Air Freight Companies: Cleared for Takeoff?

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Some trucking companies seem to be expecting tonnage to be up year-over-year as early as November, but the industry as a whole may still be showing declining volume in November, says David Campbell, an analyst at Thompson, Davis & Co. in Richmond, Va.

Trucking volumes are being hampered by their complete dependence on the U.S. economy, which has been slower to recover than many overseas economies. In contrast, air freight volumes will probably be up in November from a year ago since there's already a normal recovery occurring internationally, Campbell says. In an excerpt from an interview published Oct. 5 by The Wall Street Transcript, he said global air freight data were showing a recovery starting in late August, which freight forwarders are attributing mostly to a shortage in inventories and the need for faster-than-normal delivery of manufacturing components and some consumer goods in certain parts of the world. A sharp drop in air cargo rates has also made it cheaper to ship by air than six months or a year ago, Campbell said.

UPS Is Still Struggling

Things continue to be tough for package delivery giant United Parcel Service (UPS). On Oct. 22, UPS reported a 43% drop in third-quarter earnings to 55¢ from 96¢ a share a year ago, but that beat analysts' forecast of 53¢. Revenue fell 14.5% to $11.15 billion, but that was also ahead of the consensus estimate of $11 billion.

From a daily average volume perspective, UPS's international business is already showing an uptick, up 3.7% in the latest quarter, while domestic volume slid 4.7%. But on a revenue basis, the 18% decline for international packages—likely due to a decline in air cargo rates—actually exceeded a 13% decrease in the U.S. In the latest quarter, domestic shipping generated $6.87 billion, or 61.6% of total revenue, vs. $2.42 billion, or 21.7%, contributed by international freight.

The latest financial results of the other major air freight companies are less useful for gauging a recovery since they're less recent. On Aug. 24, UTI Worldwide (UTIW) reported a 57% earnings decline for the quarter ended July 31, to 12¢ from 28¢ a year ago, on a 33% decline in revenue, to $840.5 million from $1.26 billion. Total revenue in the Americas fell almost 31%, less than the declines in the Europe-Middle East and Asia Pacific regions but more than the drop in Africa.

FedEx (FDX), reporting for its quarter ended Aug. 31 on Sept, 17, showed a 22% decline in U.S. domestic package revenue despite a slight increase in package volume. The company's International Priority package revenue fell 22% on a 4% decline in volume. Earnings for the quarter dropped nearly 53%, to 58¢ a share from $1.23 a year earlier, on a 20% decline in revenue.

Although it will probably take time for the world economy to warrant a large bounce in freight volumes, air freight carriers should take comfort in the fact that a lot of aging international 747 freight aircraft have been grounded recently. That bodes well for higher cargo prices and better margins for air freight companies, says Rupinski at Maxim Group.

Bogoslaw is a reporter for BusinessWeek's Investing channel.

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