Air cargo is a $50 billion business that is losing competitiveness, according to Giovanni Bisignani, director general of the International Air Transport Association. Speaking at the association’s second World Annual Cargo Symposium last month he warned: “World trade grew 7.5 per cent last year and our growth forecast for this year is four per cent.”
“Our sea competitors are gaining market share with faster ships, lower prices and innovative solutions. And new capacity coming into the market – 200 to 300 wide bodies entering the market each year to 2011 – will put even greater pressure on yields. This is a tough business that is only getting tougher. The only way to succeed is to please the customer.”
These effects are evident in the latest results for British Airways World Cargo. Revenue was down 0.9 per cent for the first nine months of its financial year. The company was keen to point out that this represents a marked improvement on the six month position where revenues were 5.3 per cent down versus the same period last year. Yield (commercial revenue per cargo tonne kilometres) decreased by 2.4 per cent, excluding exchange effects.
Cargo capacity declined by 2.4 per cent on the previous year, although volumes were up by 1.6 per cent to 3,667 million CTK. Nevertheless, financial controller Sean Doyle says: “We’ve experienced a notable volume recovery in the UK market and demand out of the Americas continues to grow, helped by our expanded shorthaul freighter network into Europe. The strong Euro combined with tough conditions means that the market remains challenging in Europe and price pressures continue to be a feature of the market in South Asia.”
Trade imbalances are having a significant impact on the market, according to Nigel Moolenaar, general manager for sales, marketing and business development at Air Menzies International (AMI).
“Businesses have been moving manufacturing to low cost economies such as China, eastern Europe and Brazil,” he says. “As a result, airlines are having to put on additional capacity to bring in manufactured goods from China.”
This means that there is a growing imbalance between exports from the UK and imports. “Rates out of the UK are now very low, compared to import rates,” he says.
AMI is the world’s largest trade-only airfreight consolidator with a range of services to a global distribution network spanning more than 900 destinations.
However, says Moolenaar, the shift in trade was in danger of leaving AMI too focused on exports so it has been working hard to build up its overseas operations. Last year it completed the acquisition of wholesaler UAC giving it offices throughout Australia, New Zealand and the USA, as well as the UK and Germany. There is also a joint venture in China and Hong Kong.
Moolenaar points out that the current low rates out of the UK are good news for exporters. “It’s currently very unusual not to get capacity pretty much whenever you want it.”
High fuel prices are taking their toll and surcharges are one of the biggest areas of concern for shippers. Last month British Airways World Cargo has announced an increase to its fuel surcharge to 57 pence. Managing director Steve Gunning says: “The price of fuel continues to be a concern which is only partially mitigated by the fuel surcharge. As a consequence, we will remain vigilant in identifying ways of increasing efficiency both internally and with our customers.”
Nigel Moolenaar points out that: “Airlines are having to invest in more modern fleets and more efficient ways of operating. Older and noisier freighters are being moved out of Europe in favour of more environmentally friendly aircraft.”
He points out that high fuel costs are deflecting traffic onto the road network in Europe. In fact, he says, Eurotruck is AMI’s fastest growing product offering a two to three day transit time at lower cost than standard air cargo.
Despite the challenging conditions, BAWC has invested £850,000 to expand its Perishables Handling Centre at Heathrow. The new facility will add an extra 2,325 square feet and will include a new Border Inspection Post facility for non-human consumption products of animal origin. The centre opened in 1998 and is a fully chilled, 69,000 sq ft facility. In 2006 it handled over 115,000 tonnes of perishable goods including fresh fruit, vegetables and flowers.
It has also recognised the growing importance of India and is launching direct flights between Heathrow and Hyderabad in October. It will operate five flights a week on wide-bodied Boeing 777s, increasing cargo capacity to and from the region by 2,500 tonnes per annum.
Mat Burton, area manager India and Nepal, BA World Cargo says: “Hyderabad is an increasingly important station, primarily due to the rapid increase in pharmaceutical and IT manufacture in the region.”
Planned aircraft purchases also mean that BA’s cargo capacity is on the increase. The purchase of 12 Airbus A380s and 24 Boeing 787s as replacements for 34 of the airline’s longhaul fleet will add at least an extra 170 tonnes a day to BA World Cargo’s current capacity. The aircraft are due to be delivered between 2010 and 2014.
The creation of industry giants which integrate logistics and freight forwarding has had a significant effect on the air cargo market, as these companies have been able to drive growth by cross-selling to existing customers. Kuehne + Nagel is a prime example.
Peter Ulber, chief executive for North West Europe, points out that last year its airfreight business grew by 14 per cent against the four per cent growth for the market. And in the UK growth was 18 per cent. One element in that process was selling more products to existing customers.
Kuehne + Nagel has four main product groups: airfreight, seafreight, contract logistics, and road and rail transport. Among its top 100 customers, the number taking more than one product rose from 58 to 72 last year. Within that, the number taking three products rose from 24 to 38 and the number taking four products rose from seven to 15.
In addition, says Ulber, some 50 per cent of air cargo traffic is generated because something else has gone wrong in the supply chain. That is a section of business that is not so attractive to Kuehne + Nagel. “We concentrate on ‘wanted’ airfreight,” he says.
UPS has also targeted the airfreight industry as a growth area. At the start of the year it launched a simplified global portfolio of air freight products including an expanded express freight option with guaranteed door-to-door service.
Jens Poggensee, director of transport for UPS Supply Chain Solutions EMEA, says the portfolio of products had grown as a result of a series of takeovers including Fritz and Menlo so it was ripe for reorganisation. UPS has ambitious plans for the airfreight market and wanted to align its offering better with customer needs.
The international express service, called UPS Express Freight, more than triples the number of express lanes currently served and provides guaranteed time-definite, overnight-to-three day door-to-door delivery including routine customs clearance to major global metropolitan areas. There are two non-guaranteed services for less time-sensitive global movements: UPS Air Freight Direct, a one-to-three day airport-to-airport service; and UPS Air Freight Consolidated, a three-to-five day airport-to-airport service.
Poggensee oversees the strategic development of UPS Supply Chain Solutions’ air, ocean and road freight services throughout Europe, the Middle East and Africa. He points out that the express freight product extends the small package concept on a much larger scale – there are no size or weight limitations.
UPS reckons that by combining its capabilities as the world’s ninth largest airline with its position as a global freight forwarder with access to other airlines, it becomes the only transport and supply chain provider offering guaranteed integrated air freight services in a single portfolio.
Boeing has delivered its 1,400th 747, a 747-400 Freighter delivered to GE Commercial Aviation Services for lease to AirBridgeCargo Airlines, a subsidiary of the Volga-Dnepr Group. It is the seventh 747 freighter in the AirBridgeCargo Airlines fleet. The Volga-Dnepr Group has also ordered five of Boeing’s new 747-8 Freighters, the next model in the 747 freighter family.
The 747 has completed more than 17 million flights through 2007. It has logged approximately 89 million flight hours or more than 10,000 years of flight time. The aeroplanes have flown some 42 billion nautical miles, which is equivalent to making nearly 203,000 trips to the moon.
Boeing will deliver the first 747-8 Freighter in late 2009 and the first 747-8 Intercontinental in late 2010.