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The weekly newspaper for air cargo professionals Volume: 20
Issue: 32
14 August 2017
Forwarder volumes surging but margins under pressure
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ir cargo is riding a volumes wave and freight forwarders have been posting tonnage rises in 2017, but are reporting that rate pressure continues to affect margins. Over the last month or so forwarders have declared their half-yearly and second quarter (Q2) figures and paint a similar picture. In the first half of the year, the overall airfreight market is estimated to have grown about eight per cent while in Q2 alone demand surged by nine to 10 per cent. The strongest sixth month year-on-year (YOY) volumes growth was achieved by Kuehne + Nagel at 18 per cent to 731,000 tonnes with the division seeing strong surges in premium sectors. The company says volumes were driven by new business gained in the pharmaceuticals, aerospace and perishables industries, while strict cost control and productivity increases due to automation countered margin pressure. Earnings before interest and tax in the airfreight sector was up YOY by 2.7 per cent to 151 million Swiss francs (CHF) ($156.8 million) and net turnover increased 8.2 per cent from CHF 2.6 billion in 2016 to CHF 3 billion in 2017. Growth during the period was ahead of Panalpina, which registered a YOY airfreight increase of seven per cent for the period to 473,100 tonnes and in Q2 demand improved
YOY by 6.6 per cent as it moved 240,000 tonnes. Panalpina says performance was largely driven by the strong growth of Far East trade lanes, but reports “higher freight rates and margin pressure persisted in a continuously challenging market environment”. The forwarder notes there was a slightly improved unit profitability quarter-on-quarter despite higher airfreight rates as high demand for airfreight capacity pushed up rates, which put margins under continued pressure. Airfreight gross profit overall was CHF 294.6 million down on CHF 304.5 million in 2016 and reported earnings before interest and tax increased from CHF 33.1 million (adjusted HY 2016: CHF 45.7 million) to CHF 39.1 million. German forwarder DB Schenker saw an
improvement of 11.4 per cent to 613,000 tonnes in the first half of 2017, while Danish freight forwarder DSV’s airfreight volumes grew YOY by 10.4 per cent in the first half of this year to 302,869 tonnes, but Q2 volumes were only up YOY by 2.6 per cent to 155,430 tonnes, below the market average. DSV’s performance has been boosted by the acquisition of US forwarder UTi, and adjusted gross profit for airfreight was 2,105 million Danish Krone ($335 million) in the first half of 2017 up YOY by 12.5 per cent. The biggest forwarder by volumes moved in 2016, DHL Global Forwarding saw Q2 airfreight revenues increase 5.7 per cent YOY to €1.1 billion boosted by a 9.7 per cent surge in demand to 556,000 tonnes. However, airfreight gross profits declined 10.6 per cent against last year to €210 million as rates increased. CEVA Logistics’ freight management division achieved YOY revenue growth of 8.8 per cent in Q2 with airfreight volumes up YOY by 15.6 per cent notably on the Trans-Pacific and Intra-Asia trade lanes, but says the market situation “remains difficult” in view of rising carrier rates. Kuwaiti logistics firm Agility saw airfreight volumes grow above the market average at 14.7 per cent in Q2, but also says rate pressure continues to affect profitability. Forwarders will be hoping they can continue the strong volumes growth in the rest of 2017.
agent partner in Mexico, AirCargoAmericas in the US and AirFreightLogistics in Europe. CargoLogicAir chief executive officer, Dmitry Grishin says: “The arrival of our third 747 freighter means we are ready to begin our scheduled cargo operations and we are confident the routing we have chosen will appeal strongly to customers moving car spares, hi-tech, energy, aerospace and healthcare products.” Chief operating officer, Sten Rossby adds: “Our growing air charter and ACMI operations
have enabled us to establish the quality and reliability of our services and this has also helped us to already achieve a high level of customer commitments to support our first scheduled operation.” The full routing, which sees AirBridgeCargo (ABC) Airlines Boeing 747s operating via Houston, Frankfurt and Abu Dhabi enables CargoLogicAir to offer customers a wide choice of Europe-Mexico, Europe-Middle East and US-Middle East connections. CargoLogicAir is providing road feeder services across the Middle East to offer customers fast deliveries to Dubai International Airport, Dubai World Central and Sharjah International Airport. It will also link up with the network of ABC in Frankfurt, enabling onward connections to Asia Pacific.
Mexico City to be CargoLogicAir’s first scheduled route
CargoLogicAir is to launch its first scheduled cargo route with flights to Mexico City starting from 19 August. The twice-weekly Boeing 747-400 will leave from its London Stansted Airport base every Wednesday and Saturday to Mexico City International Airport via US gateway Hartsfield-Jackson Atlanta International Airport. The airline will offer over 200 tonnes of cargo capacity a week on its new routes, and has appointed Aerocharter as its general sales
growth for select across markets 2017 turning into a strong year hae to invest in technology
60 seconds with mohammed al musafir
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Strong performance in Q2 for ATSG AIR Transport Services Group’s (ATSG) revenues rose 43 per cent and $77 million to $253.2 million in the second quarter (Q2). Adjusted earnings from continuing operations (excluding non-cash warrant-related items) were up 64 per cent at $13.9 million in Q2, which ended on 30 June. ATSG’s airline services operations, and maintenance and logistics businesses all achieved double-digit revenue increases. Cargo Aircraft Management’s (CAM) revenues rose $2.1 million to $49.5 million from Q2 2016. It expects to buy seven more Boeing 767Fs in the second half of 2017. ATSG president and chief executive, Joe Hete says it will deliver its 20th leased B767F to Amazon this month. ATSG’s leased-aircraft portfolio grew by eight 767s as of June 30 and aside from the two 767-300s for Amazon’s order of 20 aircraft - current purchase and conversion commitments will yield 12 additional B767300s through to the first half of 2018. Hete says leases have been signed or being finalised for nine and ATSG is in discussion with “multiple parties” for three aircraft. ATSG’s includes ABX Air, Air Transport International, CAM, PEMCO World Air Services and other subsidiaries.
