Vol. 11 No. 63                                                                                                            Monday July 2, 2012    

      We are sitting in the hotel at JFK, inside a newly renovated Hilton just off the main runways, right across from “The Conduit” (that’s what the locals call the roadway that separates the airport from a line up of high-rise hostelries).
      While it is nice to see one of these dowager lodgings get an update, it is even more stimulating to listen to an energetic young executive take a break from what appears to be a 24/7 effort building a global air cargo business.

     Muhammed Zulkarnain (Zul, pronounced Zool), leisure Cargo Director in the Americas, drops by between customer calls and proclaims his assignment is “going great”—he is making friends and partners for the Düsseldorf-based cargo resource by offering shippers “a solid alternative in the air transportation business.”       His assignment, which commenced last year, involves handling the Northeast USA south to Maryland (“we are opening up two flights a week for our Condor summer service from BWI to FRA July 3”), west to Ohio, and everything up north all across Canada.
      “The most important aspects of what we do is staying close to the customer, watching every movement, and letting the shipper know that we are on the case 24/7,” Zul assures.
      “In fact, the secret to success in air cargo today, if there is one, is fairly simple:
      “You have to maintain good relationships (with customers & employees alike), and also exercise control over your sales and service team as well.
      “It’s vital that your team is consistent with its message to customers, which also means that sometimes you have to be willing to admit that you don’t know everything and must adapt; then you will have it.”
      leisure Cargo in Düsseldorf, Germany, has a name that sounds like a contradiction in air cargo terms.
      Ralf Rainer Ausländer, who founded the company (a solid part of a growing Air Berlin) in January 1, 2000, remains uncomplicated and comfortably situate at the helm of an important resource for an impressive and growing list of carriers whose business is, in the first instance, LCC, and almost everywhere else, touristic-based.
      Keeping it simple has been job one since this long-time cargo executive decided to focus exclusively on a market segment completely overlooked by everybody else.
      In a nutshell, the leisure Cargo GmbH original idea is to provide the 18 carriers it represents with full logistical know-how, from sales and handling contracts to road feeder services, on a worldwide or regional basis.
      But where the rubber meets the road, leisure (quite a compact, lean operation) has placed some dynamic first-rate logistics market specialists.
      That’s where people such as Eric Fraenkel, who handles Latin America and was profiled here recently, and Zul come in.
      Zul is from Malaysia and is part of a growing mobile population of internationalists that seem to always be on a flight going somewhere.
      He notes that he spends about a third of the month in the USA looking after accounts and the growing leisure Cargo/Air Berlin and Air Europa footprint here.
      “We have just put a customer service specialist named Dan Genjo here in New York.
      “Our cargo into JFK for both Air Berlin and leisure Cargo partner carrier Air Europa is handled by China Airlines.
      “Dan will look after our business day to day, and of course the new Condor services into BWI as well.
      “Air Berlin A330-200s offer a daily flight with cargo lift and super fast connections from JFK to both DUS and BER.
      “Air Europa flies into New York seven times a week and their A330-200s can carry 18 tons of cargo.”
      For Zul, the USA post is a return of sorts; he lived in America during his college days, receiving his education at University of Buffalo before returning home to enter the family business. His father, Zainal Abidin Bin Abdul Kapur, is a well-known and much respected transportation specialist from Malaysia who had built ABDA Aviation Sdn Bhd into a major GSSA operation, serving Aeroflot Malaysian Air and others.
      ABDA has enjoyed a relationship with leisure dating back to when the company began, so the move for Zul into the business naturally evolved with his stationing in America.
      “Transportation is in my blood and as my education was gained, I suppose I learned as much from the teachings of my father as from anywhere else.
      “Looking at business, 2011 was quite a good year, but 2012 is turning out to be a very different picture.
      “Business was all right from January through April 2012, but was particularly lean in May and is recovering during this June period.
      “What that means to us goes along with what Ralf has often said.
      “We don’t have a crystal ball to predict what will drive world markets up or down, but we can control staying close to our customers, and offering our product on a straightforward basis at the best rate while keeping the process simple.
      “Because we are a tight-knit group at leisure, we can react to market conditions very quickly, and with flexibility and control.
      “We cut to the chase; you have cargo, we have lift, let’s work rates—forwarders appreciate that from us.
      “For my experience, it all comes down to price and relationships.”
      In addition to the USA and Canada, Zul also carries responsibilities as Group Director for all ABDA sales activities elsewhere in the world.
      “I cover several countries in the Middle East, India, and Pakistan, excluding Africa.
      “As a result of the solid relationship between leisure and ABDA, we teamed up to combine our services via Gateway Istanbul, which launched on June 29 at IST, with both Mr. Ralf and Mr. Zainul in attendance to kick things off.”
      Looking ahead, Team leisure Cargo is ramping up efforts to both attend and display at the TIACA Forum, set to be held this October in Atlanta, Georgia.
      “We are excited at the possibility of meeting the supply chain logistics people that will attend that event and have the benefit of getting to know us as well.
      “leisure is driven by a love of the business; we are young, agile and ready to grow with others,” Zul said.

