AC Week Timetemp sensitive march

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The weekly newspaper for air cargo professionals Volume: 17

Issue: 10

17 March 2014

Industry needs game changers

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he stark message given at the International Air Transport Associaton’s 8th World Cargo Symposium, held in Los Angeles, was that “game changers” were needed because of the commercial pressures airfreight faced. Speaking at the plenary session, IATA’s global head of cargo, Des Vertannes (see picture) points to the industry’s revenue being at about $60 billion, when a few years ago it was $67 billion. “Game changers is what we need because of the commercial stagnation since 2008,” Vertannes says. “Our yields are falling for a third year in a row and the tonnage of airfreight has barely moved.” During the symposium, IATA also announced that it was revising downward its profit forecast for the airline industry. It is now predicting profits of $18.7 billion, on revenues for cargo and passenger combined of $745 billion, down from the previously forecast $19.7 billion. Despite this cut, IATA says industry, “remains on track

FedEx founder: Golden age is gone forever lufthansa cargo shuffles deck High demand, rising red tape troubles Spring time for fresh produce market

to deliver a second consecutive year of improved profitability”. The total revenue will be $2 billion higher than previous projections. The main cause of the profit cuts is higher oil prices which are now expected to average $108 per barrel, $3.5 per barrel above previous projections. According to IATA, this $108 figure means industry will have

$3 billion added to its fuel bill. It hopes this extra cost could be offset by higher demand as the world economy improves. At the symposium, Vertannes cited the challenges faced to improve that bottom line, including efficiency, safety, security, and sustainability. In his symposium speech, Vertannes says: “The path to paperless

is one piece of evidence of why our challenge remains incredibly tough. We wanted a 20 per cent target at the end of last year for global penetration [of electronic airway bills] and we ended up barely reaching 12 per cent.” See more stories from the symposium on page three in this issue and on pages eight and nine in the 24 March issue.

UK firm rapped for batteries rules breach A UK medical goods supplier pleaded guilty to sending incorrectly packaged lithium batteries from Stansted Airport in May 2013. Essexbased LE West was fined £3,000 ($4,985) plus costs at Chelmsford Magistrates Court on 11 March for breaching international dangerous goods regulations. The Court heard the company had attempted to send four lithium manganese dioxide battery packs, used in medical defibrillators, to a customer in Portugal without using an approved container or marking, or declaring the shipment as containing dangerous goods. A UPS employee detected the consignment before it was loaded on to a cargo aircraft. The express package firm reported the incident to the UK Civil Aviation Authority (CAA), which brought the prosecution. Lithium batteries are a known risk to aviation safety when incorrectly packaged and have been responsible for several fires including the UPS Boeing 747-400 Freighter crash at Dubai International Airport in 2010. The flight crew is thought to have been overcome by smoke from an onboard fire. While the cause of the accident could not be determined, the aircraft

was carrying large quantities of lithium batteries, many of which were not properly packed. Following the LE West conviction, the CAA said it was vital for airfreight shippers to follow the dangerous goods rules and anyone who fails to do so can expect to be prosecuted. LE West has committed to improving staff training and management oversight. The conviction is the second in almost as many months as aircraft component supplier Burwood Aviation Supplies was convicted in January for sending an incorrectly packaged oxygen generator by air to the US in April 2013 (Air Cargo Week, 3 February 2014). Burwood received a fine of £5,000 ($8,285) and costs of £2,164. The oxygen generator, which is used to provide emergency oxygen on flights, was being transported by FedEx from Stansted Airport to a company in Kansas for maintenance. Following that conviction, the CAA also called on all organisations which ship dangerous goods to follow procedures. Like lithium batteries, chemical generators have also caused fatal crashes.

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Aeroflot results down 13% Russian carrier Aeroflot announced cargo revenues down 13.5 per cent year-on-year, in its 2013 financial results. The drop is due to its decision to discontinue its dedicated freighter fleet, says the carrier. However, the drop in cargo revenues was offset by an 18 per cent increase in passenger business, which left the Aeroflot Group’s revenue up 15 per cent overall at 291 billion roubles ($203.3 million). Fuel costs rose 11.2 per cent on the year to 79.1 billion roubles as a result of the increase in passenger traffic, a bigger fleet and new destinations. Fuel costs grew more slowly than traffic revenue, which was 16.4 per cent. Operating costs excluding aircraft fuel, staff costs and depreciation and amortisation grew 9.9 per cent year-on-year to 133.4 billion roubles, mainly due to expansion of the business. Staff costs increased 17.4 per cent to 45.3 billion roubles. On 5 March, Aeroflot took delivery of a new Airbus A320 fitted with aerodynamic Sharklets wing tips that reduce fuel consumption by up to four per cent.


