IATA’s flagship Simplifying the Business (STB) programme has transformed the passenger airline industry – now it’s time for cargo.
The passenger airline industry has transformed over the last decade or so – think electronic ticketing, barcoded boarding passes, mobile boarding passes and self-service check-in. But it’s also fair to say that the air cargo industry has sometimes struggled to keep up with the pace of change.
An inefficient process
The air cargo business is a complex one – and there are multiple points along the journey that a piece of freight takes that can cause issues for our customers, from inefficient and complex paper-based systems to a lack of transparency.
The industry transformation programme announced by IATA is all about improving two key areas – the service that air cargo carriers provide, and the efficiency of that service. The stated aim of Simplifying the Business (StB) for Cargo is to make air cargo easier, smarter and faster.
Areas of focus
Celine Hourcade, head of cargo transformation at IATA, laid out some of the key issues that the new programme will focus on – the areas of visibility, creating modern processes and making the booking procedure faster.
To achieve these aims, Hourcade explained that the project would be looking at five projects that, if implemented properly, could transform the industry –
These were e-freight, which uses electronic documentation; digital cargo, which would create a shared digital record; interactive cargo, which would share data and improve visibility; smart facilities to drive excellence and an air cargo incidents database.
The right approach
Ignazio Coraci of SW Italia comments: “The Simplifying The Business programme already has a great track record in the passenger industry, and it’s to be hoped that the successful approach taken to transform that area of the business can be just as successful with air cargo. The key is for everyone in the industry to approach the future with an open mind – the opportunities are huge if we go about this the right way.”
The annual CNS Partnership Conference is an important date in the air cargo calendar, and this year’s event was a chance to reflect on the pace of change in our industry.
Air cargo is a hugely complex business. It’s a $100 billion industry that can sometimes seem to move incredibly slowly, particularly where technology – and change in general – is concerned.
Slow to adapt
These concerns were touched on recently at the Annual CNS Partnership conference. The event – one of the premier events in the air cargo year – is an opportunity to bring together hundreds of the world’s leading air cargo professionals to discuss the latest developments in the industry.
This year’s keynote address was given by Ryan Petersen, the CEO of Flexport. His is a business that reflects the changing face of our industry – a software-driven freight forwarder that is at the forefront of modernising the business. Yet, as he pointed out in his speech, the industry is sometimes slow to change.
“Airlines offer something nobody needs,” he said – they “move cargo from airport to airport, but every single piece of cargo must go door to door.”
A patchy service
Petersen’s comments were echoed at the event by Blake Bowlin, global transportation procurement manager at Caterpillar. “The quality of supply chain is hit or miss,” said, adding that “Airport to airport is fine, but we look at it from a door-to-door perspective.”
This goes to the heart of one of the major issues facing the industry – that while shippers are looking for a door to door service, the complexity of air cargo with its multiple hand-offs makes this incredibly complicated.
A digital future
Unsurprisingly, given Flexport’s software-driven approach to the future of forwarding, Petersen used the speech at the CNS Partnership event to look ahead at how technology might transform our industry for the better. He talked about the potential impact of technology that can reroute cargo in transit, and autonomous, programmable freight that can even make its own decisions on the best route to the end customer.
An open approach
Ignazio Coraci, CEO of SW Italia comments: “The way that we adapt and integrate these new technologies into our industry, simplifying the complex processes and ultimately improving the quality of service for our customers is critical. We need to be flexible and open, while creating a robust network of interconnected systems that help our experts on the ground to do their jobs even better.”
A vital part of ASC Cargo and SW Italia’s business – Hong Kong airport – has once again been named the world’s busiest cargo hub. Ignazio Coraci comments.
There were many uncertainties in 2016 – the Brexit vote, the election of President Trump and a generally more protectionist approach to global trade – but the second half of the year still marked an upturn for air cargo markets.
A positive outlook
Airports Council International – who run an annual review of the world’s 20 leading cargo hubs – have released figures that point to a confident mood in the industry. According to their latest study, much of this positivity is down to inventory build-ups and increased export orders – something that should last for the short term at least.