Ocean Uplifts Air

     With air freight rates and volumes proving less than uplifting this year, European demand threatening to disappear down a Euro-sized hole, and fuel bills denting balance sheets, it’s getting rather difficult to convince air freight compadres that the outlook could, in fact, be even gloomier. But for those with a taste for schadenfreude, help is at hand from our shipping sector colleagues.
     Most operators at present are struggling with excess supply, which is pushing earnings near or below the breaking point—even before capex is taken into account. And the three major shipping segments—tanker, bulk carrier, and container—are all facing forecasts through 2014 which make the air freight sector seem positively uplifting.
     For example, the container market is only retaining a semblance of balance because lines have been able to implement disciplined capacity limitation strategies, such as super slow steaming and idling of vessels. But with Europe on its knees and a huge liner order book, any breaking of the ranks in search of market share seems certain to prompt another crash in rates. Indeed, most analysts are expecting spot rates to dive on major container trade lanes just as soon as demand tapers off post peak season, and certainly by Q4.
     The outlook for bulk carrier operators is, if anything, even worse, and illustrates just how ship owners and investors across the sectors have been the authors of their own fates.
     The Baltic Exchange Dry Index (BDI), which tracks freight rates across the entire bulk carrier sector, suffered an unprecedented plunge from a peak of 11,793 in May 2008 in the pre-Global Financial Crisis days to just 733 in late November of the same year, as the full extent of the banking sector’s liabilities became apparent and markets around the world fell off a rather high cliff.
     To put this decline in perspective, operators of capesize vessels saw daily charter rates collapse from over $250,000 per day in June 2008 to around $5,000 a day in early 2009.
     Since then, as the graph (BDI chart) shows, rates have been volatile. But this year the index has again been hovering only just above late 2008 lows and is showing precious few signs of recovery. Operators of panamax ships, vessels of 60,000-80,000 dwt, were reaping returns of around $80,000 per day in the spring to 2008, for example. In June this year that figure had fallen to just $7,000 per day, barely enough to cover operating costs, never mind capex.
     The problem is not one of weak demand—cargo volumes will rise again by some five percent this year, with demand from Asia boosting shipments of cargoes such as iron ore, steam coal, and petcoke. The reason why the market is destitute is the rather crazy pace of new ship deliveries, a result of the even crazier ordering splurge by owners and investors in the years since—yes, since—the 2008 crash.
     So far this year, more than 100 capesize vessels—the largest in the fleet and running in capacity from 80,000 to 400,000 dwt—have been delivered, and around 30 scrapped. The net gain in panamax vessels is more than 100.
     And this rush of new buildings will continue, fueled in part by greed at low prices for vessels, but also the desire to reduce operating costs by using more modern engines and cutting fuel usage. Some 400 panamax and 250 capesize ships will join the fleet this year. Another deluge of ships arrives next year as well.
     Ralph Lesczynski, head of research at Banchero Costa group, said the market would not recover for at least two years. “If you look at demand, it is growing at 5 percent this year for dry bulk, which is a good number historically,” he said. “But we have to face the fact that expansion of the fleet will be at least 10 percent this year, after 14 percent growth in capacity last year.
     “It will take some time before we can absorb this—maybe 2-3 years.”
     Peter Borup, Managing Director of dry bulk carrier operator Norden Asia, said the shipping’s difficulties were entirely self-induced.
     “There is a long tradition of owners shooting themselves in foot, knee, and then the groin for good measure,” he added.

