The economics of air freight

by on April 18, 2010 at 11:08 am in Current Affairs, Economics | Permalink

Air freight is responsible for a quarter of the value of all goods moved into and out of the UK…

I believe that is a rough rather than exact estimate.  If European air travel continues to suffer, Kenya will be one of the most immediate big losers, for reasons of tourism and agriculture and flower-shipping (see my favorite economics textbook!).

Here are some general figures on air freight around the world.

Barkley Rosser April 18, 2010 at 2:35 pm

The volcano does not appear to be slowing down at all. Maybe the Germans are right that it is not so serious (hope so, have a bunch of trans-Atlantic flights supposedly coming up), but if not, this could turn out to be very major black swan event that hits the world economy hard and for sure puts into that unwanted double dip of a recession. Oh but one good thing. For once the RBS business cycle theorists will have it right that an exogenous supply side shock will have been the cause. Go Minnesota!

mulp April 19, 2010 at 3:14 am

I think air freight companies can fly in and out of the UK; the BBC is reporting the airlines have been making test flights to see if they can determine the extent of damage to the planes and engines, and finding none.

But I imagine we have a good bit of regulatory capture. If you fear your planes might crash with everyone suing based on the known risk ignored, you want some cover from an authority, like the government saying it is perfectly safe. Without the government saying it is safe, you want everyone to fly full schedules based on some joint claim it is perfectly safe, or you want no one to fly. The way to ensure group action is by way of the government authorities.

If all airlines fly, but one cancels flights by claiming an ash risk, even if the problem is something else, the impression is created the ash risk can be predicted, so if your plane has an accident, you have failed to protect passengers from a risk you should know about.

Of course, you could hire survey planes to check out your air routes, but if it is known you have hired surveying of routes and you begin traveling routes, competitors will mimics your actions getting a free ride on your expense of testing routes. So, you want the government to pay for the testing of routes for safety.

As flights around volcanoes for research purposes are common, with technique well developed for spotting ash, not to mention the testing done to monitor nuclear testing (before and after the various test ban treaties), all that is required to add ash data to the weather forecasts is money. Throw lots of money at the problem immediately and the scope of the problem can be quickly determined, then investment in equipment and operations would ensure safe operations if the volcano continues spewing ash.

Jeremy H. April 19, 2010 at 6:16 pm

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