Leading light
There’s nowhere that this confidence is more evident than in the airport named as the world’s busiest air cargo site – Hong Kong. While the rest of the air cargo industry saw throughput increasing by 3.3% last year – up to 47.4m metric tonnes – Hong Kong saw traffic increase by 3.5% to 4.6m tonnes. The impressive figures for Hong Kong were one of the highlights of Airports Council International’s report that ranked the top 20 cargo airports for 2016 along with the preliminary world airport traffic rankings.
Strong signals
Ignazio comments: “Importantly for ASC Cargo and SW Italia’s business – and for the air cargo industry as a whole – Hong Kong’s continuing strong performance has shown that businesses are feeling increasingly confident about the future. In addition to the encouraging figures for Hong Kong, airports in the crucial US market also appear to be performing strongly, with Memphis, Louisville, Miami, Los Angeles and Chicago all appearing in Airports Council International’s top 20 for 2016.”
New reports indicate that Milan’s Malpensa airport saw strong air cargo growth in early 2017, and this momentum is only set to pick up further throughout the rest of the year. Ignazio Coraci comments.
Base of operations
Malpensa is the most strategically placed airport in Southern Europe. It is located in Lombardy, which is the richest region in Italy and a key driver of its economy, providing a multitude of opportunities for air cargo firms. Malpensa is also the only Southern-European hub to be ranked among the top 10 European cargo airports, making it very attractive for carriers who wish to serve this profitable market.
Malpensa airport also serves as our base of operations here at SW Italia. From Malpensa, we provide all-cargo services around the world, flying to far-flung destinations such as Azerbaijan, China and the US. We have quickly established ourselves as one of Italy’s leading all-cargo services, partly due to this advantageous location, and we are now expanding our fleet, to grow our company further.
Malpensa growth
There is a lot of potential to be found at Malpensa airport. Figures quoted by Air Cargo Week, an industry publication, suggest that for the past three years, the amount of air freight which passed through Malpensa grew at an average of 8%. But Malpensa’s air freight volumes expanded by a staggering 13% in the opening two months of 2017, showing that business is booming at the airport.
Meanwhile, this data suggests that in 2016, Malpensa’s air freight volumes rose by 7.4%. The airport’s air cargo volumes kept rising in early 2017 due to a stable economy, robust imports and exports and recovering road feeder service volumes. Experts believe that these same factors will ensure that Malpensa’s air freight volumes keep growing during the rest of the year, benefitting air cargo firms.
Contributing factors
There are various factors, which have attributed to the recent growth of Malpensa’s air freight numbers. The airport has long-been as a hub for the transport of goods such as pharmaceuticals, clothes, machinery, sports cars and perishables e.g. wine. Some of these, most notably pharmaceuticals, are seeing rapid growth, and coupled with the rising number of both small and heavy packages that are being transported from the hub, this is helping grow Malpensa’s air cargo volumes.
We should also not that Asia and the US – which is set to see robust air cargo growth long-term, account for over 70% of exports from Milan. Due to the recovery of import flows and increasing capacity of both direct and indirect services, the US market was a practically prominent driver of Malpensa’s growth in 2016. Meanwhile, Malpensa-based carriers are increasingly targeting new markets, such as South America, and this could boost the airport’s fortunes further going forward.
It is particularly interesting to note that Italy is only set to experience modest economic growth over the next few years, as it is not viewed by foreign companies as an easy place to do business. However in spite of this, Malpensa airport is expected to post further air cargo increases, in part because e-rising commerce is creating a climbing, constant stream of traffic for couriers based at the airport.
New opportunities
Commenting on these figures, Ignazio said: “Our location has allowed us to turn SW Italia into one of Italy’s leading all-cargo services. As Malpensa airport fulfils its potential and sees its air cargo volumes expand further in 2017, there will be new opportunities for us to capitalise on, allowing SW Italia to grow its operations and launch services to new markets, so we can thrive going forward.”
Ignazio Coraci comments on recently-released figures, which indicate that during the past year, air cargo traffic volumes grew significantly in the US port city of Miami.
Amazing opportunities
There is amazing potential to be found in the US air cargo sector. A study published by the US’ Federal Aviation Administration (FAA) projected that in terms of RTMS, total American air freight traffic for domestic and global routes will climb by 1.4% during 2017. Meanwhile, the FAA forecast that total US air freight RTMs will grow on average by 3.1% per annum between 2017 and 2037.
