Billionaire investor Warren Buffet characterizes the good news about the U.S. economy as a “gradual improvement.” The U.S. economy is expected to grow 2.2 percent in Q3 2013, 2.7 percent in Q4, and approach 3 percent by next year. This improvement is due in part to a strengthening job market, which gives consumers more confidence and willingness to spend. This year, the unemployment rate should average 7.6 percent, lower than a previous forecast.

Improving home prices are also helping the job market. In metro areas, home prices have been on an upswing since early 2012. Continued improvement means home owners will enjoy greater mobility to seek out employment as it becomes financially feasible to sell housing and move to areas with greater job opportunity. Like a chain of dominoes, this will lower the unemployment rate, increase economic productivity, and bolster consumer confidence and spending, all of which is good for air cargo.

April retail sales saw a 0.1 percent gain, which was higher than what economists anticipated. U.S. companies are also profiting from a smaller U.S. trade gap. For Q1 2013, the U.S. trade deficit decreased to a $507.7 billion annual rate, nearly 6 percent lower than last year. While this smaller gap could impact U.S. spending on foreign products, the higher level of exports supports U.S. business profitability, which in turn propels investment and economic activity.

The U.S. economic trend is certainly positive, having seen growth for 15 consecutive quarters. While the growth rate is lower than historical averages, it nonetheless reveals that the world’s largest economy is steadily emerging from the aftermath of the 2009 recession. This is positive news for the U.S. and international air cargo market alike. Stagnant growth in the United States and Europe following the economic downturn strained the air cargo industry, owing to tepid manufacturing and consumer spending. Emerging markets enjoyed some growth, which helped the air cargo industry find new opportunities, but because no economy exists in isolation, robust improvement was hampered by ongoing challenges in developed markets. As the U.S. economy improves, it means growing prospects for air cargo around the world. Take Brazil as an example. Brazil’s international trade suffered in 2012, but as U.S. consumers spend more, it generates higher demand for Brazilian exports, such as automotive parts.

To be sure, there are still challenges and economic fluctuations. U.S. auto demand fell slightly in April, with cars and light trucks selling at a 14.9 million annual rate, down from 15.2 million in March. Nevertheless, the Q1 average was a rate of 15.3 million, which is the strongest since 2008. Manufacturing is also growing slowly, as activity dropped 0.1 percent in April from a 0.4 percent gain in March. And the European Union continues to experience challenges from the eurozone crisis; however, 81% of economists surveyed by USA Today think the weak European economy poses less of a risk this year than last.

One challenge that is not yet abating is the high and unstable price of oil, which is the greatest ongoing cost for aviation and air cargo. High fuel prices increase supply chain costs, which has driven some shippers to other modes of transport. Ocean freight in particular has captured some of the air cargo market, as some shippers sacrifice speed and efficiency for cost. Yet, given product value and time requirements, many air cargo commodities are resilient in the face of fuel prices and other challenges. For example, oil and gas exploration in the Asia-Pacific region places a premium on acquiring needed parts as quickly as possible, which often demands air cargo transport.

The air cargo industry is not yet out of the woods, but there is certainly light at the end of the tunnel. After years enduring a difficult international economy, the forecasts are beginning to match reality. Economic figures can change rapidly, but as the U.S. economy continues to gain momentum, it suggests a brighter future for air cargo.

Industry leaders discussed air cargo at TIACA’s 2013 Executive Summit. From left, Howard Jones, NCS President, Kenji Hashimoto, AA Cargo President, Robert Mellin, Ericsson Head of Distribution Logistics. Courtesy TIACA.

The air cargo industry is poised for growth this year. Facing new opportunities, air cargo providers can find ways to enhance their service and relationships. At The International Air Cargo Association (TIACA) Executive Summit in April, Robert Mellin, head of Distribution Logistics for Ericsson, a network and telecom service provider, spoke about the state of air cargo logistics. Even as overland and local logistics become more attractive in a challenging economy, air cargo remains a critical part of the global supply chain. Mellin offered areas where the industry can focus to better service shippers who rely on air transport.

1. Emissions Matter: Shippers and other businesses are increasingly interested in lowering carbon emissions. Customers sometimes want to know upfront how much CO2 will be released in logistics transport. Airlines that have worked to lower emissions (such as through fleet upgrades) can capitalize on the investment, leveraging it as a competitive advantage.

2. Excel at E-Commerce: Mellin noted that Ericsson’s annual logistics documentation could fill a 747. Developing the capabilities for e-freight is an industry-wide initiative that will take time to implement. Yet, making progress on electronic documentation (such as transitioning to the new multilateral e-airway bill) can lower costs and help streamline logistics.

