Over the years, airlines have been working to create their cargo strategies, seeking additional revenue sources. The industry and its logistic processes are a part of active transport economics, where developments and business models unfold continuously and at a very high pace. An extensive range of economic and industrial tools are involved, such as repeated market entries, bankruptcies, and takeovers, as well as mergers. Carriers and airports are challenged with capacity and ecological constraints, such as prohibitions on night trips at some airfields. Air cargo’s commercial feasibility is currently suffering a considerable decrease in the profit margins due to the aggregated pressure from freight integrators and forwarders. This report discusses the air cargo industry regulatory and bilateral issues, including safety, security constraints, and solutions to the constraints.
Bilateral and Regulatory Issues in the Air Cargo Industry
Bilateral Agreements on Air Cargo
Bilateral agreements on air cargo are international trade contracts between two states, demonstrating how the governmental aviation authorities establish mechanisms that regulate commercial provisions of air services. These agreements regulate the air space between the territories of the contracting states, and in some cases, go far beyond. Air transport agreements are regarded as treaties, inter-governmental or executive conventions, or exchanges of diplomatic notes. They do not have to be formal, and as imposed by international law, no writing requirements are needed.
There is no singular generally acknowledged multilateral treaty that supports the delivery of traffic rights to foreign carriers. According to Article 6 of the Chicago Convention of 1944, there is no transnational service required to operate in any contracting state (Abeyratne, 2018). However, this can happen if permission is granted and under agreement with the contracting state. Therefore, international airline operation is mainly dependent on the consent of the state’s territory through which they fly.
The transnational air services grant the rights for landing or flight without landing across a state’s territory. The two alternatives facilitating transit are commonly referred to as the First and Second Freedoms. There are also Third, Fourth, and Fifth Freedoms, which make international air commerce possible (Abeyratne, 2018). They include the allowance to land with passengers or cargo taken on board in the state native to the airline. The freedoms also represent the right to perform transportation from and to the state native to the air company. The rights are granted depending on bilateral agreements between airline state and landing state or an autonomous grant by a state.
The Open Skies agreement is a bilateral contract between two nations, and it allows unlimited air travel between them. These agreements have massively increased international cargo and passenger flights to and from the US, enhancing trade and travel and promoting economic growth and attractive job opportunities. The Open Skies agreements prohibit governmental interventions in the commercial decisions made by the air cargo management (Contreras, 2017). The US is pursuing Open Skies policy since 1992, and its critical components include open intercontinental routes between the parties and the unlimited number of aircraft permitted to operate. The liberal provisions on charters, pricing, business issues, and commercial opportunities are included in the policy. There are also optional provisions on air cargo which the state seeks to negotiate with the partners.
In each region of the world, the US has succeeded in finalizing Open Skies agreements with several nations. In 2010, it reached the landmark of 100 partners, and in 2019, the number increased to over 125 (Contreras, 2017). Fare share of these agreements contain the Seventh Freedom transportation rights for air cargo, and the government strives to review the existing treaties. The Open Skies treaty covers all-cargo services, apart from a few cases, including Vietnam and Mongolia.
There are also two multilateral agreements in the US, the United States/European Union (US/EU) and the Multilateral Agreement on Liberalization of International Air Transportation (MALIAT). The latter was signed in 2001 between partnering states of Chile, Fiji, Brunei, New Zealand, Tonga, Samoa, the US, and Singapore (Fu & Yang, 2017). The MALIAT offers an alternative that allows states to agree to all-cargo services only. For instance, Mongolia chose to consent to the all-cargo protocol and has settled some air transport agreements with the EU, China, Japan, Brazil, and Colombia.
It should also be considered that the deregulation of international air cargo transportation and the adoption of Open Air treaties had an extremely positive effect on the tourism and trade sector in the Asia-Pacific region. In particular, the Hong Kong-Bangkok market situation demonstrates that the winning of the rights associated with the Five Freedoms for the Asia-Pacific countries led to a massive increase in air travel and contributed to tourism development (Law et al., 2018). In this regard, scholars recommend continuing legislative reforms to ease restrictions on ownership and expand rights to air freedom.
