Air-freight carriers are living for tomorrow

Northwest Flight 915 was running early, gliding through low clouds into Seattle-Tacoma International Airport on the breath of dawn. Instead of passengers, the big 747-200 carried cargo: blueberries from Oregon and Intel computer parts from DuPont to go with the sea urchins and Chilean asparagus it picked up in California. Washington cherries were loaded and the half-full jet departed on time, heading out across the Pacific Ocean to Tokyo.

The flight operated out of Northwest's new state-of-the-art cargo facility at the south end of the airport. Northwest has invested $45 million in the cargo area and maintenance hangar, beginning operations there earlier this month.

Airlines around the world are paying more attention to cargo as it becomes a larger part of their operations. The industry is expected to grow about 6 percent a year over the next 20 years with estimated annual revenues of more than $45 billion.

While the long-term forecasts are good, the short term is a near disaster. Cargo traffic has dropped sharply this year, especially in high-tech equipment from Asia. And, express carriers _ FedEx, UPS, Airborne _ are seeing declines in their business for the first time.

"I have never seen it drop off so quickly," said John Kempe, Northwest's top cargo executive here.

Ned Laird, founder and president of Air Cargo Management Group, a local air-cargo consulting firm, said there is excess capacity on almost all routes _ with the highest levels across the Pacific. He estimated there is 20 percent to 25 percent more cargo space than needed on Pacific routes.

With too much capacity, airlines and cargo carriers are finding it difficult to hold prices steady. That's good news for cherry growers from Eastern Washington, who report one of the best and most competitive seasons ever in terms of moving cherries to Asia. Eventually, the slump gets back to manufacturers, including Boeing.

China Air Lines of Taiwan is rumored to be looking at cutting some of its trans-Pacific routes in response to weakening market conditions on the big U.S.-Asia routes, and may defer delivery of some Boeing 747-400 freighters ordered. Express carriers have said they will slow the conversion of planes from passenger use to freighter.

Bob Dahl, an analyst with Air Cargo, said older planes usually are retired sooner than planned in a slump like this. DC-8s, in demand as little as 18 months ago, are being parked, he said. Boeing 727s, the most popular aircraft for freighters with about a third of the worldwide fleet, also are beginning to be parked.

The Air Traffic Association said June total freight and express cargo was down 9.2 percent from the same month a year ago with double-digit declines in the domestic market. The association cargo report represents almost 20 airlines and express carriers.

"The declines are getting larger not smaller," said Laird. "Most of us thought this would be over by now."

The slump has hit hard in Asia, especially Taiwan and South Korea, producers of a number of high-tech electronic imports to the U.S. Such high-value, time-sensitive cargo is the industry's bread and butter.

While the industry is experiencing its first major drop in a decade, it comes after a long period of good times. It averaged 6.2 percent annual growth from the mid-1980s to last year.

Freighter aircraft and air-cargo services are important in a range of businesses. Manufacturers want products and supplies as they are needed, saving the cost of warehousing large inventories. Electronics companies routinely ship expensive laptops or DVD players to satisfy consumers who want the latest technology now. And business is ever more global.

Most cargo still moves by ship across the Pacific; the contents of a 747 would fit in a few 40-foot containers stacked high around the Port of Seattle docks on Elliott Bay.

More than 2 million containers arrive and depart through both the Seattle and Tacoma ports each year, a volume vastly greater than what goes by air.

But air freight is becoming an increasingly important part of the global economy and Seattle's place in it. More than 7,500 people here have jobs tied to air freight. They work for freight airlines, companies that coordinate shipments, trucking firms, and couriers that deliver and pick up packages and freight.

Boeing accounts for 95 percent of all freighter capacity on Earth. Add the building of freighter jets, such as 747-400s at Boeing's Everett plant, and cargo takes on greater weight in the local economy.

There are more than 1,700 dedicated freighters flying around the world. Airbus says global competition and increasing cross-continent sales boosted by electronic commerce will mean a doubling of the world's freighter fleet by 2020. That's more than 80 aircraft a year, or about $10 billion a year in sales.

Each day, about a half dozen cargo-only flights leave Sea-Tac for Asia, Alaska or another U.S. city. Express carriers such as United Parcel Service and locally owned Airborne Express operate daily flights from Boeing Field.

At Sea-Tac, Alaska Airlines operates daily freighters to and from Alaska. The cargo reflects the strong economic ties between the two areas: foodstuffs and oil-rig equipment going to Alaska, and fresh seafood coming from Alaska. Cargo airlines with names such as Kitty Hawk and Evergreen also use Seattle as a port of call.

Seattle is represented in other parts of the industry.

Expeditors International has been one of the most successful companies in the part of the business called consolidation. As you might expect from the name, companies such as Expeditors put cargo from various customers into larger consignments going to the same place.

Airborne Express has been in the express field for years going up against much larger competitors, such as FedEx and United Parcel Service. It has added a ground service in hopes of feeding more packages into its air-express operation.

Cargo is also carried in the belly of passenger airplanes. When a passenger flight is not full of luggage the extra space is used for mail and small packages. A typical large-bodied jet leaving Seattle will have as much as 20,000 pounds of cargo in its hold.

Northwest is unusual among domestic airlines. It operates a separate cargo division with a fleet of 747-200 cargo planes. Northwest uses 747s and freighter production models because the noses swing open, allowing for outsized cargo.

While cargo is down now as the U.S. economy slows and Asia follows, there is great promise in cargo in the years ahead, industry executives say.

James Edgar, a Boeing marketing executive who specializes in air cargo, says cargo and the freighters to carry the cargo remain a key part of Boeing's long-term plan.

Boeing and Airbus compete fiercely in the freighter market. The two have sparred repeatedly over the relative merits of Airbus' new jumbo A380 vs. the work-horse of the industry, the 747 in its many versions.

In April, Boeing launched a new freighter version of the 747-400, a longer-range aircraft capable of carrying 910,000 pounds, 35,000 pounds more than the original 747-400 over a longer range. There were strong rumors of a big order for an Airbus A330 freighter at the Paris Air Show, but the slump in the market put the plan on hold, according to industry sources.

Boeing also is moving into the part of the market where most freighters come from _ conversion of passenger planes. Boeing estimates that in the next 20 years, the freighter fleet will double to about 3,500 from about 1,750 now. During that time, 1,238 freighters will be removed from service, 811 new freighters will be delivered and 2,208 aircraft will undergo freighter conversion.

Airbus' A380, ordered by FedEx, will be the largest freighter in the world when it enters production in a few years. Freighter orders for the big new plane were important in the decision to launch it.

Airbus is bullish on the long-term growth for the industry. Globalization and such pending events as the entry of China into the World Trade Organization are key to the industry, the manufacturer said in its annual market forecast.

But airlines, cargo carriers and express companies say the current slump will pass and long term, the outlook is good. As globalization and manufacturing techniques improve and become more sophisticated, demand for time-sensitive goods will only increase.

And, cargo has a big advantage over passenger operations.

"Cargo doesn't complain," said one cargo executive.

Stephen H. Dunphy can be reached at 206-464-2365 or by e-mail at sdunphy@seattletimes.com