The pace at which we all respond to the demands of our customers is critical – and recent investments made by some of the world’s leading air cargo operators suggest that the industry is finally getting the message about e-commerce.
The sector is booming within the air cargo industry and KLM Cargo have now invested in a combination-carrier-operated sorting system at its Amsterdam Schiphol airport site that is able to handle package-level air freight. It’s been designed specifically to handle post, express and pharmaceutical cargo.
That means that KLM Cargo should now have the systems in place to fully take advantage of the growth in e-commerce traffic. Marcel de Nooijer, executive vice president of KLM Cargo explains: “E-commerce is a fast-growing branch in the cargo industry. This innovative system allows us to keep pace with the rapid increase in post and express consignments. The system is faster and smarter, allowing us to offer better service to our customers.”
KLM Cargo have described the new facility as a world first, and it’s clear that it should now allow the business to make more use of its air freight capacity. KLM Cargo have teamed up with Netherlands-based Parcel International to run 12Send, a new same-day delivery service for Europe. They’ve already piloted the service on routes between Amsterdam and Barcelona, and have held successful trials in London, Madrid and Stockholm.
A lesson for the sector
Ignazio Coraci comments: “This is a sign of things to come. No industry can afford to ignore their customers. The investment made at Amsterdam Schiphol is an indication that businesses are slowly beginning to listen to changing customer needs, and I feel that we are starting to move in the right direction. This kind of investment is essential if carriers want to survive as new markets develop.”
It has been a truly impressive start to the year for Hong Kong International Airport (HKIA), with growth in traffic right across the board. In terms of air cargo business, HKIA has handled an impressive 2.3 million tonnes of cargo already this year in the first six months to June – that’s up a remarkable 11.3% on the same period last year.
So what has been behind HKIA’s great start to the year – and more importantly, do the experts think it will be sustained? Well, in the latest figures from June, 410,000 tonnes of cargo passed through the airport, up 11.4% on 2016 – and there are indications that a 17% year-on-year increase in June exports from the airport led to the high growth in cargo tonnage for that period. That bump in export figures has certainly contributed then to the airport’s positive performance in the first half of 2017, but HKIA has also benefited from an improved global outlook. And with the Asian markets leading the way in air cargo growth, HKIA is in prime position to take advantage of a global economic performance that is looking positive in terms of consumer and business confidence.
Investing for the future
HKIA isn’t standing still, with work starting last August on a third runway to help accommodate future growth. The airport is also making further investments to ensure it meets the needs of customers.
“On the cargo front, HKIA continues to develop its ability to serve fast-growing segments of the high-value cargo business, such as fresh produce and temperature-sensitive pharmaceuticals that require specialised handling,” says an airport spokesperson. “The airport authority and local industry stakeholders are working closely together to pursue the IATA Centre of Excellence for Independent Validators in Pharmaceutical Logistics (CEIV Pharma) accreditation on airport community basis and HKIA is expected to be recognised as an IATA CEIV Pharma Partner Airport by the third quarter in 2017.”
A sustainable future
Ignazio Coraci comments: “Clearly Hong Kong is an important site for both our ASC Cargo and SW Italia businesses, and so the news that air freight handling is continuing to grow there is great to hear. I’m also really encouraged by the investment in infrastructure that is being made at HKIA – it will go a long way towards making sure that the performance we’ve seen so far this year is sustained.”
We’ve talked in this blog before about the need for the air cargo industry to begin to move away from the paper-based systems that so often clog up many of our processes. As our customers become accustomed to services that deliver more responsive, flexible solutions and with the higher service expectations that have grown out of the increasing use of mobile technology, we need to respond quickly.
The International Air Transport Association (IATA) have already made a number of steps towards doing this, not least through their support of the e-freight digital process transformation programme.
“Our customers are telling us that they expect more,” said Alexandre de Juniac, IATA’s Director General and CEO. “Complicated and convoluted paper-based processes that are basically unchanged from the 16th century are still being used in air cargo today. Our customers pay a premium to ship by air and they rightly expect modern processes and high quality services.
“Shippers today want responsive services based on intelligent systems able to self-monitor, send real-time alerts and respond to deviation. Technologically speaking, this is totally possible. The key to this and other innovations is using data efficiently and effectively. Finding solutions to unfulfilled (or even unrealized) expectations creates value for customers. And that propels a business forward.”
Is blockchain the answer?
Blockchain is often talked about as being just the kind of innovative technology that supports these aims. But what is it, and how can it be assimilated successfully into the processes and systems of a 21st century air cargo industry?
