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.
Prime position
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.”
Same-day revolution
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.”
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.
First steps
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?
Plan B
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.
Improved profits
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.”
New figures indicate that in terms of revenue per miles (RTMs), the US air cargo sector is set to record significant growth throughout the coming two decades. Ignazio Coraci comments.
US cargo is doing very well.
Brighter prospects
The future is looking fairly bright for the air freight sector. The onset of the global e-commerce market has radically revised the industry’s fortunes. Consumers are now ordering goods online in ever-climbing numbers, often expecting near-instantaneous delivery. Demand for air cargo services, therefore, is spiking, as carriers have the ability to transport goods to consumers via air quickly.
A report conducted by MarketLine, a research firm, indicates that the global air cargo sector is destined to experience strong growth in the next five years. It is expected to record a Compound Annual Growth Rate (CAGR) of 3.6% from 2016 to 2021, a dramatic uplift from the CAGR of 0.7% registered from 2012 to 2016. New research indicates that growth will be particularly strong for carriers who conduct services to and from the US, or domestically within the country, going forward.
According to Air Cargo Week this data was released by the US’ Federal Aviation Administration (FAA). The body recently published its Aerospace Forecast Report Fiscal Years 2017 to 2037 paper, which analysed both domestic and global air freight RTMs. In total, RTMs for the sector dipped by 0.9% in 2016, but are forecast to increase by 1.4% this year, with momentum expected to rise going forward.
Revenue expansion
Explaining, the report stated: “Driven by steady US and world economic growth, total RTMs are projected to increase at an average annual rate of 3.1% for the balance of the forecast period. Following a 1.8% increase in 2016, domestic cargo RTMs are forecast to grow 1.7% in 2017 as the US economic recovery continues. Between 2016 and 2037, domestic cargo RTMs are forecast to increase at an average annual rate of 1.3%. In 2016, all-cargo carriers carried 89.0% of domestic cargo RTMs.”
It also noted that international air cargo RTMs rose by 0.9% in 2015, but dropped by 2.4% last year, due to “slow growth in the US and Europe along with the slowdown in China’s economic growth slowed worldwide trade.” But “growth is expected to turn positive in 2017 to 1.3% as global trade growth resumes. For the forecast period (2017-37) international cargo RTMs are forecast to increase an average of 3.8% a year based on projected growth in world GDP with the Pacific region having the fastest growth, followed by the Other International, Atlantic, and Latin regions, respectively.”
The future looks particularly positive for all-cargo services. According to the FAA, all-cargo’s share of domestic US RTMs should expand to 90.5% between 2017 and 2037, while its share of international RTMs is forecast to increase to 77.1% within the same period, up from 70.8% as of 2016. The FAA also noted that driven by expansion in freight RTMs, the cargo carrier large jet aircraft fleet operating within the US market should grow from 810 aircraft at present, to 1,044 aircraft by 2037.
Facing challenges
Commenting, Ignazio Coraci said: “It is not surprising that total RTMs for US air cargo, domestically and internationally, are set to expand in the next 20 years. It is now very easy for consumers to order goods and they expect speedy service, which air cargo is uniquely suited to provide. As shopping online becomes more popular, this trend could grow, especially in the US, which is both a very consumer hungry market and the world’s largest economy, fuelling demand for efficient air freight services.
“It is important, however, that air cargo carriers which operate within the US market do not rest on their laurels, if they wish to tap into this growth. Consumer expectations are evolving, and firms need to go further to position themselves as trusted providers of first-rate air cargo services. It is critical, for example, for carriers to go paperless, to promote their sustainability credentials to consumers who are becoming increasingly concerned about the effects of paper production on the environment. Only by putting consumers first, will air freight companies benefit from the sector’s potential for growth.”
The first few months of 2017 have seen an uncertain global economic climate and rising sea freight congestion.
Experts recently argued that this has boosted the fortunes of the global air cargo sector during the early part of this year, as more firms are choosing to transport goods via air.
Expanding market
The air cargo sector is booming right now, with figures from industry body the International Air Transport Association (IATA), indicating that it outperformed forecasts last year. Global air freight volumes grew at an average of 2% per annum, between 2010 and 2015. However in 2016, international air freight volumes expanded by 3.8%, showing that demand is climbing ever higher.
