Vol. 11 No. 80                                                                                                          Tuesday August 21, 2012

 

     Well, it turns out that “Dog Days” no longer solely refer to that time of summer in the northern climes when the August heat and dwindling daylight signal that autumn will soon tell the swallows it’s time to fly.
     Faltering demand and excess supply could see air freight rates remain bearish for an extended period, according to analysts.
     “We expect the market to remain weak for some time to come, driven primarily by the deteriorating global economic environment,” said Martin Dixon, research manager for freight rate benchmarking at Drewry Supply Chain Advisors.
     The slumbering U.S. economy, slowing GDP growth in China and India, and Europe’s never ending debt farce continue to cast ominous shadows over cargo demand expectations.
     “Economic recession in Europe is having a major impact on airfreight demand, particularly out of Asia, and this is severely impacting freight rates,” said Dixon.
     Transpacific lanes have offered little respite for beleaguered airlines. “Rates from Asia to North America have fallen notably since March/April, driven by weak demand and an insufficient check on capacity growth,” he said.
     Last year’s trend of growing exports from Europe to Asia, which delivered some back haul value to carriers on trans-continental lanes, has also slowed in 2012.
     “Export volumes out of Europe have been under pressure this year, despite the currency advantages of a weakened Euro,” he said. “Slowing demand growth in Asia is clearly a factor.”
     Since receiving a boost from huge product launches by Samsung and Apple in March and April that saw demand spike, air cargo markets have collapsed. In June, Drewry’s Airfreight Price Index, which averages rates across high volume Asia- to Europe and North America trades, fell to its lowest level since the dog days of August 2009, when the global economy was recessionary. Average rates are almost a fifth lower now than they were a year ago.
     Rising passenger numbers have exacerbated sluggish demand for electronics and retail goods on major trans-continental trades, with the additional wide-bodied aircraft confounding efforts by carriers to bolster freight returns by cutting capacity.
     “Buoyant passenger growth has exasperated this situation by adding to bellyhold cargo space,” said Dixon.
     The air cargo industry saw a 2.6 percent year-over-year decline in freight tonne kilometers flown in the first half of the year, but capacity increased by 2.1 percent, according to figures from IATA. Strong freight growth in demand from Africa and the Middle East in the period was offset by contractions on all other major international lanes.
     Asia Pacific airlines, which typically rely more heavily on freight revenues than counterparts in Europe and the U.S., saw an 8.7 percent increase in passenger numbers year-on-year in the first six months of 2012. But air cargo markets remained depressed, with demand measured in freight tonne kilometers falling 4.3 percent in the first half of the year compared to a year earlier.
     “Although passenger demand has held up well, weak air cargo demand has undermined overall revenue growth, whilst cost pressures from high fuel prices squeezed already thin margins,” said Andrew Herdman, Director General of the Association of Asia Pacific Airlines.
     The demise of all freight carriers such as Jade Cargo, and major freight capacity cuts by leading carriers such as Cathay Pacific, Singapore Airlines, and Korean Air Cargo, have eased pressure on Asian freight markets. Even so, Asia Pacific capacity measured in available freight tonne kilometers contracted by just 2.6 percent in the first half of this year.
     “There has been some freighter capacity correction with the exit of the likes of Jade,” said Dixon. “Also, several flag carriers have parked up some freighter capacity. But the challenge remains the stronger passenger market, for the moment at least, where rising wide-bodied capacity is adding to the available cargo space.”
     Dixon said there was little respite likely to come from retail demand in the months ahead, although the Christmas run-up would offer some relief.
     “I am not aware of any significant product launches that might help boost demand over the coming months, but one would expect some pick up at the end of the year for peak season.”
     Indeed, although Drewry expects some short-term price recovery, the analyst predicts freight rates will remain weak for the foreseeable future, with weak demand and excess capacity continuing to anchor prices at low levels.
SkyKing

 