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NEWSWEEK
Fraport posts revenue and net profit rise
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evenue at Fraport has grown 10.8 per cent in the first six months of 2017 and also increased its net profit by 37.3 per cent. The company, which operates Frankfurt Airport, as well as Ljubljana, and has stakes in Varna and Burgas, Lima (artist impression of expansion plans right), Antalya, St. Petersburg, Hanover, Xi’an, Delhi and a further 14 gateways in Greece, saw revenue increase by €130 million to €1.3 billion, with net profit up to €190 million from €146 million in 2016. Second quarter revenue was up 16.9 per cent to €763 million and net profit increased 32.6 per cent to €164 million. Fraport executive board chairman, Dr Stefan Schulte says: “We are looking back on a successful first half 2017. Our business areas have developed well, both at Frankfurt Airport and our Group airports worldwide.” In the first half of the year, freight at Frankfurt Airport continues to grow strongly and was up 5.3 per cent to just under 1.1 million tonnes as growth from the second half of 2016 continued, in tandem with economic growth. Most airports in the group saw cargo growth in the first six months of 2017 as they were all boosted by the stronger performance in the air cargo industry.
Ljubljana grew 13 per cent to 5,655 tonnes, Lima was up 0.1 per cent to 122,681 tonnes, and over in Bulgaria, Burgas increased three per cent to 6,715 tonnes and Varna by 57.9 per cent to 148 tonnes. Hanover declined 8.5 per cent to 8,864 tonnes, while Xi’an increased 11.1 per cent to 122,513 tonnes and Delhi by 14.3 per cent to 470,680 tonnes.
Incheon
just keeps growing
INTERNATIONAL cargo at Incheon International Airport continues to grow with a 4.4 per cent year-on-year increase in June to 242,355 tonnes. Inbound cargo was up by 6.9 per cent to 122,455 tonnes with outbound growing by two per cent to 118,941 tonnes, which it says thanks to increasing exports of major products including semiconductors and display manufacturing equipment, while transhipments were down 1.2 per cent to 90,056 tonnes. International airfreight grew in most regions except China, which was down 3.9 per cent to 41,599 tonnes due to reduced exports as a result of strengthened customs procedures following the deployment of Terminal High Altitude Area Defense in Korea. The Middle East also declined, down 10.3 per cent to 6,000 tonnes, but all other areas saw growth. The Americas remained the biggest market, with 57,099 tonnes, up 4.2 per cent, and Northeast Asia saw the largest year-on-year growth, up 8.2 per cent to 26,955 tonnes.
Volumes up at Brussels
CARGO volumes have continued to grow in July at Brussels Airport despite a fall in full freighter traffic due to airlines leaving because of stricter noise standards. Total volumes were up 3.8 per cent to 41,191 tonnes with belly cargo increasing 13.9 per cent to 11,197 tonnes, mainly due to long-haul passenger services returning to full capacity in July 2016 following the 22 March terrorist attacks. Freighter cargo was up 0.4 per cent to 29,994 tonnes, with 8.2 per cent growth of integrator traffic to 18,463 tonnes making up for the 9.9 per cent fall in full freighter transport to 11,531 tonnes due to airlines leaving or reducing operations due to stricter noise standards. Cargo volumes grew 14.5 per cent between January and July to 309,507 tonnes, with all sectors registering double digit growth. Freighter cargo was up 15.4 per cent to 230,345 tonnes with 22.7 per cent growth of full freighter traffic to 100,947 tonnes and a 10.3 per cent increase to 129,399 tonnes for integrators. Belly cargo was also up 12 per cent to 79,162 tonnes between January and July.
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A321 joint venture established by Precision and ATSG
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recision Aircraft Solutions (PAS) and Air Transport Services Group (ATSG) have formed a joint venture company to develop a passenger-to-freighter conversion for the Airbus A321-200. The company, called 321 Precision Conversions has been set up by PAS and ATSG’s subsidiary Cargo Aircraft Management, aims to gain supplemental type certification for the conversions in 2019, and aims to fulfil both replacement and growth needs in the narrowbody freighter market. The companies claim it will deliver similar cube space to the Boeing 757 Freighter with operating costs similar to the Boeing 737 Freighter, making it attractive for air express operators. Precision Aircraft Solutions is a subsidiary of Erickson Group (EGL), and EGL president Steven Thomas says: “Precision’s integrated business model is capable of both the engineering and certification required for an A321-200 freighter STC, and the kitting, logistics, production and customer support functions to deliver a multiple aircraft program to all its customers.” “This strategic alliance with ATSG for the A321-200 program underscores our complementary business models and our long history of positive business dealings over the years. We look forward to bringing this product to the market together.”
NEWS WEEK WorldNews Jarrod Paterson has joined Virgin Atlantic Cargo as account manager – Melbourne to support the launch of Melbourne services by Virgin Australia. Virgin Atlantic is responsible for long-haul cargo sales and management services for Virgin Australia, which has served Los Angeles from Melbourne with five Boeing 777-300ER flights a week since April and five Airbus A330 services per week to Hong Kong.
ATSG president and chief executive officer, Joe Hete says: “ATSG’s emphasis on leasing, operating, and maintaining midsize freighters has been a key to its success. Expanding our fleet to include A321-200 freighters in that segment of the market through this new partnership with Precision will supplement the shareholder value we create in the future.” “Our decade-long relationship with Precision for 757 conversions gives me confidence that we will bring to market another high-quality, cost-effective freighter and reliable asset to a customer segment that demands very high performance.”