The market’s long-term prospects also look positive. A study from MarketLine, a research company, suggests that the global air freight market grew at a Compound Annual Growth Rate (CAGR) of 0.7% from 2012 to 2016. The market’s CARG, however, is expected to climb to 3.2% between 2016 and 2021, so by 2021, it will be worth US$118.7bn, increasing from US$101.3bn at present.
Positive indicators
The air cargo market’s long-term growth prospects started to become more apparent in early 2017. We can find evidence of this by looking to the semiconductor industry, which serves as a traditional indicator of the fortunes of air cargo. This sector’s sales increased by 13.9% year-on-year, to reach US$30.6 billion in January 2017, marking the largest year-to-year expansion since November 2010.
An article on Loadster, an industry publication, sheds light on why air cargo is thriving right now. It revealed that forwarders are currently reporting congestion and higher rates on westbound air cargo services. It suggested that this has been spurred by increasing demand, rising sea freight congestion and in the case of the UK, where air cargo volumes are particularly high right now, a weaker pound.
Talking congestion
The publication talked to one source, who revealed that many air cargo firms have two to three day backlogs right now. Demand is especially high, the source added, for routes from the UK to New York, Chicago, Miami and Houston. Going on, the source said that their shipments are seeing the impact of congestion and that “generally carriers are very busy, and westbound into the US is mega-busy.”
It looks as though business pressure is affected carriers on these routes, the source added. This pressure comes from exchange rates, the current state of the US economy and severe February weather conditions on the US North-East Coast, which has created backlogs. Another European forwarder argued that the re-positioning of containerships has had an impact on the sector, with several sources suggesting that the export market is healthy right now, benefitting global air cargo.
Healthy exports
A UK forwarder concurred, adding: “We have seen an upturn in exports, but this is partly owing to an increase in market share and partly new opportunities, but always planned as air rather than distressed sea freight.” Offering a slightly different opinion, another forwarder from Europe noted: “It’s strange activity for the time of year as it is just based on increased demand. Air freight is seeing a resurgence.
“I think that UK goods are very attractive at the moment because of the currency differential with the US – it’s got much cheaper. Not only is demand high, but people can also afford to airfreight at the moment because goods are cheaper. And there are issues with sea freight.” This European source further argued that cutbacks to freighter capacity could have also had an effect on the air cargo sector.
Sunny outlook
Offering his take on the situation, Ignazio Coraci said: “Due to the economic environment we are currently facing, along with the troubles the sea freight sector is experiencing, the outlook looks fairly sunny for air cargo. We can look at what’s happening at Heathrow airport, where my firm ASC Cargo operates, to see this point. Heathrow recorded incredible growth rates in 2016, and saw air freight expand yet again in January 2017, fast-reaching capacity. With demand so high, especially in the UK, the global air cargo sector could be set to realise its significant long-term growth projections.”
London’s Heathrow airport is currently going from strength to strength. The UK’s primary air transit hub racked up considerable air cargo expansion rates during 2016, while new figures indicate that freight volumes continued to grow early this year.
There has been good growth at Heathrow.
2016 growth
Heathrow is the world’s primary air gateway to the vibrant British economy. It is becoming a crucial transit point for global air cargo transport, as the onset of e-commerce is facilitating a greater need to get goods across borders quickly and efficiently. This has allowed Heathrow to regularly record monthly air cargo expansion rates of around 5%, which it did in December 2016.
The airport’s fortunes rose to new heights in 2016. It added new services to Jakarta, San Jose, Santiago and Inverness, making it easier for air cargo carriers to fly goods all over the world than ever before. Data shows that Heathrow’s air freight rates climbed by 3%, year-on-year, in 2016. This expansion outpaced passenger growth at the airport last year, as the number of passengers who travelled through Heathrow saw an uptick of around 1% within the same 12 months.
Continued progress
This growth pushed Heathrow’s air cargo volumes past the 1.5 million tonne mark in 2016. Heathrow’s freight capacity sits at around 1.5 million tonnes, meaning that demand for the airport’s services is fast outstripping supply. According to Air Cargo Week, an industry portal, Heathrow’s freight volumes only keep expanding, with the airport registering a 4% rate of growth in February of this year.