3. Transparent Tracking: With new monitoring and GPS technologies, forwarders and air carriers have the capacity to track every shipment. Mellin said knowing cargo status “gives comfort to our customers and product team.” Real-time visibility is a big advantage in 21st century air cargo logistics, and carriers can enhance trust and service by investing in network-wide tracking technology.

4. Simplify Security Regulations: As international organizations and country-specific security regimes develop new policies and regulations to secure air cargo, Mellin said carriers should take an active role in helping shippers understand what those rules mean for them. Participation in security programs, such as the Air Cargo Advanced Screening (ACAS) pilot, can give carriers keen insight that helps logistics partners navigate new regulations.

5. Innovate and Collaborate: Working as a group can profit greater efficiency and better planning. “There are solutions for how to make this more efficient if we start discussions,” Mellin said, adding that shippers, forwarders, carriers and all logistics providers should work together to enhance the supply chain.

South Korea is the third largest economy in Asia, and the thirteenth largest in the world, with a total trade volume of more than $880 billion, according to 2010 figures, which are the most recent available. The country is seeing growth as the world’s tenth largest importer and seventh largest exporter. For Q1 2013, South Korean exports enjoyed a 3.2 percent expansion. The International Air Transport Association reports a steady increase in South Korea’s export orders, indicating a rise in air cargo demand in the coming months, and some of the biggest opportunities are arising in the transport of high-tech products, auto parts, and equipment for energy exploration.

High-tech Goods Driving Air Cargo Demand

Last week, President Park Geun-hye is led a 51-member economic delegation to the United States, which was the largest in South Korea’s history. The delegation included the heads of the country’s five largest business organizations, including those from Samsung, Hyundai and LG, who met with counterparts in the United States to find ways to boost already strong economic cooperation between the long-time allies.

This is an indication of the importance and profitably garnered through U.S.-South Korean trade, and the inclusion of leaders from South Korea’s business community shows the focus and potential for high-tech goods. For air cargo moving to the United States, there is wealth of opportunity transporting products from Samsung, LG and Lockheed Martin. Much of these shipments terminate in Miami and Dallas, though demand in Latin America means some of this air cargo is transferred for flights south to booming markets in Brazil and elsewhere.

There is also air cargo demand for westward capacity carrying parts and products from some of the same major South Korea-based technology companies. Indeed, the United States exported nearly $10 billion of high-tech products to South Korea in 2010, a 39 percent rise from three years earlier, showing the positive trend in air cargo flows for delicate electronic products.

FTA Boosting Auto Part Traffic

South Korea signed a free trade agreement (FTA) in 2007 with the United States, its second-largest trading partner. This has resulted in a 10.4 percent rise in tariff-cut commodities, such as auto parts, which has netted the country a $17.2 billion trade surplus. (The FTA has also added more than $10 billion to the U.S. GDP.) South Korea’s FTAs with other countries have also helped boost the country’s economy.

In 2012, South Korean auto parts exports hit a record high, driven by the growing worldwide demand for Korean-made automobiles. The Korea International Trade Association reports the country saw a $19.7 billion surplus of its auto parts trade, with exports totaling $24.6 billion. What is more, with auto parts suppliers increasingly based in the United States, the demand for South Korea-bound air cargo capacity is growing as well.

Oil Projects Require Air Cargo’s Speed

South Korean oil and gas exploration is giving the country and the world new access to vast energy resources. The country’s largest oil company recently found new resources in the northern Kurdish region in Iraq, and with ongoing exploration and drilling around Russia’s Sakhalin Island, South Korea is an important transit point for oil and gas equipment moving to big energy finds throughout the region and the world. Much of this equipment originates at the George Bush Intercontinental Airport (IAH), owing in part to the long history and extensive infrastructure for energy drilling and exploration in Texas.

When it comes to energy extraction, air cargo is often the most attractive option for moving oil and gas equipment. Given the enormous profit gained from the resources, energy companies rely on air cargo to quickly deliver the parts needed so they can consistently maintain extraction and production. South Korea is a critical transit point for this equipment on its fast journey to energy projects. What is more, South Korea is an active transit point for other air cargo commodities, given its proximity to high-demand markets in Japan, China, Australia and other major economies.

How American Airlines Cargo Can Help

On May 9, American opened daily nonstop service from Dallas-Fort Worth International (DFW) to Incheon International (ICN) in Seoul, South Korea. American’s 777-200 widebody aircraft provide consistent access to Incheon, and with numerous trusted interline partnerships, American also helps forwarders and shippers reach important markets throughout the region, including Beijing, Shanghai and Bangkok.