Well, simply put blockchain technology uses a shared digital ledger to record transactions across a number of computers. The advantages for users are that everyone can see any changes made to public blockchains, creating a more transparent process. Every single transaction made on a blockchain is also immutable – so it cannot be altered or deleted by anyone. A blockchain also creates a single ledger, seen by everyone, that any new transactions are added to – cutting down on any complications and removing the need for lots of different ledgers.
Air freight applications
So what would this potentially look like in an air freight operation? Using blockchain technology within this context creates a cloud-based system that is essentially more secure way of recording shipments. And because of the way that blockchain technology works, it’s also secure from hacking – as well as being a permanent record of transitions that is shareable between multiple users.
While blockchain has yet to really be tested thoroughly within an air cargo setting, it’s already made an impact with marine shippers. Here’s what Jody Cleworth, CEO of British freight forwarder Marine Transport International Limited (MTI) has to say: “Blockchain has the ability to empower our industry into a true digital age,” he said. “The sheer volume of containers processed per year means that safely decentralizing the management of these containers will radically reduce the complexities of shipping.”
Time to invest
Ignazio Coraci comments: “Blockchain technology is precisely the sort of innovative solution to age-old problems that we should be applying within our own industry. It’s important that other sectors aren’t allowed to steal a march on the air freight industry by adopting innovations that will serve customers in a way that we can’t offer yet – the time to act is now.”
Cyber attacks by hackers are becoming a huge problem in our increasingly connected and technology-driven world.
A growing threat
Recent examples include the global ransomware attack back in May that disrupted many critical systems – not least in the UK’s National Health Service, which was badly affected for a number of weeks, severely impacting patient care. Closer to home in – terms of the air freight industry at least – was the attack on marine container shippers AP Moller Maersk, that saw a large number of their critical IT systems hit by the so-called ‘Petya’ operation.
One of the key phrases that is usually heard in the aftermath of such attacks is the need for a more robust procedure around ‘business continuity.’ But what does this really mean, and what steps has the industry already taken to lessen the impact of similar attacks – or even global IT system failures such as the one that recently hit British Airways – in the future?
A new system that has been implemented in the UK might give some clues as to the future shape of our industry’s response to this issue. The ‘CCS-UK Fallback’ system is intended to allow the UK air cargo industry to continue running in the event of any prolonged problems with the HMRC’s vital CHIEF (Customs Handling of Import and Export Freight) system. The new system means that traders will be able to continue processing Customs export declarations even with CHIEF down, and it has been designed to run for 30 days. The system’s development is a great example of collaboration between the private sector and government to safeguard an industry that’s worth billions.
“We have recently seen the horrendous impact of major IT system failures in aviation, and this cannot be allowed to happen to the UK air cargo industry which provides essential support to UK trade and industry, helps maintain our competitiveness on the world stage and supplies urgent commodities that are sometimes a matter of life and death,” says Steve Parker, DHL’s Head of Customs for Europe and Chairman of the CCS-UK User Group.
Safeguarding our customers
Ignazio Coraci comments: “The CCS-UK Fallback system is a real step forward, and I think it could be used as a model right across the sector. The service that we provide as an industry must have effective protection and we should all have business continuity plans in place – it’s the least we owe to the millions of customers who rely on us.”
The air freight industry has made an encouraging start to the year – at least compared to 2016 – and while the picture isn’t completely rosy it’s clear that the outlook for the coming months is looking healthy.
A positive forecast
We’re basing this on a couple of key pieces of information – IATA’s air cargo stats for the three months ending in April, and recent comments made by IATA’s director general at their annual general meeting in Cancun in June. But how about those figures? Well, all of the key indicators that suggest a more buoyant market are heading in the right direction. The seasonally adjusted figures saw cargo yields rose by 4.5%, while Freight Tonne Kilometres (FTK) were up 10.5%. Add to that the news that air freight now has an increased market share and the signs are there that we’re currently on the upward portion of this particular economic cycle. Other indicators such as consumer confidence, export orders, trade, silicon and semi conductor sales are also looking good, suggesting an industry in good shape.
IATA director general Alexandre de Juniac made his comments in the light of overall airline industry figures that suggest expected profits of $31.4 billion for 2017 – that’s $1.6 billion better than the $29.8 billion IATA projected in its last forecast of the year ahead. Discussing the new projections, de Juniac pointed to the more robust recent performance of the air freight industry.
“Strong demand is driving profitability,” he says. “That includes air cargo, which has awakened from a six-year coma. 7.5% growth is being powered by e-commerce and pharmaceutical shipments.”
Clouds on the horizon?
So far so good then. But there are a couple of caveats to the positive outlook for the rest of the year which are worth bearing in mind. The first is the threat of rising costs, while the differential in profitability between regions is also a cause for concern.
