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   Vol. 15  No. 46
Wednesday June 15, 2016

Kuehner Panalpina End To End

With structural overcapacity the ‘new normal’ and airlines continuing to add point-to-point capacity to meet rising passenger demand, forwarders are understandably seeking out profits wherever they can find them.

Kuehner Panalpina End To End
     Panalpina takes a holistic approach to supply chain solution provision and, according to Lucas Kuehner, global head of air freight, this approach naturally lends itself to revenue generation at each stage of the transport and facilitation process, even when airport-to-airport freight rates are in the doldrums.
     “We are an end-to-end provider,” Kuehner told FlyingTypers. “Even our slogan makes this clear. As it says, we have ‘a passion for solutions.’
     “Whether it’s port to port or airport to airport, getting cargo from one continent to another is not the difficult part. Transit may be four days but the flying time is a minority of this. In other words, the real difference is made on the ground. We create added value for our customers by giving them access to the best people, processes, and technology so that quality is assured and time won on the ground.      “It’s about cargo handling, real-time visibility, organizing customs, pre-carriage documents, and doing everything possible to smooth clearance. That’s what forwarders do and that’s how they make a profit.
     “With so much overcapacity the airlines are struggling most, but they are also fuelling growth because of their passenger operations. They all treat cargo differently, but in general they try to fill their planes and that’s not easy in a market that’s not growing.”
““Panalpina takes a markedly different approach to many of its rivals, not least by operating its own charter network. But the forwarder is still predominantly non asset-based. “For a service company, it makes no sense to provide any service at a loss,” explained Kuehner. “Air freight margins are not huge. They are generated from consolidation of cargo at different points, so we strive for critical mass. We process shipments in a productive way, consolidate cargo on the ground before we move to gateways, then in the gateways we also consolidate cargo and hand it to airlines in the most cost effective way while also meeting the transit times of clients all along the way. Forwarders are experts at this. It’s the same at the other end of the chain when we deconsolidate—we make the process as smooth as possible.
     “The role of the freight forwarder and the value we bring to the industry often gets pushed to the wayside. We are the ones with the contacts. We route the cargo flows we control on behalf of shippers in a way that optimizes the space of carriers much better than they can do themselves. We take waste out of the supply chain.”
     Panalpina’s air freight operation incorporates an extensive charter network, which the company views as a major differentiator from its forwarding rivals. The network, which was first set-up in 1990, accounts for some 15 percent of company air freight volumes. Panalpina currently wet-leases a Boeing 747-8 freighter from Atlas Air that makes direct calls at five airports—Luxembourg (LUX), Huntsville (HSV), Mexico City (MEX), Guadalajara (GDL), and Stansted (STN)—chosen in part because they are congestion free and offer fast turnarounds and reduced risk of delay. Additional services using scheduled charter capacity offer links to Shanghai Pudong, Baku, Hong Kong, and Viracopos International Airport in São Paulo on a scheduled basis, and multiple other destination on an ad hoc basis.
     “We now operate more than 1,000 scheduled charter flights a year using several partners, and our ad hoc customers requiring a charter flight also benefit from this. They can often avoid paying higher ad hoc rates because we can offer them a part charter on one of our scheduled flights,” said Kuehner.
     He explained that using leased and chartered aircraft enabled Panalpina to offer customers guaranteed capacity, as well as better quality control when handling sensitive cargoes such as pharma or perishable products.
     “It’s a unique model,” he said. “In this market we are more like an integrated freight forwarder, so it’s different to the rest of our business. It gives us cargo overflow and allows us to optimize our capacity between our own long-term capacity and what’s available in the market. But the real benefit for the shipper is on the ground. We control the ground processes so we know exactly how quickly cargo can be moved into the aircraft, and for special cargoes, say for example if we see a temperature excursion, we can act immediately to protect the cargo. This cannot be done if the cargo is with a ground handling agent, or on a trolley going around the airport. We also typically do this in airports focused on cargo not passengers, so the distance between truck door and the plane is usually around 100 meters, compared with a major hub where it could be about 2-3 km. This gives us full control of the supply chain for our clients.”
     The Swiss forwarder’s first quarter results revealed its air freight strategy is proving effective. Volumes were up 5 percent year-on-year and Kuehner expects growth to continue at a similar rate for the rest of the year. “We expect increased tonnage throughout 2016,” he said. “We are quite encouraged. Last year was tough with the downturn in oil and gas but that’s looking better this year and we’ve also diversified into perishables, which has been successful.”
     However, although he expects to see Panalpina growing this year, he is fairly bearish over the future of the global economy and world trade.
     “The story of decreased demand and increased capacity has been constant for the last 2-3 years and I don’t see that changing this year or even in 2017,” he said. “There is an overhang of 5-10 percent capacity growth versus demand, and that puts pressure on margins for all in the industry. It’s a fact that we all have to live with.
     “I don’t see a huge uptake in economic growth and trade, so this is the new normal. There are no huge product launches that will transform the market this year and the world economy is not in great shape. Although it’s not terrible either, it’s humming along, so the challenge is finding a margin.
     “For shippers this is good news as they benefit from reduced costs. Reduced fuel prices last year also helped and the cost of air cargo fell significantly.
     “For the industry the current market is an incentive to work on the quality of the product in the eyes of the shipper so that we can meet their expectations.”

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