With progress comes responsibility. Lithium cells and batteries require special treatment in the supply chain, and regardless of the logistics partner or the frequency with which shippers and forwarders move cargo containing lithium batteries, there are precise rules for how to package, document, and label these important and potentially hazardous power sources. Adhering to these best practices and guidelines requires collaboration across the supply chain, and while carriers take important steps for safe stowage and handling, shippers and air forwarders also have an important role to play.

The technical guidelines for shipping lithium cells and batteries by air cargo can be complex. Here are three critical steps all shippers and forwarders should follow.

Step 1: Know what is being shipped

Lithium batteries are used in many kinds of products, and the first step is to understand what a shipment contains. Incidents where lithium power sources caused damage in the supply chain stem not from insufficient regulations, but instead, from cargo that is not properly packed or declared. Sometimes shippers are unaware their cargo includes lithium cells or batteries, in part because they may not be separate from the devices they power. This prevents shippers from following packing guidelines, as well as passing on critical information to their logistics partners. Regardless, if a cell or battery is being moved by air cargo – in any quantity or wattage – shippers, forwarders and carriers must follow specific safety rules.

Step 2: Determine the correct classification

As well as understanding what is being moved, shippers and forwarders also need to understand the cell or battery type, wattage, and quantity. This is critical, as it determines the International Civil Aviation Organization (ICAO) hazardous materials classification. For example, consider these ICAO criteria for classifying lithium-ion batteries and cells not held in hi-tech devices:

Section 1A – Lithium-ion cells exceeding 20 Watt-hours (Wh) and lithium-ion batteries exceeding 100 Wh. These are regulated Class 9 Miscellaneous Hazardous Materials, and there are specific requirements for packing to prevent short circuits, ruptures or reverse current flows. For batteries or cells moved on passenger aircraft, the net quantity per package cannot exceed 5 kg; for all-cargo aircraft, the maximum net quantity is 35 kg.

Section 1B – Cells less than 20 Wh and batteries less than 100 Wh but moved in quantities above what is allowed under Section 2. This is a recently added category that brings cells and batteries under Class 9 regulations when they are moved in quantities greater than the limits in Section 2.

Section 2 – Cells not exceeding 20 Wh and batteries not exceeding 100 Wh. These are essentially the same batteries as those in Section 1B. The difference is that Section 2 has a rather small package quantity limit, and the cargo is not fully regulated as Dangerous Goods.

The weight and power limits for these lithium-ion categories are different for lithium metal cells and batteries, and there are also specific rules for power sources moved within equipment. Shippers and forwarders should work with their carrier and study the ICAO guidelines to determine the correct category and preparation for air transport.

Step 3: Document and label the cargo according to its category

With the proper classification, shippers and forwarders need to prepare the requisite documents and attach the correct labels, which differ depending on the ICAO category. Section 1A requires a Shipper’s Declaration for Dangerous Goods document, and the cargo requires labels indicating Class 9 Miscellaneous Hazardous Materials and Lithium Battery Handling.

Section 2 cargo does not require a full Shipper’s Declaration, though it does require lithium battery documentation. For example, the airway bill should show the number and gross weight of each package. The cargo also requires a lithium battery handling label.

The new Section 1B requires the same documentation plus additional air waybill information, such as a UN number and Dangerous Goods (DGD) identification. The airline uses this data to perform acceptance checks. Critically, to follow international regulations, carriers cannot accept shipments without this information. Like Section 1A, Section 1B requires Class 9 and lithium battery handling labels.

Differences Between ICAO and U.S. Regulations

In the United States, Hazardous Materials Regulations (HMR) govern how lithium batteries are moved by air cargo. The 2012 FAA Modernization and Reform Act requires U.S. regulations to be harmonized with international rules for packaging, labeling and transporting lithium batteries (i.e., the ICAO Technical Instructions). Yet, the U.S. Department of Transportation (DOT) has included requirements by incorporation that diverge from international rules, sometimes making U.S. domestic rules more lenient than international standards.

These differences can make an already complex process that much more challenging. For domestic logistics, shippers can choose between ICAO and HMR rules. When cargo is moved to an international destination, however, shippers, forwarders and carriers must follow ICAO guidelines. Differing regulations present the possibility that shipments prepared according to HMR domestic rules may ultimately move through the international supply chain, putting carriers in violation of rules in the countries to which they are flying. These domestic and international rules will ultimately be harmonized, but in the meantime, shippers and forwarders should consider their destination and work with their carrier to adhere to the proper cargo classification.