Noteworthy, the EU uses Regulation 1008/2008 (Air Transport Regulations) as the primary document directing air cargo transportation within the Union. This law is the only successor to the previous bills and regulates the whole European aviation market (Finger et al., 2020). The provisions of the law include the procedures for issuing operating licenses, the ownership and control of air carriers, the freedom to provide air transportation within the union, and the rules for traffic distribution and pricing. According to the latest report, which the European Commission conducted in 2019, the EU member states strictly adhere to these air traffic rules. This law has a decisive impact on air travel liberalization, industrial employment, national crews, and working conditions. Moreover, its simplicity can be a good example for US legislators.
Public international legislation includes the economic regulation of international civil aviation. It appeared after two world wars, which had a significant impact on the formation of laws. Subsequently, the legal system developed steadily, although liberalization was still in question. Scientists note that many rules that were developed in the 1940s and 1950s became the basis for subsequent documents, although the practices of that time are now very outdated (Lykotrafiti, 2019). According to scientists, the shift in focus towards economic regulation has failed to cope with the inclination towards rigid post-war norms; in this regard, new information technologies can provide an impetus for the liberalization of air cargo transportation legislation.
Apart from the aggregated pressure on the air cargo sector from freight integrators and the constraints due to bilateral agreements, security limitations are also common. The Chicago Convention has numerous provisions that concern air cargo and comes under the International Civil Aviation Organization (ICAO) expertise (Van Asch et al., 2019). Its main objective is to facilitate the clearance and release of air transported goods. The recommended practices were approved on 25 March 1949, under Article 37 of the Convention of International Civil Aviation (CICA) (Abeyratne, 2018). Based on the Article, countries are advised to apply the procedures to freights moving by air, sea, and land, just like they are applied to freights moving exclusively by air.
Whenever the contracting states are changing regulations for clearance and release of air transported goods, they should engage the aircraft operators and describe their intentions in the annex. Further, they should develop rules for pre-departure and the pre-arrival lodgement of exports and imports. If the consignment attracts customs or sanitary controllers’ attention, the states must delegate authority to the US Customs and Border Protection.
They should take the required steps to ensure that the release is coordinated and carried out simultaneously and without delay. The states are expected to have the cargo aimed for export or import examined physically and use risk management to determine the goods for assessment. Wherever practicable, modern screening techniques should be applied to increase efficiency (Abeyratne, 2018). Therefore, the objective of the declaration is to enable prompt clearance and release of goods.
Even though officials understand the significance of preserving air cargo’s role in the US and global economies, security regulation is a primary constraint in the sector. After the attacks of 2001, the revision of legislation affected the Aviation and Transportation Security Act. As a result, the government established the Transportation Security Administration (TSA), a federal agency mandated with air transport security. Initially, the TSA was part of the Department of Transport, but it was later moved to the Department of Homeland Security. The Customs and Border Protection (CBP) agency imposes regulations concerning international and domestic air cargo security. In coordination with the industry, the CBP and the TSA guide a risk-based approach when vetting air cargo shipments. The system is referred to as Air Cargo Advance Screening (ACAS), and the emphasis is mainly on enhancing the inspection of overseas shipments.
Safety Constraints to Air Cargo
Issues on safety are primarily controlled by the Federal Aviation Administration (FAA); they also pose limitations on the air cargo industry. For a long time, FAA has conducted aviation safety assessments to ensure that the US aviation partners comply with the Chicago Convention obligations. Any country affirmed to operate under regulations is assigned a category I rating, and its carriers are allowed to continue serving the US, with a possibility of growing its operations (Lutek, 2018).
The operations can only be raised to the degree set in the bilateral agreements. A country that does not follow the rules is given a category II rating. Lutek (2018) noted that if there are transporters at the time of category II rating, they are allowed to continue with their operations only under intensified inspections by FAA. On the other hand, if there are no carriers, the state is completely excluded from serving the US.
The Chicago Convention rules out that the contracting states are required to create regulations regarding the international airfields. The customs warehouses or free zones are supposed to issue comprehensive rules concerning various operations to be executed there (Abeyratne, 2018). Electronic submissions of all cargo information should be provided by the states contracting before the cargo’s departure or arrival. The data requirements are limited to the particulars considered necessary by the public authorities for clearance and release of imported or exported goods.
Even though there are concerns over the possible air cargo use to bring an explosive device aboard a passenger aircraft, no successful attack has been reported so far. The risk-based policy has been shifted to 100% mandatory vetting for all air cargo traveling to the US to respond to these fears. However, scientists mention that terrorists consider all-cargo aircraft less attractive for bombings (Lutek, 2018). The TSA uses risk-based measures for screening shipments, though 100% comprehensive vetting is used by some airports.