Manchester Airports Group (MAG) has made changes to its executive committee, with the chief executive officers (CEO) at Manchester and London Stansted airports swapping jobs. Ken O’Toole has led Manchester Airport since February 2013, and Andrew Cowan, who has been the chief executive of Stansted Airport since April 2016, will join Manchester Airport as CEO. The changes will come into effect in September. At the same time Collette Roche will take up a new role of chief of staff.
Durban cold facility opened
A new 99.2 million Rand ($7.3 million) state-of-the-art cold storage facility has been opened within the Dube TradePort Special Economic Zone at Durban’s King Shaka International Airport in South Africa. The iDube Cold Storage Facility will cater to the growing demand in chilled and frozen perishables storage within the region. It will initially cater to meat importers servicing local retailers as well as exports of dairy, fruit concentrate and citrus to markets in the European Union and the Far East. The 4,500 square metre facility has capacity to handle 8,600 mobile pallet positions, which can store up to 12,000 tonnes of perishables. In addition to this, it is also equipped to provide a number of ancillary services that include weighing, sorting, repackaging, order picking, and container plug in of products as well as providing distribution and logistics solutions. The new facility is funded in part by KZN Growth Fund a public entity that is under the KwaZulu-Natal Department of Economic Development, Tourism and Environmental Affairs. KZN Growth Fund provided 63.4 million Rand in funding towards iDube Cold Storage to help establish one of the largest multi-temperature cold storage facilities in KwaZulu-Natal.
Qatar expands in the Americas Qatar Airways will expand its presence further into South America by launching belly flights to Rio de Janeiro in Brazil, and Santiago in Chile early next year. The carrier will operate an Airbus A350-900 four flights a week between from Doha’s Hamad International Airport to Rio de Janeiro, which will then go to Santiago. Qatar Airways Group chief executive, Akbar Al Baker says the carrier looks forward to growing and expanding its presence in South America. This month Qatar Airways started a new codeshare agreement with LATAM Airlines Brazil (LATAM Airline Group), which includes new codeshares on LATAM’s routes between São Paulo’s Guarulhos Airport and 25 domestic cities across Brazil including Rio de Janeiro, Salvador, Campo Grande, Foz do Iguaçu and Recife. In other Americas news, last week, Qatar Airways announced it was not proceeding with its proposed ‘passive’ financial investment in American Airlines after previously revealing in June its intention to invest with an initial investment of 4.75 per cent. A statement said that Qatar Airways has taken the decision not to proceed with its proposed passive financial investment in American Airlines.
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NEWSWEEK
Q2 a success for Agility but rate pressure affects profitability
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uwaiti logistics firm Agility’s earnings before interest, taxes, depreciation, and amortisation (EBITDA) in the second quarter (Q2) grew 14 per cent to 32.6 million Kuwaiti Dinar (KD) ($107 million) while revenue increased 10.9 per cent to 342.1 million KD. Revenue for Agility Global Integrated Logistics (GIL), the company’s core logistics business, grew 9.6 per cent in Q2, to 255.2 million KD. Air and ocean revenue grew, driven by volume growth of 14.7 per cent and 12.9 per cent in air tonnage and ocean TEUs, respectively. These growth rates are above the market averages. However, net revenue in Q2 was flat compared to the same period a year ago, primarily due to significant yield degradation in freight forwarding because of capacity constraints and higher market rates. The company also says rate pressure continues to affect profitability.
Net revenue margins contracted to 24.9 per cent compared with 27.3 per cent in Q2 2016. EBITDA decreased 5.8 per cent to 9.1 million KD in Q2 for the same reason. In the first half of the year, Agility’s net profit was 31.4 million KD up 11.6 per cent on the first half of 2016 while EBITDA came in at 63.4 million KD, a rise of 15.6 per cent and revenue was 662.6 million KD, an increase of 9.1 per cent. Agility vice chairman and chief executive officer, Tarek Sultan says: “Revenue in our logistics business is growing because air and ocean volumes are increasing and contract logistics revenue is expanding, but rate pressure continues to affect profitability.” To achieve its 2020 EBITDA target of $800 million, Agility says it is focussing its efforts on investing in its infrastructure businesses in emerging markets, and improving its commercial logistics business.
NZ airfreight services started by Yusen YUSEN Logistics (Australia) has started airfreight forwarding operations to and from New Zealand servicing its global network and partners. The forwarder initially started in late 2016 servicing business customers to and from Australia and now offers global coverage that includes logistics services across the entire supply chain. In March 2016, Yusen acquired Hitech Asia Pacific, a company that owned bases in Australia and New Zealand and focused on the transportation of sensitive and specialty projects. This marked its first step into New Zealand’s domestic logistics market. The new facility site (pictured) is located near Auckland International Airport and offers a full
range of integrated supply chain solutions, including air and ocean freight services. Airfreight forwarding takes place to and from the country’s major airports, including Auckland, Wellington and Christchurch airports. The forwarder says it will continue to look to enhance services to compliment the Yusen Logistics global network. Last month, Yusen opened an office at Bangkok’s Don Mueang International Airport as it has seen a rise in freight volumes due to expansions of low-cost carriers.
Dachser to invest in new Austrian facility LOGISTICS provider Dachser is investing €6.5 million ($7.9 million) in a new 20,000 square metre facility in Stans in Tyrol, Austria. Dachser Austria has held a groundbreaking ceremony for the new terminal, which is scheduled to begin operations in late 2017 and will create 40 new jobs. The logistics centre in Tyrol will provide customers with transport and warehousing logistics, replacing its site in Hall and will have 30 gates and a storage and logistics area covering approximately 4,700 square metres. Another section of the building offers space for additional loading stations and parking spaces. Starting in late 2017, Dachser’s new facility will offer its customers everything from a single source:, customised contract logis-
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tics services and a direct connection to the seamless European transport network and global air and sea freight services by Dachser Air & Sea Logistics. Dachser operates at 10 locations in Austria and the new terminal will deliver shipments to 362 locations throughout Europe. Daily shipments to eastern Europe and the Balkans will go through the Eurohub in Bratislava, Slovakia.