This progress can be attributed to the rising role of emerging markets at Heathrow. The hub saw air cargo volumes go up by 10% on services to Brazil, by 5% on services to India and by 4.2% on services China, while the North American and Middle Eastern markets saw increases of 7% and 8%. In the first two months of 2017, therefore, 251,212 tonnes of air cargo were handled at Heathrow airport.
Flying start
Commenting on these extremely positive figures, Heathrow’s Chief Executive Officer, John Holland Kaye, said: “Heathrow is off to a flying start in 2017 – we’re delivering the best service of any major airport in Europe to record numbers of passengers and boosting British exports with record cargo volumes.” Speaking about how Heathrow will progress in future, he continued:
“Our new sustainability leadership strategy will make Heathrow a centre of excellence for sustainable aviation and planning for expansion is firmly underway with SMEs across Britain lining up to help us deliver it.” Heathrow recently announced plans to make its proposed third runway carbon neutral, to minimise air and noise pollution. The runway could increase its air cargo capacity to 3 million tonnes.
New opportunities
Explaining the significance of this news to the global air cargo industry, Ignazio Coraci commented. “Heathrow is racking up incredible air freight growth volumes right now, bringing a constant stream of new business for carriers. But it’s becoming increasingly clear that Heathrow is reaching capacity, limiting opportunities for our sector. A third runway would address this issue, giving Heathrow the ability to bring new opportunities to the global air cargo sector, so we can all grow together in future.”
New reports confirm that Hong Kong International Airport (HKIA) managed to rack up “steady growth” in its air cargo segment across the opening month of 2017.
Major hub
The city has become a cargo hub.
Hong Kong boasts a vibrant, modern economy, along with highly-developed logistics infrastructure. It also provides companies with easy access to the Chinese market, which is the second largest economy on earth. Hong Kong has become a major global air cargo hub, facilitating trade between the world’s big manufacturers, such as China and India, and major consumer markets, such as the US and Europe.
HKIA is the busiest air freight hub on earth. The facility handles roughly 4.5m tonnes of cargo annually. Hong Kong has also benefitted from globalisation, as e-commerce is making it easier for consumers to purchase goods directly across international borders than ever before. The airport’s rising fortunes were reflected by new figures released recently by the Airport Authority Hong Kong (AA).
Steady growth
The data, industry portal Air Cargo News writes, indicates that across 2016, HKIA’s air cargo traffic volumes climbed by 3.2% to hit 4.52m tonnes, when compared to 2015. These statistics also suggest that HKIA recorded “steady growth” in all its air traffic segments in January 2017, with volumes rising by 3.1%, when contrasted with January 2016, reaching 372,000 tonnes.
In their analysis, the AA primarily attributed HKIA’s January 2017 growth to an 8% rise in export traffic. The Authority also noted that by the end of January 2017, the airport’s freight throughput reached 4.5m, ticking up by 3.4%, when analysed on a rolling, 12 month basis.
Key factors
Also among Hong Kong’s primary regional trading partners, the largest increases in cargo traffic rates were seen in North America and Europe, year-on-year. Evidence supplied by the TAC Index, a definitive authority on air cargo pricing, bears this out. On the Hong Kong/US route, air cargo prices rose by 9.1%, year-on-year, in January 2017, with an expansion rate of 6.5% on the Hong/Kong Europe route.
HKIA also benefited from Chinese New Year, which took place in January. Explaining more, the AA’s Deputy Director of Airport Operations, Vivian Cheung, said: “The airport community made an excellent concerted effort to maintain smooth operations at HKIA during the festive period… Since the Chinese New Year period fell in February last year, a more meaningful comparison of the traffic performance could be made when the combined statistics for the first two months of 2017 are available.”
Rising fortunes
January is traditionally a slow time of year for air cargo. With the end of Christmas and New Year, consumers often start to tighten their belts in January, to overcompensate from abundant holiday spending, resulting in fewer purchases to transport via air. The AA’s latest figures indicate that HKIA managed to buck this trend, to report “steady growth.” Yes, Chinese New Year was a contributing factor, but Hong Kong’s air cargo business with North America and Europe also expanded in the first month of 2017. This indicates that HKIA’s fortunes are only set to keep rising across 2017.
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.
Confidence is strong.
Confidence boost
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.”
Market conditions
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.