Solutions to the Constraints
Petitioning the Government to Provide Special Regulatory Relief
Safety and security are of central importance, and therefore the air cargo sector stakeholders should understand their roles in making sure that regulators maintain a balance with economic essentials. A close eye should be kept on developing regulation, including active participation in the rulemaking process. Sometimes the investors become useful when they take the initiative to present detailed proposals, making suggestions to help achieve the national policy objectives.
A good example is a ratification of the Expanded Air Cargo Transfer Authority (EACTA) for Alaska. The initiative was launched to aid in the Alaska Cargo Transfer Initiative’s success, a measure that was decided by the Department of Transportation (DOT) in 1997. The new standards enabled Alaska and its airports to get unlimited flexibility for cargo transfer in the US and overseas. These standards ensured that the state preserved its share of the fast-growing Asian-European market.
Today, the US cargo airports are expected to continue monitoring regulatory measures that can influence their competitive power with other foreign airports, specifically Mexican and Canadian ones. The two countries are direct competitors in dealing with cargo traffic transiting North America. Therefore, the US regulatory requirements are usually paralleled with Mexico and Canada. They are also tailored towards achieving critical security objectives without causing any unnecessary limitations for the industry.
Participating in the Bilateral Negotiation Process
The US Transnational Air Service program was created for the airfields that show interest in US international issues. It was established by the Airports Council International-North America (ACI-NA). The US airports which participate have to incur extra dues assessment fee. The program supports and encourages the interests common to the participant airports, mainly regarding the expansion of international air services to the US. It provides ways for negotiation, allowing the US airports to protect and promote their interests. Airports and carriers that seek to overcome limitations brought about by the bilateral system are supposed to actively participate in the US policy formulation for future bilateral negotiations.
Whenever negotiations are planned with a certain state, the US’s standard practice is that all airports and carriers interested are invited to approve written comments. Further, a pre-negotiation meeting is usually held in Washington, and it gives states the opportunity to respond to issues raised by other parties. The points raised by the airports and other written submissions are discussed during the meetings. Representatives from the carriers and airports are allowed to act as observers on the US Delegation in multilateral and bilateral discussions. Therefore, the parties are given a chance to directly observe the course of these negotiations and provide input for the delegates and the progress.
However, not all meetings are open to individual parties because, at times, the US trade associations, which include the ACI-NA, are allowed to participate. Therefore, the US policy precisely anticipates that the air cargo industry can be a useful stepping stone towards attaining full liberalization with nations that are not ready to transit to the Open Skies treaty. Noteworthy, the current crisis in the air cargo industry caused by the coronavirus pandemic requires adaptation of legislation and other immediate solutions. Air cargo transportation capacity has been reduced to one-hundredth of the previous volume or completely closed.
Air cargo operators are now doing everything to balance the situation in which the demand for air transportation significantly exceeds the supply. For this purpose, some of the passenger aircraft have been converted to air cargo carriers. A significant decrease in freight traffic will inevitably affect many countries’ economies that declare a loss of carrying capacity. Therefore, the scholars recommend that governments “loosen regulatory and operational restrictions on air cargo to ensure market access, essential operations and timely completion of operations at airports and hubs” (Saslavsky & Rastogi, p. 1). Thoughtful changes in legislation will enable governments to mitigate the crisis and partially increase air cargo transportation capacity.
Scientists also note that after the end of the pandemic, the International Civil Aviation Organization (ICAO) will have a decisive influence on the international aviation sector, especially in ensuring the safety of transportations. Large-scale reforms related to the rescue and recapitalization of national airlines are expected, which will undoubtedly affect the industry (Macilree & Duval, 2020). Therefore, researchers are concerned about how ICAO will deal with the crisis, including regulatory liberalization since the revision of laws is needed to balance air traffic.
The air cargo sector plays an important role in enhancing a country’s economic growth, and the bilateral agreements make it possible for states to carry out international trade contracts. The aviation authorities of each government establish a mechanism that regulates commercial provisions of air services. The industry faces security and safety constraints, but regions and airports continue locking horns in constant competition for flight flows, airlines, and other associated operations by the suppliers despite these difficulties.
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