     In a world where “what have you done for me lately” is a mantra to many, high-flying Turkish Airways Cargo has racked up some impressive achievements in just Summer 2012 alone.
     The season began with the carrier’s launch of an impressive new regional headquarters operation in Frankfurt, Germany, for central and southern Europe.
That early June development was followed closely with the launch of new freighter services into Minsk and Vienna.
     Looking eastward, Turkish Cargo moved to establish an over the road truck network in China that began on June 22 and was brought to the fore at the recent Air Cargo China trade show, where Turkish Cargo held sway at the event.
     Most recently, as part of its close contact with markets both old and new, the IST-based carrier arranged a meeting with forwarders, GSAs, and handling firms in Vienna.
     No big deal, you say? Well, the ‘getting to know you’ opus event in Vienna was also attended by the Austrian Ambassador!
     So little wonder that when the World Cargo Symposium brought its annual, mandated, global cargo community dog & pony show to Istanbul in early 2011, dynamic Turkish Airlines took center stage.
     Before that event, which, among things, was memorable because it snowed—a rarity for IST—and almost monthly ever since, the flag carrier has continued an almost unbroken string of success upon success by moving into new markets whilst acting as the spark to generate Gateway Istanbul as a new center of the air cargo universe.
     And as mentioned at the top, the beat goes on.
     Turkish had just launched four-times-weekly service into Leipzig, a rising star of Eastern Germany, when we caught up with Ali Turk, the carrier’s top cargo executive.
     “When we look the figures and the international economic conditions for 2012, we can easily say that we have expected a difficult year for the air cargo sector.
     “But we still have cautious optimism for the second half of the year, so we are projecting to close 2012 with numbers moving upward as compared to 2011.
     “Turkey’s growing economy, both in terms of exports and imports and the geopolitical importance of Turkey, are a comparative advantage as we labor to achieve our targets.
     “We expect a more optimistic trend for 2013, as the current European situation brightens,” said Mr. Turk.
     “In terms of where growth is this year, the African continent offers great potential and we will continue to add services there.
     “As example, during the first quarter of 2012, the Turkish economy grew 11 percent on average in both imports and exports compared to the same period in 2011. But for Africa, that growth rate was an incredible 55 percent.
     “So, Africa is quite an important potential market for Turkish Cargo.”
     A quick look at any trade map underscores easily why shippers would want to utilize Turkish Air Cargo—location alone makes it a smart choice.
     Notwithstanding timing and location, Turkish Cargo also carries a positive buzz in the market place as customer-savvy, doing the utmost to ensure customer satisfaction.


Do I hear a waltz? Turkish Cargo expanded the dialogue amongst the principles in Vienna, one of its newest freighter markets last month.

     “Seventy percent of intercontinental business, both for passenger and cargo side, mainly European-Asia Pacific, is based on Turkey’s geographical location.
     “It’s on the traditional Silk Route.
     “Turkish Airlines leverages location with the sixth largest global airline network, offering shippers the ability to reach more than 200 international destinations.
     “In a competitive and fragile international air cargo market where business competes for the customers, customer satisfaction becomes a key element of our business strategy.
     “The primary focus of Turkish Cargo is to achieve maximum customer satisfaction and to deliver a 'customer-oriented approach’ as a standard of our quality policy.
     “To achieve this end, we have constantly examined our quality standard, renovating our operational procedures to deliver a shipment process that is both transparent all around, and fast.
     “For example, one objective to keep things simpler for our customers was a renovation of our website www.turkishcargo.com.tr to offer the easiest way to monitor every step of shipments aboard Turkish Cargo.
     “Moreover, Turkish Cargo has participated in Cargo 2000 to increase its performance operationally and to meet customer expectations for higher service quality. Thus, we target the sustainable growth with an ever-widening flight network and cargo capacity by increasing our share in global air cargo market.
     “We re-engineered transportation processes from the shipper to consignee, considering the agreed applicable standards on the assistance of our IT department.
     “When we look in general, we provide a service quality above the sector level to our customers. But we have a primary vision to maintain sustainable quality and operational excellence in our services.
     “In order to achieve this, Turkish Cargo make continuous investments in IT and in infrastructures.
     “Recently we launched an operational optimization process while rejuvenating all the existing systems in our warehouse in IST, and also adapting our internal IT system to latest business processes.
     “We are aware that IT and infrastructure are significant issues, and we are in a tender process to fully change our IT structure, which we expect will be in full operation by 2014.”
     “Turkish Cargo offers the safest and fastest sender-to-recipient transport service for a wide variety of product lines: from textile to plastics; machines to aircraft parts; consolidated cargos to electronic materials; perishables to dangerous goods; live animals to valuable cargos.
     “Turkish is especially experienced with dangerous goods, having huge loads on these commodities every year.”
     In terms of the challenges air cargo faces, Mr. Turk has an interesting take not seen or heard from by many in the business today: the air cargo family might just be too small.
     “The airline business has an oligopolistic market character.
     “Added to that situation are restrictions from some countries that suppress growth.
     “Building a successful cargo business is also challenged by the amount of investments that must be made to enter new markets, and the small profit margins versus the time and money spent.”
     Ali Turk is no newcomer to the air cargo business. He has worked in the logistics sector for 14 years; before Turkish Cargo, he held many different positions related to logistics, in warehouse management and supply chain.
     “I think air cargo is still quite open to development,” he insists.
     “Turkish Cargo as a dynamic, mobile business is determined to be at the forefront of developing world trade, and as flag carrier for Turkey, we are leading the way.
     “Aside from all the rest, this business fits well with my personal character,” Mr. Turk smiled.
Geoffrey/Flossie