It appears as though a fair share of this potential lies in Miami – a city located on the sea-coast of Florida, one of the US’ most populous states. Miami is a centre of business, finance, commerce and pharmaceuticals, while its location makes the city one of the primary entry points into the lucrative US market. These factors are making Miami an increasingly attractive destination for air cargo firms.
Booming air cargo
According to Freight Week, an industry publication, the city’s rising status as an air cargo hub, is leading to a rise in air cargo rates for its Miami International Airport (MIA). The US’ Department of Commerce recently revealed that the value of air cargo which passed through the hub increased by 8% during the previous year, to reach US$5.3 billion, showing that Miami’s fortunes are rising.
It is important to note that for a decade, Florida has ranked as the US’ fourth largest state in terms of gross domestic product (GDP). It held this position in 2005, when the state’s GDP was US$700.3 billion and it retained this ranking in 2015, with a state GDP of US$888.1 billion. This has benefitted Miami’s air cargo industry, which accounted for a colossal 92% of Florida’s total air trade value in 2016.
Stronger prospects
Commenting on this news Carlos Gimenez, the Mayor of Miami-Dade County, where the city is located, said: “MIA’s continued growth means a stronger economy and more job creation for our community… That’s something each of our [county’s] 2.7 million residents can be proud of.” Data also shows that the lion’s share of MIA’s air cargo growth can be attributed to pharmaceuticals.
Between 2011 and 2016, MIA’s air cargo rates for pharmaceuticals jumped by 140%, with a rise of 48% registered in the past year alone, to reach US$4.4 billion by the close of last year. Expanding, Miami-Dade Aviation Director Emilio González argued: “Our efforts to maximize pharma freight traffic at MIA continue to pay dividends for Miami-Dade County, the state and the nation… The World Health Organization projects that the global pharma industry will rise in value from US$300 billion to US$400 billion within the next three years, and we want to position MIA at the centre of that growth trend.”
Tapping US markets
Speaking out on this news, Ignazio noted: “We can see, from the release of these figures, that along with other East-Coast locations such as New York, Miami is set to be a prosperous market for air cargo firms going forward. At SW Italia we are looking to tap into the lucrative US market, by developing a Milan to Chicago service and we may expand to East-Coast locations as time passes, so we can harness the potential to be found in the US, and build a booming international all-cargo operation in future.”
New data has recently come to light, which illustrated that global demand for air cargo climbed at a phenomenal pace during the second month of 2017. Ignazio Coraci gives his take on these figures.
Changing fortunes
2016 was a challenging year for businesses. An uncertain geo-political climate, with events such as Brexit damaging investor sentiment, coupled with a slowing Chinese economy to ensure that 2016 only saw moderate trade growth. This inevitably had an impact on the fortunes of the global air cargo sector, which depend upon trade to thrive, ensuring it too only recorded moderate growth last year.
But the fortunes of the worldwide air cargo sector are changing this year. Despite the fact that January is a traditionally bad time for the sector, air cargo volumes expanded on some key routes during the opening month of the year. On the Hong Kong/US and Hong Kong/Europe routes, for example, air freight rates were 9.1% and 6.5% higher respectively in January 2017, than they were in January 2016.
Strong demand
Figures released by the International Air Transport Association (IATA) indicates that the global air cargo industry kept growing in February 2017, according to Airport Technology, an aviation sector news hub. The IATA notes that worldwide, demand for air freight climbed by 12% – way higher than the five year monthly average of 3%, in terms of freight tonne kilometres (FTKs) in this month.
Commenting, IATA Director General Alexandre de Juniac noted: “February further added to the cautious optimism building in air cargo markets. Demand grew by 12% in February—about four times the five-year average rate. With demand growing faster than capacity, yields got a boost. While there are signs of stronger world trade, concerns over the current protectionist rhetoric are still very real.”
Further progress
The organisation also found that when compared to February 2016, demand for global air freight ticked up by 8.4%. The IATA further noted that when measured in available freight tonne kilometres (AFTKs), the capacity of the worldwide air freight industry dropped by 0.4% in February 2017, while there was also a slight uptick in global trade volumes, which correlated with the air cargo demand rise.