“Margins are being squeezed by rising costs for fuel and labour,” says de Juniac. “Moreover, profitability is not equally spread across the regions. Half the industry’s profits are being made in North America. Asia, Latin America and Europe are generating sustainable profits, but only just. And Africa and the Middle East are struggling.”
A chance to prepare
Ignazio Coraci comments: “The outlook for the rest of 2017 is certainly encouraging, especially compared to last year. It’s great news – however we also need to be mindful of how we will maintain the standards of service we currently offer in the light of any rising costs to come.”
Bogoslof Island might be small, but the impact it’s having on transpacific air freight operations has been significant in recent months.
A major impact
The volcano is located in Alaska and is a part of the Aleutian island chain that arcs between the Asian and American landmasses. It first erupted back in May, and has remained active ever since – with serious implications for the many transpacific routes whose flight paths cross the region. Eruptions in late June sent a huge amount of ash and steam into the atmosphere to a height of around 36,000ft – right into the path of many crucial air freight routes.
Experts say that the disruption could continue for a while yet.
“The volcano remains at a heightened state of unrest and in an unpredictable condition,” says the Alaska Volcano Observatory “Additional explosions producing high-altitude volcanic clouds could occur at any time.”
The volcanic activity at Bogoslof has led many air freight operators in the region to adjust their schedules, with a number of flights being cancelled as a result of the ash cloud. It’s a situation that puts increased pressure on a region already suffering as a result of poor weather in Shanghai and Hong Kong. It means that space is tight and that capacity is down for some companies.
Bad weather in China has also affected flights to the EU, once again seriously impacting the amount of space available. “Airlines are increasing rates to the EU, and bad weather meant about 20 flights in and out of Hong Kong have been cancelled,” one forwarder told The Loadstar, “So space to the EU is really affected.”
Hard to predict
Ignazio Coraci comments: “Natural events are hard – if not impossible – to see coming. However I believe that we can all try to build the capacity into our business models to ensure that the impact of these events is lessened in the future. Unfortunately the pressure that these situations put on our industry mean that it’s likely to have an impact not just on capacity, but prices as well.”
While this year has been a politically volatile one for the US – with a new president and jittery markets – the North American air cargo industry has got off to an encouraging start in 2017. There are some caveats to the good news, with indications that cargo demand rates haven’t improved as rapidly as last year and that revenues per cargo tonne have taken a hit – but overall the picture is encouraging.
Take the performance of the three major US carriers, United, American and Delta. A snapshot of their numbers shows that they’ve seen rapid increases in cargo demand in April. with the largest of the three – United – showing an impressive 19.5% year-on-year increase in demand during April with 265m cargo ton miles (CTM).
The global picture
The positive start has been matched by global growth overall in the industry, hailed recently by Alexandre de Juniac, the International Air Transport Association (IATA)’s Director General and CEO.
“It’s been a good start to the year for air cargo. Demand growth accelerated in January, bolstered by strengthening export orders. And that outpaced the capacity growth which should be positive for yields. And, longer-term, the entry into force of the Trade Facilitation Agreement (TFA) will cut red tape at the borders for faster, cheaper and easier trade. The onus is now on the industry to seize the opportunity to accelerate the modernization of processes to make air cargo an even more compelling option for shippers.”
A platform for growth
SW Italia’s Ignazio Coraci comments: Clearly, the US market is one that is very important to our business. It’s encouraging to see that the numbers bear out what we’ve experienced so far this year – a positive increase in cargo and a great base to build on for the rest of the year.
Air cargo showed continuing growth in March – here, Ignazio Coraci gives his thoughts on the figures.
In a blogpost earlier this year we reflected on a positive start to the year for the global cargo sector. Analysts WorldACD confirmed this in their latest market update, showing that the industry was building on the firmer foundations of an improving world economy. This story has now continued through March this year, with air cargo business showing double-digit percentage growth – with demand in chargeable weight terms increasing by 14.6% year on year.
The trends are particularly encouraging from ASC Cargo and SW Italia’s perspective, as the airports and regions we operate out of have shown some of the most improved figures. The WorldACD figures confirm that Heathrow, Milan, Hong Kong and airports in the US are doing particularly well, with growth figures over 20% – WorldACD points to sea-to-air shifts and the launch of new consumer products as contributors to this success.
A note of caution
There are a couple of factors to bear in mind however, when comparing these figures to last year’s. While the growth in 2017 is impressive so far, the numbers need to be viewed in the light of last year’s relatively weak growth. WorldACD also points to the way that Easter has fallen this year as having an impact. “Especially in Europe, volumes tend to be lower around Easter − last year Easter was in March, this year in April. Also, March 2017 had one more Friday, usually one of the top cargo days, than March 2016. We expect that April will be another very good month, but − in view also of the Easter-effect − year-on-year growth may stop around 10%.”