NEWS WEEK
Growth for Select across less heard about markets
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elect Airline Management recently won two new contracts for Global Aviation in the little heard about Libyan market and Atlas Global at its Istanbul hub. Joint managing director and president of the recently set-up 1GSA group, David Lee (right) says it has seen rises for all client carriers in both tonnages and revenues this year - a trend he expects to stay for the rest of 2017. He notes areas showing the most significant rise in volumes are North Africa (mainly Libya) and Russia, with westbound traffic to Ireland, while he notes the East Coast of the US and Canada, are all expected to peak in Q4 2017. Lee says Aegean Airlines has been operating at almost 100 per cent of available capacity to Greece and Cyprus in 2017, and it looks forward to an increase in flights along with the introduction of larger aircraft in the coming months. He explains the larger next generation Boeing 737 aircraft operated by LOT Polish Airlines into Heathrow from this summer have made an “immediate impact” on available space, enabling it to achieve a “marked increase in Priority 1 cargo traffic”. Lee adds: “CityJet cargo and mail volumes between London and Dublin are currently running at an all-time high. Working
with Cityjet, we are achieving 99 per cent of cargo flown as booked, or even on an earlier flight.” As for future opportunities, he says looking east, it believes prospects are good in both European Union and non-EU markets, with carriers such as SmartWings and Atlas Global benefitting. He adds: “Armenia, Moldova and Georgia are experiencing good growth. LOT Polish Airlines has firmly established itself as the carrier of choice for many forwarder customers requiring express cargo services particularly to Russia.” Going west, Lee says WOW Air services to San Francisco and Los Angeles, with their recent upgrade to new Airbus A330 aircraft, are receiving strong support from the UK market. Going south, he explains Select has seen increased support for Atlas Global to Libya, Magma Aviation to Central Africa (particularly Cameroon) and Air Namibia to Botswana. As for Brexit, Lee notes with the devaluing pound, and emphasis on exporting to broader markets, and long-term opportunities to
trade, he sees only positives for the industry. “We are already witnessing the positive impact of growing e-commerce business across all of our carrier base; in this context, the importance of the UK as a major global crossroads should not be underestimated,” Lee says. He adds: “That said, the more quickly new runways are built in the south of England, the better - as global connectivity and service frequency will play vital roles in reasserting the UK’s rightful position in European aviation, and enabling the UK air cargo industry to facilitate and fully support our global trade efforts.” Lee has no doubts 1GSA will prove a success and Select will leverage the growing coverage at its disposal through 1GSA. He expects membership to be a “significant factor” in growth in 2018. He is sure 1GSA will open up opportunities for Select and other members: “We believe 1GSA will provide airlines with a welcome alternative to the status quo, as well as enabling some excellent local GSSA companies to protect their treasured independence by improving their efficiency and performance.”
Benin to gets its own carrier
THE governments of Benin and Rwanda have signed a memorandum of understanding (MOU) to establish a joint venture airline owned by the two countries and based in Cotonou, Benin. Plan are for it to commence its initial operations providing air transportation for passengers and goods between and to Abidjan, Brazzaville, Douala, Libreville, Bamako, Dakar and Conakry. Minister of transport and infrastructure of Benin, Herve Hehomey says it will enable the country’s aviation industry to make Cotonou a hub for the sub-region and the second “dream will become reality” with the establishment a national carrier. Meanwhile, RwandAir has also been granted the seventh freedom rights by the Government of Benin. The seventh freedom rights allow an airline to base its operations outside its home base and operate between its seventh freedom base and a third country without returning to its country. RwandAir plans to position two Boeing 737s aircraft to Cotonou and begin operations soon from its new second hub. The carrier will continue its operations from Kigali to Cotonou and seamless access to East and Southern Africa, the Middle East and Asia to the joint airline.
Strong Q2 for Cargojet
CARGOJET’s revenues rose $8.9 million to $88.2 million in the second quarter (Q2) of this year, up 11.2 per cent on Q2 last year. For the quarter ending 30 June, the gross margin was $23.3 million, a rise of $2.4 million, or 11.5 per cent on Q2 2016. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) was $24.6 million, an increase of $2.1 million or 9.3 per cent over Q2 in 2016. Adjusted earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) was $28.3 million, a rise of $1.4 million or 5.2 per cent on Q2 2016. President and chief executive officer, Ajay Virmani says: “We are very pleased with the financial and operating results produced during the quarter. “The significant increase in revenues over the previous year was the result of the successful execution of our strategy to improve the utilisation of our aircraft assets and to maximise margins. “We continue to prudently manage our operating costs and look for further route network optimisation opportunities.” The Canadian carrier operates a network across North America, utilising a fleet of 18 freighters.