Turning his attention to the air cargo market’s future prospects, Alexandre said: “Any optimistic look at the future sees growing demand for specialised value added services. Shippers are telling us that the key to turning the current uptick in the cargo industry’s fortunes into longer-term growth is modernising our antiquated processes. We must use the current momentum to push ahead with the elements of the e-cargo vision—including the e-air waybill which is nearing 50% market penetration.”
Brighter future
Giving his commentary on the IATA’s latest data, Ignazio Coraci noted: “The global economy is starting to recover from a rocky 2016, benefiting the worldwide air cargo industry and boosting demand during February 2017. With cross-border e-commerce, an increasing lucrative market for air cargo, set to grow rapidly over the next five years, the future is looking brighter and brighter for the industry.”
New figures show that the volume of freight passing through Europe’s airports increased in February, suggesting that the continent’s air cargo market is stronger than ever. Ignazio Coraci comments.
Rich markets
Europe is one of the richest regions on earth, with some of the biggest economies in the world including the UK, France and Germany. The continent’s wealth and hungry consumer markets, coupled with the rise of e-commerce, have made Europe an increasingly lucrative place for air cargo firms.
We are seeing Europe’s airports thrive within this environment, as air cargo firms transport goods through these pivotal gateways in ever-increasing numbers. Just look at Heathrow airport, the primary gateway for the UK’s booming capital London, as an example. Last year, the expansion rate of cargo which passed through Heathrow outpaced its passenger growth, showing that business is booming.
High growth
According to Air Cargo Week, an industry portal, Europe’s airports kept recording growth early into 2017, as their freight traffic ticked up by 3.4% of February this year. The best performer for February was Frankfurt airport, as the gateway saw its air cargo volumes expand by 2.2%, hitting 153,870 tonnes, in February, while in the first two months of the year, its air freight growth came in a 4.2%.
These figures were released by sector body the Airports Council International (ACI) Europe, who also noted that Heathrow performed well during the first two months of the year, recording respectable air freight growth of 4.2%, meaning that 251,212 tonnes passed through Heathrow in this period. Also Heathrow themselves have announced that their freight volumes grew by 4% in February 2017, contrasting slightly with ACI Europe’s figure for the airport’s February expansion, which was 4.4%.
What was interesting was that ACI Europe recorded stronger progress in non-EU, than EU airports. According to the body, non-EU airports experienced 4.7% air cargo growth during February, while EU airports racked up 2.7% in air freight expansion. Meanwhile, the air cargo growth rate for all of Europe was 5.4% in the opening two months of this year, with the expansion rate coming in at 9.1% and 4.8% for non-EU and EU airports.
Major progress
Commenting on the release of ACI Europe’s latest figures, Ignazio Coraci said: “It is apparent that 2017 got off to a great start for the airports of Europe, with their air cargo volumes expanding, in year-on-year terms, fairly significantly. It is clear that as the dust settles from an eventful 2016, and consumers buy goods in ever-greater numbers online, the European air cargo sector has benefitted, suggesting the coming year could be a positive one for one of the world’s most lucrative air cargo sectors.”
New figures indicate that throughout the first two months of 2017, the global air cargo sector rode the “wave of an improving world economy” to record strong growth. Ignazio Coraci comments.
Revised fortunes
The global economy underperformed in 2016, due to shock events such as Brexit, but things picked up towards the end of the year. This was reflected by figures released by Absolute Strategy Research, which showed that “there is a reported pick-up in airfreight confidence,” which can be ascribed to increasing carrier efficiency and rising e-commerce volumes, which create new business for the sector.
Experts also recently suggested that the current economic environment has benefitted air cargo. This was recently illustrated by the semiconductor sector, which is seen as an indicator of what’s happening in air cargo. In January 2017, semiconductor industry sales climbed by 13.9%, hitting US$30.6 billion, on a year-on-year (YoY) basis, suggesting that the air cargo market has been boosted as a result.
Expanding volumes
This trend has been confirmed by analyst WorldACD’s latest market update, which showed that the recovering economy is boosting the air freight industry. WorldACD found that in weight terms, global demand for air cargo ticked up by 6.3%, YoY, from January to February 2017. The firm said that after Chinese New Year, a traditionally weak period for air cargo, demand rose straight away.
