42.3% of the total Middle East traffic, according to Boeing's 2012-13 World Air Cargo Forecast. This tonnage is projected to average 5.7% per year over the coming two decades.
Asia was the second-biggest market for the Middle East, with 1.2 million metric tons representing 35.4% of the market, followed by Middle East-North America, with 283,000 metric tons comprising 8.4% of the air cargo traffic.
China is still a major source of air cargo for the Middle East, although as the economy on China's east coast improves, the cheap labor driving the manufacturing of goods is moving toward northwestern China.
India is also growing as it moves from a traditional service-centered economy into a manufacturing-based one.
“And don't forget Africa,” Menen says. “It is a continent unto itself with over 1 billion people. Fifty-five to 56% of the world's minerals are in that continent, and just east of here are the factories of the world. We are already seeing a lot of infrastructure development. That is always a good sign because they are leapfrogging technology.”
Only 8-10% of cargo entering the Middle East actually stays there, says Menen. The rest is transient. This allows the Dubai, Doha and Abu Dhabi airports to serve as hubs, with very large aircraft such as Boeing 747s and 777s and Airbusflying goods between major cargo centers while the smaller and and Airbus serve the smaller markets.
Airports and airlines in the region are spending a good deal of money to develop their individual hubs to enable them to channel a lot of cargo business away from other areas. “That is basically what you do with a hub,” says Airbus's Lenormand.
Dubai's new Al Maktoum International Airport, near the Jebel Ali Free Trade Zone, is an $8.2 billion project to build what will be the world's largest airport when it is finished in 2027. It is now open only to cargo operations. When complete, it will have 16 cargo terminals with a 12-million-metric-ton capacity.
However, Emirates plans to use that capacity only for ad hoc traffic. Menen tells Aviation Week that Emirates plans to continue using its large cargo center at, investing $7.8 billion to expand it into a new “mega cargo facility.”
Doha also is building a new airport, at a cost of $15.5 billion, that is being designed to handle A380-sized aircraft and 50 million passengers per year by 2016.
Abu Dhabi is undergoing a $6.8 billion redevelopment project for a third midfield terminal as well as new cargo and maintenance facilities, the Momberger Airport Information report says.
Beyond infrastructure and airline expansion, another impact on growth in the Middle East is the increasing need for supply-chain management, involving logistics and inventory management.
Manufacturers have used “just-in-time” shipments to control their inventory for making finished products, but the delivery of those finished products is also becoming more time-critical.
A major item is telecommunications. “Go back to the [cell] phones we used to carry,” Menen says. “They were bricks. If you take a thousand units of those bricks and compare them to a thousand units of the Apple iPhones of today, you have just a 10th or 15th of the shipment size. So there is a shrinking [of product volume] going on, but the cycle time, or live time, of these electronics is getting shorter and shorter. The value of any electronic shipment drops by 1.0-1.5% per week. So the shelf life is very, very short.”
Because of these shorter usages, Menen says the manufacturing and product shipping process “takes careful choreographing.”
The Middle East freight forwarders are now starting to transform from their traditional role of simply picking up and delivering the freight to being “full-blown supply-chain management companies,” says Issa Baluch, a senior fellow at the Advanced Leadership Initiative at Harvard University and founder of the Swift Group in Dubai, a leading logistics provider in the UAE.
The Swift Group also is “working hard toward achieving the goals of e-freight,” the movement to eliminate paperwork involved in the movement of airfreight, thus reducing time, cost and effort in the industry, says Baluch.
Menen notes that “we don't use paper any more” at the Dubai hub, and that by 2014 “the industry is looking at taking the paper waybill away.”