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UK GSSAs
Strong exports driving performance at Global Airline Services
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lobal Airline Services commercial director, Bob Matharoo says 2017 has been a record year and it has exceeded its carriers’ expectations. “The reasons are due to the current strong exports figures, simply having an experienced, dynamic sales force, understand our markets and cultures and have local robust relationships,” he explains. The GSSA sells cargo for Turkish Airlines, El Al Israel Airlines and SriLankan Airlines and has seen significant tonnage growth for the carriers compared with 2016 of 28 per cent, 18 per cent and 48 per cent, respectively. Matharoo says 2016 was exception to rule, as it was the first year for a long time where it has experienced no seasonal trends, and Global Airlines Services was busy all year around, which has continued in 2017. As for strong verticals, he notes: “Each GSSA
will work to their unique markets trends and this all depends on the principles they represent. For us the carriers we represent have quality services, which cover the globe. “Apart from the growth in general cargo, we have also seen growth in pharma, e-commerce, IT & telecommunications, automotive, aerospace, and fish.” Looking ahead, Matharoo feels it remains undecided as to if the recent impetus for air cargo is a start of a stronger growth trend in UK. “There are a number of reasons the industry is reporting strong growth in areas such as cross-border, e-commerce and pharmaceuticals, which are expected to continue to offer opportunities in UK for airfreight in 2017 and beyond,” he says. With Brexit on the horizon, Matharoo feels wider weakness in world trade conditions remains an ongoing concern such as the impact
of Brexit: “The true impact of Brexit, will not be known until legislations are all in place, it will take two years for UK to extract itself from the European Union (EU). The government has advised it will leave the single market however retain access to the common market. “The common market will create a boarder around the EU, goods from outside which are taxed at the same level regardless of which country inside the market imports them, while members benefit from free trade with the market. “The UK may end up with a deal that does not include access to the common market, which would mean UK exporters may have to lower prices to appeal to EU buyers who will have to pay taxes on goods imported from Britain.” He believes outside the EU the UK already has large exports markets such as the US, China, Japan, the UAE and Canada while countries such as India have strong business flows with UK creating a potential free-trade partnership connection. “This will have an impact on the GSSA/
airline cargo business, where we a GSSA could see destination trends transform, creating a diverse market,” Matharoo adds. He is upbeat as says the UK is a “respected trade partner” for its financial, technical and scientific based industries, but Brexit will play a major role on export and import legislations from UK, and will dictate new synergies. Matharoo adds: “The strength of the pound with play an important role, we all hope for a smooth transition with Brexit.”
2017 turning into a strong year AIR Logistics Group’s director in the UK, Chris O’Donnell (right) ays in 2017 it has seen a surge in business like many others in the cargo field and it has been an “exceptional” year to date. He feels this is partly due to the confirmation of Brexit and the appointment of Donald Trump as the new US President. O’Donnell notes pressure on the euro and pound against the US dollar has boosted exports and many companies are taking the opportunity to increase their business with the UK. Air Logistics sells cargo on more than 45 daily departures from the UK and had added new contracts in 2017. It was appointed by Croatia Airlines in February 2017 to provide GSSA services for their direct flights from London to Zagreb and onward connections across Croatia and Eastern Europe and on 1 April it was appointed by Finnair as its exclusive GSSA in seven key European territories including the UK. O’Donnell says additionally a number of its current airlines have extended existing contracts this year. He explains it has increased volumes across airlines and respective markets, with particular growth in the key markets of the Middle East, Southeast Asia and Australia whilst Latin America has begun to show signs of recovery. “There is very strong demand for e-com-
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merce, perishable and pharma business. We also continue to move a substantial amount of cargo requiring freighter services, including specialised shipments of artwork and cars through to out-of-gauge cargo,” O’Donnell says. He is positive about the impact of Brexit, as feels the UK will need to negotiate and increase trade agreements globally. “The air cargo business evolves and adapts to market situations, as do GSSAs, therefore we don’t see that Brexit will have a major effect on whether it is harder or easier for a GSSA in the UK,” O’Donnell adds. He expects as global trade agreements are established it hopes to see the opening of new routes and additional airlines serving the UK. As for the UK market in say 10 years times, he believes there will be continued consolidation and continued requirements from airline customers to provide additional services be it fiscal, sales, or operationally from professional GSSA companies. O’Donnell adds: “As e-commerce continues to boom, airlines and their suppliers will need to continue to evolve to deliver on the demands of the large e-commerce companies that bring huge influence into the airline cargo industry. The airlines that have invested into e-commerce will be the ones that are the market leaders for the next 10 years.”
Sales strong for Globe Air Cargo
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trong industry performance has boosted year-on-year sales revenue by six per cent this year at Globe Air Cargo with all carriers it represents seeing surging numbers. The ECS Group subsidiary sells cargo in the UK for Aeromexico, Biman Bangladesh (pictured), Bulgaria Air, China Southern, Czech, Gulf, Middle East Airlines, MNG, Royal Air Maroc, Ukraine International, UPS Cargo, Vietnam Airlines as well as Kenya Airways in the North of England, Westjet in the South of England and some group products with Corsair, Niger Air Cargo and MIAT. Globe Air Cargo managing director, Michelle House says growth in airfreight demand continues to increase due the recovery in global trade. She explains: “As a result, since the last quarter of 2016, we observe additional export growth and resulting improvement in our volumes. Of course, this impacts all of the airlines we represent. “So we obviously benefit for that increasing demand for outsourcing and we’re pleased to report that GAC UK has been improving market share too. But, without a doubt, the market is better than last year.” House notes Middle East Airlines has moved to a GSSA within the past 12 months and Westjet came online into London Gatwick and outsourced their cargo sales activity as well. The strongest lanes are Mexico City, Hanoi and Ho Chi Minh City, while China is still strong and the Middle East remains robust. As for the performances of different verticals, since the last quarter of 2016, Globe Air Cargo has seen an increase in
freight volumes generated by pharmaceuticals and e-commerce traffic and both remain strong. House says transit times are imperative with both products and the industry has had to work hard to meet these growing demands, while it has also noticed an influx of Norwegian fish ‘flooding’ into the UK market this year. The weakening of the pound has helped UK exports, but has this boosted numbers, or not? “Yes, I believe it’s behind some of the growth we are seeing, that said, it presents a challenge when we report in local currencies to some of our airline customers,” House says. She believes the impact of Brexit on the UK all depends on the trade agreements that are reached, but it is still unknown whether it will make it harder for GSSAs. House says: “It’s pretty complicated to predict the real impact, but I’m fairly confident that production will remain positive and assuming no change to the weak pound then exports should continue to grow steadily. “If the UK becomes a cheaper place to operate, it may lead to additional growth, driven by both increased passenger demand and as a result, cargo too.”
