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Nationwide decline in cargo also hits BWI

The Baltimore Sun

Cargo handled at Baltimore-Washington International Thurgood Marshall Airport -- and by U.S. airlines nationwide -- has slipped to its lowest level in at least four years, yet another tangible result of an ailing economy and skyrocketing fuel costs.

The decrease is part of a general falloff in domestic cargo volume, whether by air, rail or truck, as consumers reduce spending and businesses ship fewer finished goods and buy less equipment and materials.

Because cargo is a key barometer of economic health, a downturn could influence the Federal Reserve as it ponders whether to further cut interest rates to spur growth at a time when inflation pressures are rising.

"Economy activity is so closely tied with transportation activity," said Curt Grimm, the dean's professor of supply chain and strategy at the University of Maryland's Robert H. Smith School of Business. "When those volumes are down, that's a very good signal -- there's no question that we are in a slowdown."

The decline also threatens revenues and jobs at such shipping behemoths as Federal Express and United Parcel Service as they contend with rising costs.

On top of reduced consumer spending, all-time-high oil prices could further depress the air cargo business, the least fuel-efficient mode of transport. Crude oil continued climbing yesterday, hitting nearly $114 a barrel.

The government also reported yesterday that inflation at the wholesale level, driven by energy and food costs, rose 1.1 percent last month, much more than expected and the second-biggest one-month jump in 33 years. Jet fuel rose 10 percent in the one-month period.

As freight transporters pass costs on in the form of fuel surcharges, more customers are foregoing premium air service.

Another major cause of the erosion: Cargo airlines are diverting shipments away from fuel-guzzling jets and sending more freight by truck and rail, especially between East Coast destinations, Grimm said.

At BWI, cargo traffic dropped nearly 7 percent in 2007 from the previous year, a trend that accelerated into 2008. January cargo was down 8.1 percent compared with a year earlier, as oil prices crossed the $100-a-barrel mark.

FedEx, UPS, DHL and Southwest Airlines, the four biggest cargo airlines at BWI, all recorded a drop-off in overall cargo. UPS fell the most, with air cargo nationally down in the 20 percent range in the first two months of the year.

"Customers are going away from the premium services," said UPS air cargo spokesman Mike Mangeot. "As a result, the flights are just not at as near capacity as they have been in the past."

At BWI, the falloff is compounded by other factors, including the continuing loss of international service and Southwest Airlines' expansion into Philadelphia.

Several international airlines that transported cargo such as produce, seafood and medical equipment in their wide-bellied planes have pulled out of BWI in the past few years.

As a result, international freight volumes at BWI have fallen by more than half since 2004, to 6.5 million pounds last year -- less than 3 percent of overall freight traffic at BWI. For instance, Icelandair, which had been the airport's second-largest international carrier, halted service in mid-January. Seafood was one of the top items the airline transported, according to BWI spokesman Jonathan Dean.

British Airways, Baltimore's sole remaining trans-Atlantic carrier and its fifth-biggest cargo carrier, saw its freight volumes drop 26.4 percent in 2007, to 4.6 million pounds, Dean said.

But this year has proved a bright spot as the dollar has continued to fall against the British pound and euro, making exports cheaper. British Airways' BWI cargo was up by 60.2 percent in February and 18.9 percent in January, and BWI's overall international cargo shot up 25.5 percent compared with the year before.

BWI has scrambled to both attract and retain overseas service since its $147 million international terminal opened in 1997. While increasing passenger traffic is a main reason for adding flights to new foreign destinations, cargo business comes hand in hand when new airlines enter the market.

"On a per-flight basis, international passenger flights relative to domestic passenger flights generally carry significantly more cargo," said Brian Clancy, a managing director of Alexandria, Va.-based MergeGlobal, which does consulting for the air freight industry. "If it wasn't for that belly cargo and the profit you get from that, international flights would often lose money."

And as Southwest Airlines has expanded its flight network in nearby Philadelphia, more formerly Baltimore-bound shipments have been rerouted, said Wally Devereaux, the carrier's director of cargo sales. Southwest is BWI's third-biggest cargo carrier and top passenger airline.

"Philadelphia is carrying some of the freight that Baltimore used to carry," Devereaux said. "Volumes last year out of BWI increased 3 percent but have been flat for the first couple months this year because of the economic slowdown."

Southwest Airlines is looking to expand its freight operations, Devereaux said. The company's overall cargo revenues decreased by $4 million, or 3 percent, in 2007 vs. 2006. Though Southwest raised its shipping rates, it couldn't offset a $14 million decline in mail revenue resulting from the airline's decision to stop carrying U.S. mail.

To expand, Southwest wants to tap into the New York City area's market, by potentially shuttling freight by land to one of its East Coast airports, Devereaux said.

"We would want to have a drop-off point maybe in Newark and LaGuardia, and then you could truck it to Baltimore or Philadelphia," Devereaux said. "It would allow us to, in essence, serve a market that we really don't serve."

Though BWI is Southwest's fourth-largest passenger airport, it was the airline's ninth-biggest cargo market in 2007, he said.

Southwest's goal to enter a code-sharing partnership to start offering international service through an affiliated carrier by early 2009 could benefit the airline's cargo business as well as its passengers. Any international airline with a large import or export cargo business could be an attractive partner for Southwest, Devereaux said.

"We could take that international freight and put it into our network, feeding their system or vice versa," he said. "We need to make sure we take full advantage of all the available capacity that we have in our system."

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