Oil price will kill Cargo

[sisyphos]

The next Oil price bonanza will kill 50% of all Cargo Airlines worldwide.

Think about it : with oil price reaching triple digits soon, eventually 200 $ plus it just doesn't make sense anymore. People will have to wait for a shipped Ipod, eat locally farmed fish and simply stop buying roses from Kenya. It's madness anyway from an environmental perspective and anyway unsustainable. Oil peak will happen soon or even has happened already, there is simply no way oil is not going to be much more expensive than today. Forget about synthetic fuel made out of crops or about tar sand from Canada, too expensive for Jet fuel.

Passenger traffic will decline as well, but is probably a little less price elastic.

[The SSK]

sisyphos: simply stop buying roses from Kenya. It's madness anyway from an environmental perspective and anyway unsustainable

Wrong, already. The carbon footprint of Kenyan flowers imported into Europe is smaller than for those grown in Dutch hothouses (source: Fairtrade).

[6000PIC]

Sisyphos , you haven`t a clue about economics , or the future. Nice try , now go back to the bar , your glass is half empty.

[sisyphos]

I wasn't talking about the carbon footprint, I was talking about the price of aviation gas that will eventually make air cargo too expensive.


YouTube - Jeff Rubin on Oil and the End of Globalization [FULL] (http://www.youtube.com/watch?v=QhsMr49AKM8)

[sisyphos]

Low Cost flying will be a thing of the past as well, I totally agree.

But remember, the only thing that ironically saved the cargo industry was a significant drop in fuel price following the sub prime crisis. What if next time the price stays in triple digits, maybe even goes up to 200$ ?

Does it then really matter if you have a 400 or a 200 ? Eventually, I don't think so.

[CargoOne]

Cargo rates will just go up and that's it. It could be that some stuff which is currently flown will have to switch to surface transport, but generally speaking 100% rise of fuel price will get cargo rates to rise by 30-40%.

Fuel represents anything between 25 to 40 % of total cost at cargo carriers operating modern equipment (744, MD11 and newer), CV just above 35%, LH less than 30%.

So instead of paying $4 per kilo, shippers will have to pay $5.5. Typical stuff flown longhaul costs over $100 per kilo, if the fuel cost would double, overall commodity price at destination will increase by 0.5-2.0%. Hardly end of the world.

Fuel is not a problem for the industry. The problem is some industry players who dumping the rates in order to get their market share or to get a quick cash. On a macro level, for sure, supply and demand level are important, but this is outside airlines control.

[sisyphos]

Could you elaborate you figures ?

First you are saying a 100% increase in fuel price would result in cargo rate rise of 30-40%, then you are saying it would only increase by 0.5-2% ??:confused:


"Cargo rates will just go up and that's it. It could be that some stuff which is currently flown will have to switch to surface transport, but generally speaking 100% rise of fuel price will get cargo rates to rise by 30-40%. "

"So instead of paying $4 per kilo, shippers will have to pay $5.5. Typical stuff flown longhaul costs over $100 per kilo, if the fuel cost would double, overall commodity price at destination will increase by 0.5-2.0%. Hardly end of the world."

[sisyphos]

Frontrunner :
For every good we fly there is an alternative available, either by transporting it via ship/rail etc or by substituting it by a total different good.

Hence in my opinion it is not correct that only the competitiveness vs other airlines is relevant, but also the absolute price of Air freight.

[Earl]

Exactly where does this 200 usd a barrel come from?
Can you provide a link for this showing any credible source or market futures, trends that could lead to this?
Sounds like a wind up here.
Even in Summer 2008 at its peak it did not come any where near this figure.
Or is this just another what if post?
Have to remember if the dog had not stopped to shXt he would have caught the rabbit!

