Global and regional economies, including Hong Kong, are seeing a structural shift to expedited freight. The shift is due to increased use of just-in-time or zero inventory management and shorter production cycles for manufactured items like fashion and mobile phones. According to senior analyst Peter Negline, who is also vice-president at Salomon Smith and Barney, a member of the Citigroup, the rapid growth of Internet and e-commerce was fuelling this trend. Shippers were shifting to air cargo as it allowed more diverse production locations and access to cheaper labour, he told delegates at the recent Payload Asia conference. Longer-term rising interest rates would boost volumes as the higher cost of money favoured expedited freight to shorten inventory turnover, Mr Negline said. He expected supply chain managers to increase the use of air freight and reduce ocean transport as shippers wanted to get their goods to the market rapidly. Asian exports are expected to remain strong, supported by a strong US dollar, as Asian economies are on the rebound. Exports, as well as imports, are expected to surge this year. Analysts said most Asian economies, which were dependent on exports of high value-added goods, were expected to have good growth this year due to the strong purchasing power of the US and the European Communi ty. Air cargo is already a US$200 billion industry globally with 80 per cent of these revenues in distribution - cargo revenues growing faster than passenger. Previously, air cargo used to be an industry by itself, but now it is part of the fast-growing logistics industry. Boeing has forecast freighters will double and although currently half the traffic is to the US, Asia will be the primary engine of growth. Economic integration would be the catalyst for global markets, analysts said. In the next 30 years, global markets are expected to grow 20 per cent, or $6 trillion, to 80 per cent, or $73 trillion, of the world's output of $91 trillion. Regarding the total dedicated freighter fleet in the Asia Pacific, Mr Negline said there were 100 aircraft as at July 31 last year, and the figure would have risen by an additional four aircraft by the end of the year. Of the 100 aircraft, 38 were Boeing 747-200s, 25 B747-400 Combi, 16 B747-400 freighters and 11 MD-11 freighters. There were also three B747-200 Combis, two each of Airbus 300 freighters, B737-300 freighters and B747-300 Combis, plus one B767-300 freighter. By 2003, there would be more freighters in the region, while one existing B747-200 freighter was expected to be retired this year. Mr Negline said the B747- 400 freighter was becoming increasingly popular and one was on order last year, five this year and three in 2001. Orders likewise had been placed for six B747-400 freighters, three in in 2002 and three in 2003. Mr Negline predicted Asia Pacific cargo capacity would grow by 6 per cent this year, 2.9 per cent in 2001, 2.1 per cent in 2002 and 2 per cent in 2003. This year, there would be a 5.9 per cent growth of cargo capacity in the bellies of passenger aircraft and 6.2 per cent capacity rise on freight ers. Cargo yields had been firm, reflecting strong demand. Most freight forwarders said they had experienced strong growth in air cargo traffic in Hong Kong in the second half of last year, continuing into January. Feedback indicates this will be a good year for the air cargo industry, unless conditions in the US and Europe change drastically. Mr Negline said while airline cargo earnings were difficult to determine, strong growth prospects had boosted confidence of all industry operators. 'We expect substantial investment in uplift capacity and related infrastructure,' he said. Pricing would remain competitive and profits may well come from asset plays, Mr Negline said, adding that the industry's success depended largely on growth as well as profits. He said the traffic growth outlook remained strong and industry would be challenged to manage capacity growth. Consolidation would also set into the air cargo industry, posing another major challenge. As the trend to greater use of air freight continued, post offices had been expanding fast to grab a share of the market.