Safety is paramount, and these guidelines are important tools, particularly as the demand for products requiring lithium power sources increases, driving a higher volume of cells and batteries in the supply chain. Carriers understand this is a difficult process, and some (like American) have developed specific checklists that can help clarify and guide the movement of lithium batteries. Shippers and forwarders can contact their carrier and operations manager to find guidance on correctly preparing, documenting and labeling lithium batteries. Close collaboration between shippers, forwaders and carriers, as well as harmonized rules across the international supply chain, can ensure these critical commodities continue to be safely carried to millions of consumers around the world.

Keith May is Senior Manager for Ramp, Cargo and Operation Compliance at American Airlines Cargo.

With the largest economy in Latin America and more than 700 airports, Brazil’s customs process can be complex. Perhaps the most essential ingredient in the expedient movement of goods through Brazilian customs is information. In Brazil, most air cargo professionals work in a government warehouse, following the country’s rules to push cargo through the customs process while also ensuring the cargo is safely held according to the customer’s requirements. To be sure, this is not a 9-to-5 job; working with air cargo, cold chain shipments in particular, demands 24/7 attention and operation.

The air cargo team working to bring shipments into Brazil is skilled at navigating import and export regulations, thriving on accurate, timely information. Effective air cargo operation in Brazil is all about process, which begins when shippers and air forwarders contact their carrier. Before Brazilian customs and regulatory authorities are brought into the process, carriers need knowledge of the specific cargo contents and its requirements. With that data, logistics professionals can initiate communication with government authorities, sharing the critical information needed to safely and quickly move the cargo through customs. Every shipment is treated as a unique case, because the cargo’s varying contents and handling requirements impact which regulatory hurdles must be overcome.

Pharmaceutical imports are a good case study for looking at the Brazilian customs process for air cargo. The Latin American pharmaceutical logistics market is robust, with Brazil’s market growing almost 14 percent to $5.1 billion between 2010 and 2011. Brazil accounts for nearly 10 percent of the total market in Latin America, due in large part to Brazil’s growing middle class. This means a significant amount of pharmaceutical imports, and the growing clinical trials market further boosts cargo flows into and out of the country. Even as Brazil’s economy has seen some challenges in recent months, the pharmaceutical market remains an attractive area for air cargo growth. Shipping life-saving drugs to the Brazilian market, however, means a complex customs process.

Pharmaceutical imports must adhere to Health Ministry procedures, and after arrival, they require inspection from the National Agency of Sanitary Surveillance (ANVISA) before they can be released from the bonded warehouse. The consignee must register their cargo before import by providing a shipment use and purpose letter, and pay in advance a government agency inspection fee. The receipt for that payment is critical, as that document is what allows the clearance process to begin.

In addition to the inspection fee receipt, the consignee must also sometimes acquire an Import License (IL). The need for a license depends on the type of cargo imported, and shippers and forwarders should provide their carrier with details about the product to determine the correct Brazilian customs code. The government agencies involved in approving the IL depend on the type of cargo. Brazil’s ANVISA, for example, approves IL for health and pharmaceutical products, and National Institute of Metrology Standardization and Industrial Quality (INMETRO) approves IL from the perspective of product quality control. Critically, if a license is needed and not acquired but the cargo is sent anyway, the shipper can be fined up to 30 percent of the product value. What is more, clearance delays may impact time- and temperature-sensitive cargo.

As with most international destinations, Brazilian laws and regulations require a commercial invoice, packing list and complete air waybill for all cargo. Tariff requirements may also require origin and analysis certificates. These important documents and approvals allow air cargo into the country and initiate the clearance process. Meanwhile, the other half of the customs equation is carrier knowledge of how best to handle and safeguard the cargo once it has arrived. This takes more information.

For cold chain pharmaceuticals, what temperature range is required to maintain product viability? What is the timeframe in which the cargo must arrive? The carrier needs to understand the product requirements in order to protect it. Cargo moved by active cold chain logistics brings different demands than passive shipments, and not all Brazilian airports and bonded warehouses offer the same level of cold chain infrastructure. The air carrier needs cargo information well in advance to plan the best way to protect the shipment while the customs clearance process proceeds.

Trust is a cornerstone of international logistics, and if a carrier has made the right investments in training and operations, shippers and forwarders can trust their carrier’s process. There is a world of opportunity in Brazil, and one key to unlocking that potential is cargo information.