Express market difficult to fly

Navigating opportunities in the air and road express freight industry to effectively compete with established players is no easy task for entrepreneurs, according to local emerging market research and investment strategy specialists. “The industry as a whole is a very tough industry to break into,” said Frontier Advisory researcher Bekithemba Ngulube. “Potential market entrants face large barriers to entry and high operating costs due to rising fuel costs. There is also a high cost of developing new networks.” Ngulube said these factors had translated into consolidation within the industry or takeovers of existing companies as evidenced by Aramex’s buy-out of Berco Express in 2011. “Tight margins mean that any potential entrants must be able to compete with already established players either on price or service, but even so, it is not an industry where one can easily differentiate from other participants,” Ngulube said. And this was because the final decision for potential customers depended on just two primary factors – the cost of service and speed of delivery between centres. Ngulube said the economic climate had also impacted the demand for airfreight services. “The 2013 Iata annual review identified strong growth in emerging markets in particular as a key driver of growth in passenger volumes in 2012. There was an increase in the growth in the value of freight transport despite declines in volumes during the same period,” she added. “Air freight volumes generally are correlated to wider economic sentiment. When the economy is booming cargo owners will generally make more use of airfreight as they seek to get their cargo delivered faster.” Ngulube said overregulation of the sector was a major challenge hindering growth in the express air traffic industry. “The industry would benefit from more routes being opened up allowing market participants to access more locations into Africa. Allowing f lights to stop in major centres in Africa on the way back from primary destinations would aid in increasing load factors, reducing the cost of airfreight transport,” Ngulube said. “However, whether this is feasible with the sector’s dependence on passenger transport remains to be seen." Ngulube added that rising fuel and transport costs would continue to be the headline challenge for operators. But road transport would continue to be the most competitive sector partly aided by Transnet’s Market Demand Strategy that will see bulk cargo move from road to rail, Ngulube added. “Road freight transport service providers are taking market share from air cargo operators due to their highly competitive pricing. Frontier Advisory director Hannah Edinger said future opportunities in the sector had been presented by a trend of new direct routes into Africa, such as the airfreight route to transport capital equipment into the DRC for the mining sector. “There are opportunities into Africa generally, and within sub-sectors such as textiles as well as autos, but this is in competition with road transport. There are also domestic route opportunities in South Africa for servicing smaller urban centres. This could furthermore link to the growth of the online shopping and e-commerce sector,” Edinger said. INSERT & CAPTION Growth in the airfreight industry will be driven by regional integration in the SADC. – Hannah Edinger