TEMPERATURE SENSITIVE REPORT

High demand, rising red tape troubles pharma

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combination of trends is driving the development of ever more specialised air cargo services targeted at temperature sensitive pharmaceutical and life science traffic. Key influences, according to Brian Kohr, president and chief executive officr (CEO) of CSafe Global, include, “globalisation, demographic changes, economic improvements, logistical challenges, regulatory pressures, industry consolidation and new complex products”. Another influence is the particular needs of pharma and life science products which airfreight can only begin to meet. Bart Pouwels, business development director cargo for Amsterdam Airport Schiphol, says: “Where other industry market sectors have matured and now use more ocean freight, and JIT (just in time) is no longer the preferred international distribution model even for high-value consumer electronics; pharma/life science is a vital new opportunity which the air cargo industry cannot afford to miss.” That interest is being further encouraged by the fact that the geographical scope of such opportunities is increasingly extending beyond the historically dominant export markets of Europe and North America. As Franco Nanna, Cargolux’s head of management network support, puts it, “prospects for further, continuing, growth in the market are good.

The new middle classes

As middle class populations around the world expand, so does the number of people who can afford to pay for more expensive pharma. So life science products will continue to increase and that will, in turn, generate potentially more air cargo traffic. They also want an increasingly varied mix of medicines to be available. “Nowadays, more generic drugs are being produced in Asia. India, for example, is a growing exporter of pharmaceuticals,” points out Jack Lo, manager in charge of products for Cathay Pacific Cargo. Not only generic drugs, but for transportation there is a new challenge for logistics. As Eyal Zagagi, Cargo Air Lines CEO, explains that biological medicines and pharma companies are developing drugs that are more sensitive. “For example, certain medicines, such as biological drugs, are more sensitive, not only to time and temperature, but also to shock and vibration and must be segregated from dangerous goods, live animals etc.” That an expanding global market and greater mix of products are not the only aspects of pharma to be noticed. This sector also weathered the worst of the recession quite well. Stavros Evangelakakis, Cargolux’s manager for sales in Europe, Middle East and Central Asia, has noted the relatively stable nature of pharma

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ACW 17 march 2014

commerce. “When the air cargo business in general was slowing down, a lot of people identified the healthcare sector as one which remained unaffected by the [financial] crisis.”

The growth of regulations

However, despite this stable and growing demand, the regulatory requirements are getting ever more stringent and complex. “The pharma business is highly regulated and in our daily business we see a lot of audits by shippers and forwarders,” explains Jörg Bodenröder, director of temperature sensitive shipments for Lufthansa Cargo. The regulatory issue was highlighted late last year, for example, when a new version of the European Union’s (EU) guidelines on Good Distribution Practice (GDP) for medicinal products was officially adopted. “Since those new regulations came into effect, there has been a spike in interest, looking at how they [companies] could become GDP compliant,” comments Tony Wright, CEO of Exelsius, a healthcare cold chain logistics consultancy, education and research provider. Beyond changing European red tape, an even bigger challenge for logistics providers handling pharma and life science traffic worldwide is a continuing variation in regulatory requirements. “People in Europe may be talking about the requirements of the latest EU GDP regulations but it is not just that issue we have to care about,” says Bodenröder. “We have to look at the requirements of more than 30 different regulations worldwide.” Wright adds that the regulatory picture has been further complicated over the last couple of years by the implementation in certain countries, for example in the Middle East, of an additional layer of national standards. “So it is getting tougher, the bar is being raised all the time,” he says. Technology is being used to meet those ever more stringent requirements. Temperature controlled containers, wireless temperature tracking and communication systems continuously transmitting all help. Dealing with greater volumes of any product is a trial by itself and adding greater scrutiny to that complex situation is the industry’s challenge.

Kohr Globalisation, demographic changes, economic improvement.