UK GSSAs HAE to invest in technology TECHNOLOGY is the main area that HAE will continue to make investments in. HAE UK & Ireland director, John Ward says staff are already working on using its self-developed web portal, which will be expanded to integrate with airline partners to give customers as many options as possible. “We are also investing in warehouses, as the airports get more congested....there is a role for fulfilment that facilitates more trade with us and our partners,” Ward adds. He says in 2017 the UK has been a mixed bag. “There has been some significant volume of bids to respond to as carriers either review their representation by testing the market or have made changes to their selling strategy,” he explains. In the UK, HAE sells cargo under its GSSA brand Air Liaison for Air Canada, United Airlines, Ethiopian Airlines and DHL Aviation. Ward says it eyeing other contracts and is in the final stages of a couple of new appointments that fit its strategy of non-competing products and networks where possible. He says the strongest lane to and from the UK are intra-Europe, which always is strong, transatlantic US/Canada and he also notes Latin America volumes are buoyant along with many parts of Africa. Verticals performing well are pharmaceuticals and it is also seeing many SME forwarders with key ad-hoc lanes looking for capacity. E-commerce continues to be the
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“new integrator” he says. The weakening of the pound has helped UK exports. Ward says it has noticed the pound’s previous weakness drove demand, but yields were weak. He adds the slight rebound has meant UK rates have improved against European Union rates, allowing it to gain capacity back on a number of routes like to Asia. As for Brexit? “There is no doubt there will be an initial impact, but what we are experiencing in some sectors is inertia as everyone watches what will happen and fewer CAPEX decisions are taken, this means there is pent-up demand which shows no sign of being released,” Ward believes. He feels the destination mix may change after Brexit, which may help air cargo with more long-haul destinations served as revitalised trade agreements come in to play. Ward adds HAE thinks revised air services agreements may bring new opportunities to the table, but network carriers will maintain their O/D business to and from the UK. As for the future he sees closer integration between online and partners and the consumer being offered more time-definite product solutions from carriers. “GSSAs will need to expand their portfolios to offer customers a full range of products. I also see them taking capacity themselves more and more to commit themselves to their carriers,” Ward concludes.
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CASPIAN AIR CARGO
Investments paying off as specialist cargo grows
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hile oil and gas remain central to the Eurasian economy, Silk Way Group is seeing phenomenal growth in specialised cargo, company president Zaur Akhundov tells Air Cargo Week. Silk Way is based in Baku, Azerbaijan, which Akhundov says is strategically located between Europe and Asia, and imports and exports span across all industries. Oil and gas traditionally accounted for large portions of tonnage but other types of general cargo have seen significant increases while specialised products including pharmaceuticals and perishables are growing at a phenomenal rate. Akhundov says: “This has been made possible through investments we have made in developing our state-of-the-art hub and logistics centre. By being able to offer customers special handling procedures and various cool storage
options we have really started to see those investments pay off.” E-commerce has also surged; Akhundov comments: “While it has been a long established in the West, e-commerce has significantly grown in this region. As such, Baku, more specifically Silk Way, has become the logical choice for many customers. “As the e-commerce industry grows, Silk Way is obviously eager to maintain and expand those services and products.” Business at Silk Way has been developing fast, with scheduled services experiencing double-digit growth in the first quarter of 2017, and the second quarter has also been successful. Akhundov explains: “That growth was made possible in part by increasing both network and frequencies to and from destinations such as Chicago, Amsterdam, Zhengzhou and Hong Kong. With this additional capability and a con-
tinued focus on improving performance, Silk Way strengthened its market position in the major European and Asian air cargo markets which in turn led to such large gains in Q1.” The charter segment has also been performing well, with Akhundov adding: “The portfolio of customers in the charter segment has also grown considerably. “When compared to 2016, the number of charter flight hours flown has increased by double digits for both the IL-76’s and the Boeing 747’s.” The Silk Way Group operates two cargo airlines operating as a cohesive unit, with Silk Way West Airlines serving intercontinental routes with its fleet of five B747-8 Freighters and two Boeing 747-400Fs, while Silk Way Airlines uses smaller aircraft for regional routes. It also has capacity on Azerbaijan Airlines (AZAL) passenger services.
Akhundov says: “With AZAL recently announcing their fleet expansion through the purchase of four new B787-8 Dreamliners, and with Silk Way’s efficient utilisation of AZAL’s lower deck capacities, we are anticipating an additional boost in significant growth of post and freight traffic in the region.” He believes the outlook is strong, having welcomed the fifth B747-8F to the fleet in April. Akhundov says: “Silk Way significantly increased its footprint using a dual strategy that increased our network on the main airfreight routes between Asia, Europe and the US while at the same time increasing our footprint on regional routes into Central Asia and The Middle East.” Silk Way also offers frequent services into Kazakhstan, Turkmenistan, Kyrgyzstan and Russia, with the Russian market served by partner airline Sky Gate Cargo Airlines.
Vehicles drive regional flights
Antonov Airlines has been feeling the affects of low oil and gas prices but has been flying a lot of vehicles to the Caspian region, commercial manager Paul Bingley (pictured) tells Air Cargo Week. He admits business in the region has been a struggle, having operated 17 flights so far, with some of those on intra-regional services. An increased number of vehicles, particularly on intra-regional flights from Turkey to Turkmenistan have partly made up for this. Bingley says oil and gas flights have been “few and far between” but Antonov has
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carried other goods including fabricated buildings to Turkmenistan and aerospace parts from the UK to Georgia. For the rest of the year, he says: “It will pretty much be as it’s done for the last six to eight months. It will continue in that manner, I don’t see an immediate upturn in the oil and gas industry.” Despite send less cargo to the region Antonov still flies to the area, with locations including Baku and airports in Turkmenistan proving useful as refuelling stops. Antonov uses a fleet of AN-124s, giving it an advantage when handling oil and gas equipment. Bingley says: “A lot of the equipment is heavy and outsized. Not many Boeing 747s can carry that equipment.” The AN-124 also has advantages over other aircraft such as the 747. Bingley explains: “Certain airports don’t have the means of handling that kind of aircraft [the 747] but the AN-124 can handle itself.”