Urging caution, WorldACD was quoted by Air Cargo News, an industry portal, saying: “Are these signs a harbinger of good times to come? Air cargo seems to ride the wave of an improving world economy, making for a good outlook for this year. Yet, we should caution against expectations of the present YoY growth percentages continuing. After all, the impressive growth percentages of the past half year were possible because of the relative weakness in the equivalent period one year earlier.”
Findings breakdown
WorldACD also broke their findings down along regional lines. During the opening two months of this year, air cargo demand expanded most rapidly in the Asia Pacific (+11%), North America (+7%) and Europe (+6.5%). WorldACD also discovered that in this time, global air cargo yield dropped by 5.9%, in dollar terms, when contrasted with the same value recorded between November and December 2016.
Expanding, WorldACD continued: “Viewing January/February 2017 against January/February 2016, we see a yield drop of 2.6% in US dollar-terms, but a 0.6 % yield rise, when measured in euros… So, the good news is that January/February revenues increased YoY. However, seen against the backdrop of jet fuel prices rising strongly YoY, margins for airlines continued to be fragile.”
Amazing progress
Commenting, Ignazio Coraci said: “It is becoming increasingly clear that a stabilising global economy is benefiting the worldwide air cargo sector, as demand surged in the first two months of 2017. Demand was particularly strong in powerful consumer markets, for example the US, a nation which is set for major-long-term growth in the air freight segment, due to strong economic fundamentals and rising e-commerce activity. The global air cargo sector, therefore, holds incredible potential, as more people are now buying goods online, and the resurging economy is helping the sector to tap it.”
The Gulf-Cooperation Council (GCC) region, which includes all the Persian Gulf Arab states except Iran, is a profitable market for the global air cargo sector. New reports indicate that the region could become more lucrative, as the GCC is set to record strong e-commerce growth in the next few years.
Lucrative region
The GCC possesses a thriving collective economy, which according to EY – a banking sector specialist, could become the sixth biggest economy on earth by 2030. The region, therefore, has high rates of consumer spending, for example people in the GCC spent US$9.3 billion on beauty and personal care products alone in 2016, a rise of 10% from the year before. This is proving beneficial for air cargo.
As internet coverage rises in the GCC, more consumers are choosing to buy products online. This has provided new business for carriers, as they can supply the speedy product transport services, which many people have come to expect in the digital age. The GCC’s air freight sector is a US$7 billion market and the Middle East, which includes the GCC, saw its air freight volumes keep growing in 2016.
E-commerce growth
It looks as though the GCC’s air cargo market will record further growth in future, as a new report from consulting firm A.T Kearney argues that the region could become the fastest expanding e-commerce market on earth. According to Freight Week, an industry portal, in 2015 online shopping contributed US$5.3 billion (0.2 of its gross domestic product), to the GCC’s economy. But A.T Kearney forecasts that this contribution will increase almost fourfold, to a massive US$20 billion, in the period to 2020.
Commenting, A.T. Kearney Partner Laurent Viviez said: “We expect the growth of e-commerce in the GCC to transform the future of businesses, economics and lives across the region – but only with the right set of enablers in place… And it doesn’t rule out traditional retailers, who can be on the winning side of e-commerce by adopting an omni-channel approach. We see the future for the sector as not digital-only but ‘physical with digital’ – traditional retailers can really tap into this.”
Serious potential
Speaking out on this research, Ignazio Coraci commented: “At ASC Cargo, of which I am CEO, we perform cargo and ground handling services for GCC-based carriers, such as Kuwait Airlines. We have seen first-hand how the rise of e-commerce has boosted the region’s air freight sector, as consumers increasingly choose to buy goods online, generating more business for carriers in the GCC region.
“It is clear, therefore, that if A.T. Kearney’s forecasts prove accurate, and the GCC’s ecommerce sector expands to US$20 billion by 2020, air freight firms could benefit from the additional income generated. Also, air cargo’s fortunes could be boosted further, by Amazon’s recent decision to buy Souq.com, the largest online marketplace in the Arab world. With Amazon’s technological investment and expertise, Souq.com will be able to improve their services, making it easier for GCC consumers to purchase goods online, and creating more business for air cargo, so the future is looking bright for the sector.”
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.”