 

     Whenever an article appears in the trade press about the 'sea-air' concept, the people and companies interviewed are (let's be polite) not the front-runners in the field.
     The 'sea-air' mode of transport has a long and diverse history that has always been led by demand.
     It probably started with one-off movements to overcome a 'logistical' problem, (see the BBC series Diamonds in the Sky and a sea-air shipment into a mining camp in Papua New Guinea). It was used extensively on a more commercial basis when charter airlines into the Arabian Gulf looked for back loads and encouraged Indian exporters, short of airfreight capacity and always behind in delivery, to ship to such places as Dubai to give the airline some revenue for the return to Europe.
     The problem was that they could never balance the supply of their air capacity with the demand from shippers, so the service was never reliable.
     So in the development of Japanese exports and prior to wide-body freighters, there was a huge gulf between transit time and cost of ocean and airfreight from Japan to the European marketplace.
     Airlines like Air Canada and Seaboard World were heavily involved in taking delivery of traffic in Vancouver and Seattle, trucking to the east coast airports for flights into Europe.
     The problem again was in balancing supply with demand and also mixing ocean freight rating systems per cbm with airfreight rates per kilo.
     One forwarder, sadly now-defunct, exploited this by taking full control of the different rating systems and offering a through rate per kilo, and also controlling space by utilizing all possible airlines.
     This worked well but development of sea-air was limited as they were unable to sell effectively to other forwarders who distrusted their involvement in other forwarding functions of ocean, airfreight, and customs clearance.
     In one of FlyingTypers’ recent articles, Issa Baluch was featured; he knows as much as anyone about how the sea-air concept was developed by our mutual friend and former colleague, Manfred Kiel.
     Manfred saw the potential for sea-air and saw it could only be developed to its full extent if one or more companies were to specialize in this area.
     That company could then secure the trust of all forwarders whose clients had the potential to benefit from shipments of all sizes.
     That company rose to control a majority share of the market through Dubai and has done so since 1984.
     The driving forces behind the development of sea-air are European importers who need to control the delivery and costs of their stock from Asia.
     Asian shippers, whose demand for low rates (often at the expense of service) effectively kills the market, are not driving it. It is not driven by Dubai-based airlines or forwarding personnel as much as they might think.
     Sea-air services via Dubai operate as a pressure valve on the Asia/Europe trade route due to the ever-growing range of scheduled airlines and the ever-buoyant air charter market in the region.
     Yes, current sea-air tonnage through Dubai is down. It will change as and when the balance between air and ocean freight rates gets back to somewhere near its previous level.
     This can happen as airlines and shipping lines learn to more closely balance supply with demand, stabilize the markets, and get returns against their investment.
     With the availability of so many schedule airlines and a resilient air charter market in the region, FT will continue to investigate the market again in the future and speak to some 'specialists' for their comments.
     Your voice is most welcome.
Ted Braun

 

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