CASPIAN AIR CARGO
Consumer demand making up for oil and gas stagnating
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ow oil prices mean oil and gas projects have stagnated but Coyne Airways project manager, John Gardiner says general cargo movements are growing. He explains oil and gas destinations in Western Kazakhstan including Aktau, Atyrau and Uralsk, having been “extremely challenging” due to low oil prices meaning investment in projects has slowed down. Gardiner adds that projects have become much more savvy and improved processes, requiring fewer time-critical movements and an increased reliance on road transport. He says: “At the same time the forwarders, who are under their own pressures in the current climate, are attempting to push down rates for the shipments that do move by air.” This likely to continue for some time, Gardiner says: “The prospects for a prolonged improvement in the oil and gas market are limited in the short term, so it is a case of treading water in that market and building volumes from some of the other opportunities the region offers.” General cargo movements to locations including Tbilisi and Yerevan have been stronger as they do not rely on oil and gas. Gardiner comments demand tends to follow global trends, though the increased competition, particularly from passenger carriers, creates its own challenges for airlines operating freighters. While oil and gas remains important across the region, there has been a noticeable rise in consumer goods, with the growth of internet shopping meaning the number of small packages has grown significantly. Gardiner says: “We expect shipments of these types of goods to increase further in the coming years.”
Oil and gas is expected to pick up, but Gardiner says the recovery has been much slower than predicted, and there is unlikely to be much change while prices remain low. The consumer market in places including Tbilisi, Baku and Yerevan are expected to grow as populations become more affluent and demand more Western consumer goods. Gardiner says: “We’ve already started seeing an increase in
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the movement of clothing, mail order packages and consumer electronics and we expect this to continue.” The medium-term goal is to increase frequencies from Amsterdam to Tbilisi to serve the local market and feed additional regional routes. Gardiner says the Caspian region is well located between Europe and Asia, but close enough to the Middle East to present opportunities for expansion, but he comments: “The political landscape in the countries in and around the region can often change very quickly and our business model, built on flexibility, leaves us well placed to exploit any opportunities that arise.” Something that can also change very quickly is rules and regulations, particularly for Customs, and often with little notice. Gardiner gives an example: “A few years ago we were forced to change our routings to Kazakhstan with virtually no notice which increased our costs of operation considerably and for a while caused delays to critical shipments arriving into the country.” Market volatility can also be a problem, Gardiner explains: “Volumes are very inconsistent from week to week, particularly for Western Kazakhstan where, depending on the stage the projects are at, there can be barely enough cargo to fill one flight one week and the next there can be too much cargo for three flights.” If you can work around the challenges, the Caspian market can be lucrative. Gardiner says: “The same uncertainty that creates challenges can of course also present unexpected opportunities. As things change quickly, being able to adapt quickly can reap rewards and this is where the opportunities are often found.”
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60 NEWSWEEK
Seconds with Mohammed Al Musafir Oman Air Cargo has major plans to grow its cargo share in the Middle East and take on the heavweight carriers in the United Arab Emirates, Qatar and Saudi Arabia. Air Cargo Week spoke to senior vice president for commercial cargo, Mohammed Al Musafir about how business is at the Muscat-based airline and where it is making investments.
ACW: How is the Middle East air cargo market? Al Musafir: The Middle East (ME) cargo industry was adversely disturbed last year from an increased airline capacity that had surpassed demand during the current economic downturn. Due to a surplus of global airfreight capacity along with slower global trade, ME volume growth last year slowed down in comparison with performances seen in earlier years. However, over Q1 of 2017, the market has begun to stabilise, and strategies our team have put in place have enabled us to perform at a positive level.
ACW: How is business and what are you focusing on? Al Musafir: Although the market is volatile and changes may occur, with Oman Air constantly growing its fleet and destination mix, we have managed to further diversify our market and tactically grow our market share. Oman Air Cargo focuses on a healthy cargo mix, ensuring we are not dependent on a single cargo sector. We are constantly working to improve our cargo services and offerings, and in the process of better defining our special products. Our valuable cargo product
Mohammed Al Musafir ‘Secure Vault’ is one of a number our division will be focusing on as we better define our products and services.
ACW: What is your future strategy to grow business? Al Musafir: We work with particular focus on our hub in Muscat becoming a global transshipment route between the east and west. Our widebody fleet operates on all our Europe and Far East destinations and with our new state-of-the-art cargo facility nearing completion, we will have the tools required to carry and handle much greater volumes with quicker turnaround times and greater customer service. ACW: Are you looking to expand your route network? Al Musafir: Oman Air has taken-off on an ambitious growth strategy. It will see us expand our existing international network even further, increase the strength of our fleet, delivering more consignments to more destinations than ever before. With our added destinations of Mashhad, Najaf, and our first China operation to Guangzhou, along with upcoming scheduled routes to more African destinations, our focus for 2017 will be on Africa and Asia, as well as expanding our partnership service agreements as we strategically expand our network to better. ACW: How is Oman expanding its cargo business? Al Musafir: First, we are working on expanding our product and service offerings, introducing more specialised services and better tailored solutions to our growing client base. We will be launching a cloud-based cargo management system to manage our expansion plans. The system will provide reliable, transparent, and real-time data throughout our logistics chain. Second, our new cargo facility at our hub in Muscat, is in development to begin operations in the first half of 2018. With an initial annual capacity of 350,000 metric tonnes, the 38,000 square metre facility provides loading and unloading functions, export and import handling activities, air-to-sea and air-to-road services, and screening and customs inspection procedures. The facility accommodates frozen and chilled storage, secure and dangerous goods storage, bonded storage and quarantine facilities, as well as a live animal centre. Third, our customer service department. We constantly strive to offer best-in-class services to institute strong, lasting relationships with every client, partner, and stakeholder. We understand professional customer service is the core of a successful business. Our teams are at the foundation of success.
