Could air cargo traffic rights be liberalised ahead of passenger bilaterals?
The air cargo industry is wondering whether the time has come to set air freight free of traffic right restrictions - an idea that has been doing the rounds for years. Removing bilateral restrictions on passenger travel, the argument goes, may be a complex and even emotive issue. By contrast, letting freighters fly where they wish could be agreed easily.
The argument for freeing cargo is fairly straightforward. Trade increasingly knows no boundaries. In an era when a manufacturer might switch production from Malaysia to China at the drop of a hat, or manufacture components in Taiwan and assemble them in Hungary, the rule that carriers can only fly cargo to and from their home markets seems outdated.
There are also numerous parallels in the rest of the transportation world. No one thinks it strange for Chinese goods to travel from Shanghai to Los Angeles on a Danish container ship. And in the express industry, an Asian or European is quite happy to send an urgent parcel by FedEx or UPS.
In addition, there is the fact that unlike passengers, cargo only travels one way. This leads to notorious imbalances in routes, which rigid air service agreements are ill-equipped to cope with. An example is the transpacific market, where capacity is in short supply eastbound (from Asia to the USA) but where freighters struggle to find enough cargo to meet their operating costs in the opposite direction. In a liberalised world, round-the-world services (of which some already exist), and triangular routes would help alleviate such imbalances.
The logic of these arguments have long been clear in the air cargo industry, but recently its players have become a little more vocal in expressing them. In February, TIACA Ð the International Air Cargo Association Ð agreed a statement describing the bilateral system as 'still powerfully influenced by the concept and interests of national airlines, and largely irrelevant to the aspirations of all-cargo carriers.'
It added: 'The entrenched, yet completely outdated, classification of air freight as a subsidiary part of passenger operations should have no place in future freedom negotiations.'
Competing interests
This may be fighting talk, but it has taken TIACA many years to express it. The problem is that there are wide disagreements on what liberalisation means. US carriers tend to see the open skies model - which can include both fifth and seventh freedoms for cargo - as the ideal. Carriers from other countries say liberalisation without opening the huge US domestic market is unfair. TIACA, with members in both camps, has to steer a middle line.
Whatever the model adopted, is anyone listening? There was an encouraging moment in May when the ICAO conference in Montreal concluded that 'air cargo, and in particular all-cargo operations, should be considered for accelerated liberalisation'. One observer noted there was 'a remarkable degree of consensus on this issue'.
The ICAO conclusion is not binding on members, but, says Chris Lyle, deputy director or ICAO's Air Transport Bureau, 'it lends another piece of moral persuasion' to the concept. 'I am not saying anything will happen tomorrow, but I think in a year or two you will see individual member states start to incorporate cargo freedoms in bilaterals,' he says.
That remains to be seen, but there are already some encouraging developments. The ICAO conference considered the case of India, which completely liberalised cargo flights in 1990, preferring to boost its textile exports rather than protect its national carrier. Although results have been erratic, for example, a glut of freighter capacity in 1995, with a slump a year later, it nevertheless told ICAO that it believes the whole economy has benefited, and recommended other countries unilaterally to take the same step.
Other ad-hoc liberalisation has also taken place. Dubai has a liberal attitude to cargo, while Singapore has several open skies deals. TIACA president Dora Kay cites the August agreement between China and Australia to remove all restrictions on freighter operations. 'This is a very big step forward: the first open skies deal China has done,' she says.
Freighter freedoms
Most freighter operators also seem to have some special freedoms at their disposal. Dutch carrier Martinair and AviaLeasing of Uzbekistan base cargo aircraft in the USA under seventh freedoms, while Singapore Airlines recently got cargo rights from China to Chicago by offering to serve the lesser hubs of Xiamen and Nanjing.
Luxembourg-based all-cargo carrier Cargolux gets around 12% of its revenues from fifth freedom flights, including flights between the USA and Mexico, Malaysia and Australia, and Taiwan and Budapest. 'Countries are slowly becoming less dogmatic about rights,' says Cargolux chief, Ulrich Ogiermann. 'The old flag concept is not the prevailing scheme anymore in air cargo.'
All of this leaves many in the air cargo industry to conclude that liberalisation is already happening of its own accord. This gradualist view says traffic right restrictions will slowly crumble over time without any particular stimulus.
Steve Guynan, secretary of the British Cargo Airline Alliance, a strong advocate of opening up the US domestic market, thinks otherwise. He is focusing on the European Union (EU)-US liberalisation talks that started in October, saying these will produce a template for others to follow. His hope, and that of Dora Kays at TIACA, is that cargo might be seen as an easy win in the transatlantic negotiations. With respect to ICAO, 'they are not the ones with the negotiating power at the moment,' Guynan says.
He might be disappointed. A member of the EU negotiating team indicated to Airline Business that the Europeans at this stage are pushing for full transatlantic liberalisation rather than a series of mini-deals. 'We don't rule out a separate deal for cargo, but that is not part of our negotiating position for now,' said the source.
The ICAO resolution may also soon be forgotten. Two years ago, the Organisation for Economic Co-operation and Development (OECD) produced an even more detailed proposal for liberalising cargo, which even had draft air service agreements for states to use.
That initiative was quietly buried, apparently at the behest of two OECD states. 'We believe we had some impact, but certainly not the one we hoped for,' says one official who was involved in the project.
Final hurdle
One problem that could stall any attempts to liberalise freighter operations are suggestions that it might be unfair for belly operators, which still carry up to 70% of all air cargo. Kay's response is to point out that belly cargo also has the advantage that many of its operating costs can be carried by the passenger business, allowing it to undercut freighter rates. 'A liberalised regime for all-cargo flights might help redress the balance,' she says.
Ram Menen, director of cargo at Emirates, proposes a simple solution: liberalise belly cargo too - for example allowing carriers to pick up cargo even during purely technical stops on passenger flights. Kay opposes this, however, saying it would lead to cargo becoming embroiled in negotiations over passenger rights, the very thing TIACA is trying to end. 'We have to look at things on a step-by-step basis,' she says. 'It will be a lot easier to do a freighter only deal, so let's look at that firs'.
PETER CONWAY LONDON
Source: Airline Business