TEMPERATURE SENSITIVE REPORT

Spring time for fresh produce market

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recent seasonal surge in fresh cut flower shipments has highlighted the continuing importance of temperature sensitive fresh produce traffic for many airlines and other air cargo industry players. Air France-KLM-Martinair Cargo, for example, reported it had put on extra freight capacity, including freighter charter flights, to transport flowers from East Africa and South America to Europe for Valentine’s Day on 14 February and International Women’s Day on 8 March. The significance of fresh produce for the global air cargo industry extends way beyond just seasonal shipments of cut flowers, though. DB Schenker Logistics, for instance, highlighted its focus on other sectors of that market with a presentation at February 2014’s Fruit Logistica, the international trade fair for fruit and vegetable marketing in Berlin. “Our presence at Fruit Logistica demonstrated that fresh produce is a really important market for us, and one where we expect to see continuing growth,” confirms Verena Dörner, director operational competence centre, global airfreight, Schenker. Her responsibilities include the group’s airfreight solution for perishable fruit, vegetables, cut flowers and sea food. As an example of the scale of the company’s existing business in that sector, which includes both air and ocean freight traffic, DB Schenker adds that it annually handles some 2,400 tonnes of flowers and fruit from Kenya alone into Europe via the Netherlands, which the firm claims is equivalent to about 40 Boeing 777 freighters a year. Another company dealing a great deal with Africa is Israeli allcargo airline, Cargo Air Lines, or C.A.L. It has been transporting fruit and vegetables during its 37 year history. Its chief executive officer Eyal Zagagi tells Air Cargo Week: “The growth of the African market is very important to us. We have interline agreements with many partners of ours. That means cargo could continue to Asia from Europe after coming from Africa.”

towards wider implementation of shipment tracking and temperature, atmosphere monitoring technology, a point confirmed by Lo. “Some customers are considering making use of wireless sensor technology and Cathay Pacific has approved a number of such systems with the ability to provide close to real-time temperature and humidity tracking for use on its aircraft,” he states. In Lo’s view such technology is still expensive in the context of use with perishables and only when it is cheaper will it be used more widely. However, while many of the efforts to improve the quality of air cargo services for fresh produce revolve around the implementation of new technology, some more basic challenges remain. One example is outlined by Franco Nanna, head of management network support for Cargolux which has long been involved in the transportation of a wide range of fresh produce, notably from Africa and South America into Europe. “We are constantly talking with our customers about issues such as the best way to build up a pallet for particular types of fresh produce because different commodities have different requirements,” he explains. Bart Pouwels, business development director cargo for Amsterdam Airport Schiphol, suggests that there is a growing

awareness of the need to preserve temperatures and speed up handling. “In some of the producer markets, growers and handlers are on a steep learning curve, gaining knowledge and experience in better packing and the required resources for handling.” C.A.L also places an emphasis on swift movement. As Zagagi NaNNa explains, one of the advantages We are constantly of being an all-cargo operator is talking to our that the fleet is parked in front customers. of our warehouse so exposure of temperature sensitive shipments to the tarmac is minimal. The growth in temperature sensitive cargo is clearly not going to slow down and that need for speedy movement of perishables may have to be matched by management action.

Range of sensitive cargo rises

Further evidence of the wide range of temperature sensitive produce moved by air is provided by Cathay Pacific Cargo whose products include a service specifically catering for perishable cargos ranging from sea food to flowers. “We also offer active container solutions for perishables requiring a fixed temperature,” comments Jack Lo, the carrier’s manager in charge of products. “For example, we ship coconut milk from Sri Lanka to Los Angeles which needs a minus 20 Celsius temperature for the whole journey.” Coupled with a continuing general increase in fresh produce, air cargo traffic around the world is finding ever more stringent demands from customers, particularly larger retailers, for higher quality produce with a longer shelf life. Dörner has found that the general requirements for shipping fresh produce by air are becoming increasingly similar to those associated with the movement of pharmaceutical and life science products. “Expert knowledge is becoming as mandatory for the shipment of fresh produce as it is for pharma and life science business,” she states. The temperature of a shipment must be maintained according to the customer’s requirements throughout the whole supply chain. That means there is a requirement for experts to handle the produce correctly at the point of origin, in transit and at destination. In line with that trend, the fresh produce sector is also moving

ACW 17 MARCH 2014

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