Ignazio comments: “Add to this worries about rising jet fuel prices and the picture is perhaps a more cautious one than the positive figures might initially suggest. However, it’s clear that our industry is continuing to build on a world economy that has stabilised somewhat and is now showing signs of improvement.
“The growth the air cargo industry has shown through the start of 2017 is encouraging, and we’re proud to see that many of the areas that ASC Cargo and SW Italia operate out of are leading the way.”
The confidence that key industry professionals display, concerning their firms’ growth potential, can be an indicator of their sector’s overall fortunes. Things are looking bright for the air freight industry, a new report indicates, as air cargo confidence levels will be strong in the opening half of 2017.
The global air freight industry has expanded significantly in the past few years, thanks largely to the rise of cross-border e-commerce. This provides consumers with more convenience than ever, as they can buy products and services via handheld devices on the go, incentivising them to execute more purchases. Therefore, this supplies more cargo for carriers to transports by plane across the world.
In a recent report, German logistics firm DHL Express found that cross-border e-commerce volumes are predicted to expand by an annual rate of 25%, from 2015 to 2020. This could provide more business for air cargo services and this sector itself is expected to expand at a Compound Annual Growth Rate of 3.2% between 2016 and 2021, according to a study recently carried out by MarketLine, a research company. Combined with China’s recent fiscal stimulus and new US President Donald Trump’s pledge to lower taxes and regulation, this is inspiring optimism in the air cargo sector.
Talking recently to Loadster, an industry site, Zahra Ward, the Global Equity Strategist for research institute Absolute Strategy Research (ASR) noted that air cargo industry confidence rose towards the end of 2016. This optimism is projected to remain robust in the first six months of this year. Expanding, she noted: “There is a reported pick-up in airfreight confidence… [global aviation body] the International Air Transport Association says this is a lot to do with carriers improving efficiency.”
Ward noted that confidence will be especially robust in Asia, where air cargo volumes are currently believed to be expanding by roughly 10%. This reflected data gathered by Drewry, a maritime research consultancy, concerning the Asian market’s progress in December 2016. In its December purchasing index, Drewry registered 11% and 11% increases at Hong Kong Airport and Incheon Airport respectively. In Incheon’s case, Ward argued, the collapse of Hanjin has benefited air cargo services.
Turning to Europe, ASR noted that here, air freight volumes expanded by 5.4% in October, but stalled in November 2016, due partially to Germany’s recent pilot strike. But Spain experience a 13% expansion for the fourth month in a row at the same time, which Ward argued shows that the rise in European air cargo confidence registered at the end of 2016 will continue. Drewry’s purchasing index showed that compared to December 2015, some European airports experienced growth in the last month of 2016. London Heathrow, where ASC Cargo operates, saw a 5% uptick in December.
Compared to November 2016, European rates on Drewry’s purchasing index declined by 6% in December, but even this was good news. Commenting, Drewry noted: “As December traditionally sees a drop off in rates the latest slide was not unexpected… It is testament to the growing strength of the market, that the rate decrease from November to December was smallest of its kind since 2012… We expect to see a further seasonal decrease to the index in January, once again smaller than usual.”
Spotlight on America
This picture appears to be far murkier, when it come to the US – the world’s largest economy. Both ASR and Drewry agreed that the American air cargo market is pretty flat right now and Ward added that the relevant January purchasing index for the US air cargo sector still looks positive. It is hard, however, to give a complete assessment of the US sector, due to the lack of information that is expected to come out of China, upon which the US heavily relies, between now and February.
However, Ward argued, it is likely that the US air freight industry will record a somewhat positive performance in the opening six months of 2017. Expanding on this point, she noted: “Whether we see 10% growth until June remains to be seen, but the base level from last year is poor. Furthermore, there is the boost from China and businesses seem to be getting more confident about Trump.”
Yet Ward suggested that the US may serve as a threat, to the fortunes of the international air cargo market. Continuing, she said: “I don’t know how it will play out, but it doesn’t seem as if he [Trump] has thought through the massive cost increases US consumers will face if he begins imposing tariffs. But with Asia showing the first signs of growth in June that led to this run of good form, I would say look to there as a bellwether for any potential slowdown” for the worldwide air freight sector.
Ignazio Coraci’s comments
There are various reasons why air cargo confidence is currently robust. The rapid advancement of the global digital economy, coupled with rising consumer trust in e-commerce, is facilitating various new opportunities. But air cargo firms face a lacklustre worldwide economy and a growing anti-globalist movement across the Western World, which could impose new trade costs. It is crucial that air cargo services target key markets with established transport infrastructure like London, whose Heathrow airport is one of the busiest air export hubs on earth, to turn strong confidence into real growth.