[Freight Expectations]

Remember that 50 per centish of all air cargo goes by belly anyway... those aircraft will be flying whatever the fuel price... As far as freighters go, air cargo is 60 per cent cheaper index-linked than 20 years ago... there is a lot of slack for price rises... forwarders have driven down the price to ludicrous levels but as capacity comes out prices will rise... some goods have to go by air and the future is relatively secure, even if prices rise by 80 per cent as long as you have effecient aircraft and good traffic rights

[johns7022]

Too many factors to figure in...but if fuel prices go up..passenger flights get hit first....cargo...the life blood of most business, will simply pass on the cost to the consumers...

When people talk doom and gloom, with some forcast of everyone living under bridges, fighting over cans of chili with the bums, ..it's just sensationalism..

Even a meteorite hitting the earth wiping out 80% of the worlds population doesn't mean everyone will give up gasoline, PCs, autos...

Always found it funny in movies portraying a post apocolyptic earth...everyone dresses up line punk rockers....

[CargoOne]

sisyphos
Could you elaborate you figures ?

First you are saying a 100% increase in fuel price would result in cargo rate rise of 30-40%, then you are saying it would only increase by 0.5-2% ??


Cargo transportation has no value per se. It is only one of the many costs of the final product, which is sold to the customer at his location. A typical commodity carried as aircargo has a value of over $100 per kilo.

For example the cheapest Canon digital SLR camera costs around $500 and weights around 0.5 kilo. I.e. value of 1 kilo of SLR cameras is $1000. Let's cut the whole process details, but you can assume that out of $500 retail price, cost of aircargo is $2. Now if the oil will double, cost of aircargo for this camera would be $2.75. Accordingly, retail price will be $500.75, which is an increase of 0.15%. Do you think Canon will stop flying cameras because of that?

[Metro man]

Some things just have to go by air.

When your assembly line is halted through lack of a spare part or a vital component for the end product, costs can run into $1000s per hour.

When the tuna has to fresh for the sushi.

When the customer wants in NOW. On a $2000 laptop a couple of extra $s fuel surcharge means nothing.

Will the type of freight change ? Sure it will be really high value and time sensitive.

Will the type of aircraft flying it change ? Sure look at the aircraft on the cargo aprons at major Asian airports B744, B777, B757, MD11. Not so many B742, B727 around now, havent seen a re-engined DC8 in ages let alone one with JT3Ds.

[fdcg27]

I think you're missing the financing costs involved in moving product.
While Korean autos will ship by sea, it often makes economic sense to ship lighter, higher value per unit weight products by air, even if fuel costs are high.
Air freight was hurt more by the global recession than by the cost of fuel.
Very old and thirsty aircraft may now be economically obsolete, even as freighters, but there will be plenty of later, more efficient ex-pax aircraft coming to market for conversion as time goes on.
As others have pointed out, fuel costs are but one part of the equation.

[ship's power]

The new generation of ocean going high speed container ships may lick the heals of aircargo, however. I understand that Asia to the west coast of the USA is now little more than a week in transit time. The maritime industry is becoming more efficient everyday.

(Hell, I remember once of taking five days to make about that distance on an old 74 that broke down at every stop. . . so sad)

[sisyphos]

Well, I certainly do hope the optimists are right.

Time will tell I guess...


Book Press | Jeff Rubin (http://www.jeffrubinssmallerworld.com/book-press/)

[GlueBall]

sisyphos: Your generalizations are simple minded; and the title of your thread suggests that you want readers to dabble in a wind up.

But let us know at what price per gallon YOU will stop driving your internal combustion engined car.

[ATPMBA]

High value items when time to market is important. IPADS ship by air.

The book "Profit Strategies through Air Transportation" explains all this.

[A.B.I.]

I had a client last time who wanted to compare shipping with air transportation from China to Africa.

Despite the effort in showing him advantages, he realized that there is a high cost to it but saw the reason for it being a bit more expensive. But when it came to climbing oil prices and average of ~ 40.000 USD for a flight, he shoked back. I agree, oil prices kill the air cargo industry.