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ACW: Where are you going to make investments? Al Musafir: One of the initiatives we are studying include introducing leased freighters under the management of Oman Air Cargo, to better service our main destinations in Europe, the Indian Subcontinent, and the Far East. The new cargo facility will give us the required infrastructure to use as a springboard for our growth plans. It grants us the ability to offer specialty products and services including express, perishables, pharmaceuticals, valuables, DGR, and live animals and capacity to better handle our growing customer base. This allows us to further compete with other regional airlines and direct more consignments through our Muscat hub. We look at technology as an advantage to constantly improve our operations and services. This new cargo management system will also allow us to shift towards e-AWB to better serve clients. Oman Air Cargo’s upcoming mobile application will give our clients access to real-time information. From flight schedules, booking capability, and local agent support, to tracking the status of shipment throughout the logistic chain, all available at the tip of a finger.
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ACW 14 AUGUST 2017
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NEWSWEEK Reorganising sales puts Lufthansa Cargo in strong position
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eorganising the sales structure has helped put Lufthansa Cargo closer to customers and has put it in a strong position to cater for strong demand, vice president for Germany J. Florian Pfaff (pictured) tells Air Cargo Week. Following a tough year in 2016, Pfaff says the peak season was exceptionally good, and the strong demand has continued through Chinese New Year and up to Easter. He says the positive trend have been sustained with the start of the summer season. Pfaff explains: “Having already reorganised our sales structure at the start of the year, we are delighted to now be even closer to our customers. “This major accomplishment has paid off, putting us in an even better position to cater for this strong demand.” Lufthansa Cargo is optimistic the high demand for air cargo will persist, though Pfaff comments: “We have seen time and again over recent years just how volatile the air cargo market can be. Accordingly, you have to take any forecasts with a pinch of salt.” He also says: “We want to win business in the future as well by appealing to customers with our far-reaching and closely-meshed
network, top-class service and innovative products.” Lufthansa Cargo has been busy developing partnerships, having started with All Nippon Airways (ANA) on Japan to Europe services in December 2014 and vice versa in summer 2015. This was followed by a cooperation with Cathay Pacific Cargo on routes from Hong Kong to Europe from February 2017. Pfaff says: “Our customers benefit from the larger network, increased shipping options, improved service recovery, greater flexibility and, not least, the time savings. Thanks to the “one-stop
shopping” setup in place, our customers can now book ANA and Cathay Pacific Cargo flights via Lufthansa Cargo booking channels – and vice versa.” In April, Lufthansa Cargo signed a joint venture with United Airlines for cargo cooperation on routes between the US and Europe. Pfaff says: “We are currently working on aligning our cargo business processes and IT systems so that we can offer the aforementioned benefits from Europe to the US as well and vice versa.” Pfaff believes the outlook is positive; its hub in Frankfurt is located at the heart of a number of leading European production centres, but says: “we have to constantly work together with our partners – in Frankfurt and within the Lufthansa Group – on ensuring we can offer our customers the best possible solutions all over the world.”
Double digit Q2 profit growth for DHL
Deutsche Post DHL Group revenue grew 4.4 per cent in the second quarter with double digit profit growth, helped by strong growth particularly for e-commerce and the express business. Second quarter revenue hit €14.8 billion ($17.4 billion) while net profit was up 11.3 per cent to €€602 million. The Express sector registered the highest growth measured as earnings before interest and tax, up 12.2 per cent to €€469 million, with the Post division growing 4 per cent to €€259 million. Deutsche Post DHL Group chief executive officer, Frank Appel says: “We are very satisfied with both the second quarter and the entire first half of the year. Our company is growing in all areas and steadily increasing earnings.” Meanwhile, Shanghai Pharma will partner
with DHL Supply Chain to enhance quality control measures, streamline distribution processes, and strengthen compliance with local and international food and pharmaceutical regulations. Shanghai Pharma has signed a memorandum of understanding with DHL Supply Chain to prepare its logistics infrastructure for rapid global expansion. The pharmaceuticals giant, which generated revenues of more than $18 billion last year – will partner with DHL Supply Chain on quality, efficiency, compliance and regulations. A range of recent government initiatives, including the ‘two-invoice’ or fapiao policy which was rolled out earlier this year, have put greater onus on China’s pharmaceutical sector to improve the transparency and efficiency of local supply chains.
DB Schenker signs Chinese B2B partnership
A strategic partnership has been penned by DB Schenker and Sichuan JiuYe Export – a China-based B2B food trading company – for cooperation on the logistics and movement of perishables. Sichuan JiuYe provides cross border one-stop supply chain services to agriculture, food e-commerce and food companies in China and abroad. Its main export market is eastern Europe and major import markets are Australia, North America and Europe.
The company says by using DB Schenker as a freight forwarding provider for its perishable goods, it will benefit from a strong global network and extensive market experience as it looks to grow its business in current and new markets. DB Schenker considers JiuYe as an important strategic partner to strengthen and develop its footprint in the perishable sector in China. Earlier this year the two firms collaborated with DB Schenker carrying out several airfreight export shipments of fresh fruits from China to Russia, Singapore and Hong Kong. DB Schenker chief executive officer for North/ Central China, Thomas Sorensen says the partnership will bring it closer to the goal of achieving a leading position in the logistics of perishables in China.