     Here are the highlights of the latest nuptials:
      WFS and Aviapartner are “merging,” but it is clear that WFS has acquired Aviapartner.
      The French WFS is known as one of the biggest cargo handlers in the world, second only to Swissport, active at some 100 airports worldwide and with a turnover of €600 million Euro. It is also managing a sizeable passenger handling business in the U.S. and in Asia.
     Aviapartner is rather specialized in passenger handling at 26 European airports, mostly in Belgium, the Netherlands, and Germany.
      The new group aims for a turnover of €1 billion Euro, to employ 17,000 people and plans to maintain the use of both brand names. The president of the Aviapartner board, Laurent Levaux, stated, “this step was necessary as the increasing cost of IT and ramp handling equipment called for a scale increase.“ He went on to say “the new group will be well placed to respond to the 25 tenders which are due on EU airports. The fact that Aviapartner lost its concession at BRU has certainly sped things up… handling agents need to be worldwide players to respond to the increasing carrier alliances. He expects that within one to two years, only some four major handling groups will be active in the EU.“
     The unions are mildly in favor of the deal, hoping that in the long term it will even be favorable for the 1,200 Avia staff in Belgium and the 7,000 of the remainder EU staff. BIAC stated that the creation of the new group would not change the current legal situation: Avia can continue to work under their temporary license while waiting for the court's final decision. The Minister for Mobility, Mechior Wathelet, confirmed this statement.
     Our sources tell us that it is clear that BRU will have two major online handlers—Swissport and the Avia-WFS group with some smaller offline players.
     In other news, Brussels Airlines has been flying to JFK again since June 1, which may be a big mistake as they will be one of the six or so carriers offering daily flights to New York City, a situation that spells zero dollar for everyone operating on that route. They claim to differentiate themselves with better service—operating a refurbished A330! Plans are underway to add other U.S. East Coast destinations, such as BOS, if JFK is doing well. Why not keep doing what they are best at—a well-balanced EU network and the goldmine of Africa, and leave the rest to their LH parent? Is the Sabena story already forgotten after only a mere eleven years?
     Your move . . .
Ted Braun



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     That widely reported penalty imposed last week by the High Court in Auckland against Japan Airlines (JAL) (to pay a $2.3m penalty for price-fixing breaches of the Commerce Act) continues a case brought against 18 airlines in late 2008 by The New Zealand Commerce Commission.
     So far, the grand total in fines is $16.4 million, paid by four airlines: JAL, British Airways, Cargolux, and Qantas.
     $16.4 million is hardly nothing, but in the general scheme of things, it equals “chump change as compared to fines some carriers paid in USA and EU,” as one industry insider put it.
     JAL admitted liability in the commission's air cargo price fixing case for agreeing to fuel and security surcharges in Europe, the United States, and Asia for cargo flown to New Zealand, the commission said in a statement.
     JAL also admitted liability for cargo flown from New Zealand to Asia.
     But stay tuned for drama inside the High Court in Auckland, as the case is heard in March 2013 against defending airlines Air New Zealand, Cathay Pacific Airways, Emirates, Korean Air, Malaysian Airlines System, Singapore Airlines Cargo, Singapore Airlines, and Thai Airways International.
     Perhaps some may just decide to pay the two dollars at some point before next March?

     “According to IATA’s May 2012 figures, e-freight has gone live in 42 countries, at 429 airports, and with 46 airlines, as well as with 2,057 freight forwarders participating.
     “That looks pretty impressive.
     “So the question has to be raised: how has IATA achieved those figures?
     “The answer is rather simple—only e-AWBs are counted in the IATA statistics (in conjunction with pdf documents).
     “The e-AWB scheme can be compared with etix® in passenger traffic.
     “The sad conclusion reads: ‘We are still very much in the infancy of e-freight, despite all efforts by IATA, industry participants and customs authorities.’”
     Johannes Riege, President and Founder of Riege Software International at IATA Aviation Day Europe in Frankfurt last month.

A Cargo Salesman



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