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   Vol. 15  No. 60
Monday August 8, 2016

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Business Up Rates Challenged

     Drewry’s latest reading of air freight markets was released a little late this month. But its final contents were surprisingly upbeat after a year of bearish pricing reports set to a backdrop of excess bellyhold capacity and poor macroeconomic demand forecasts.
     Drewry’s East-West Air Freight Price Index - a weighted average of all-in airfreight "buy rates" paid by forwarders to airlines for standard deferred airport-to-airport airfreight services on 21 major East-West routes for cargoes above 1,000 kg - posted a 4.3 points gain in June to reach 84.8, the index’s highest reading since December 2015.
Andrew Herdman     The pricing surge also chimed with upbeat news from the Association of Asia Pacific Airlines and IATA. AAPA member airlines saw a 4.1% year-on-year increase in freight ton kilometer demand in June – the first growth recorded since the start of the year – while IATA noted a 4.3% boost to global air freight demand compared to a year earlier.
     However, it is worth noting that the June 2016 reading from Drewry still only equates to an average rate of $2.75 per kg, significantly down from the 12-month high of $3.22 reached in November last year. Andrew Herdman, AAPA Director General, also noted that that in the first six months of 2016 international air cargo demand was “subdued,” with overall volumes down 2.5% year-on-year, although he added that “the uptick in the June figures is mildly encouraging.”
     Drewry expects airfreight pricing to remain under pressure through the Northern Hemisphere summer season as more passenger aircraft are brought into service to support the peak tourist season.
     “Throughout this period, carrier attempts to pass on higher fuel costs will become increasingly tested, as freight capacity continues to expand at a faster pace than cargo demand,” said the analyst.
     This fits with the more general industry view. One leading logistics technology supply company executive reported demand from 3PLs in Asia as “slow,” while those with significant air freight businesses “were under pressure to cut any additional expenditure, even on new technology that can improve margins.”
     One forwarder told FlyingTypers that “there isn’t much to get excited about in the air cargo market at least for the rest of 2016.”
     However, there is hope that the June figures could prove a harbinger of better news. After months of poor purchasing manager index reports, not least from Asia where new export orders have been particularly worrying, early summer has seen a definite upturn.
James Pomeroy     HSBC’s global manufacturing PMI reached its highest level since November 2015 in July, when the Chinese manufacturing PMI rose back to 50 and export order data also improved from key producing countries. “Globally, the manufacturing sector appears to be over the worst,” said James Pomeroy, global economist. “The global headline PMI index rose to 51.0 in July, the highest level since last November and the third consecutive improvement.”
     He said that across Asia things looked a little better for manufacturers, with improving new export orders in Taiwan and Korea supporting headline indices. “The Japanese manufacturing PMI ticked up but remained below 50, at 49.3,” he added.
     Frederic NeumannHowever, Frederic Neumann, Co-Head of Asian Economic Research at HSBC, doused expectations by noting that new export orders last month had largely “cooled,” although acceleration in Taiwan and Korea - major producers of electronics that are air freighted - suggested “the tech cycle is perking up, presumably due to the launch of a new smartphone this fall.”
     Tony Tyler, IATA’s Director General and CEO, said the June upturn should be put into context. “We cannot read too much into one month’s performance,” he said. “Air cargo markets have been in the doldrums for several years during which there were several false starts on indications for improvement.”
     Never one to miss an opportunity to dampen expectations, Tyler warned that the air freight business environment remained “fragile.” global economic growth was “sluggish,” world trade volumes continued to trend downwards, and “the industry faces heightened uncertainty in the aftermath of the Brexit vote.”

chuckles for August 8, 2016

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Pride of the nation . . . we have noticed this delicious graphic streaming along with messages from our friends and colleagues at Turkish Airlines. Works for us . . .

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Letter To Lufthansa

Dear Lufthansa Cargo,

     Firstly, we hope that all is well and that after a long gray period of time the sunshine is over your heads at your Frankfurt home.
     Although we have not been invited to any of your press briefings in 2016, we follow your progress in German-owned media, including Handelsblatt, DVZ, and in the German-owned Air Cargo News publication in London, and certainly from our sources both in Germany and around the world.
     Of course, just like all other airlines you want to increase yields, but one thing we have learned covering this beat is often that attempt can end up have the net effect of shooting yourself through the foot.
     It is a fact that Lufthansa Cargo volume has decreased every year since 2012 and the simple reason for that action is that your rates have not been competitive in the market.
     Now we understand that you have been experiencing a big increase in air cargo volume since earlier this year as your rates have dropped substantially.
     Well, now, elsewhere comes change.
     Some airlines have just announced that they want to increase their rates by 10 cents to support better yields.
     But, let’s wait and see.
     If others do not follow they will most likely experience continued increase in yield but drop in volume.
     Unfortunately, the constant here is that a drop in volume eventually outruns a gain in yield.
     One thing we are certain will never work is high yield and high volume.
     If you can increase Lufthansa Cargo yield with that newly announced product called myAirCargo service, mazeltov!
     But that remains to be seen.
     myAirCargo service is available immediately, between almost all European countries and the USA, and plans in the coming months to extend the offer to countless other countries.
     Speaking of myAirCargo, as that sevice appears available in addition to consumers, also to passengers, our question is how many passengers will carry items that are too big or too heavy for the cabin?
     One thing is certain. Passengers have paid excess baggage charges in the past to get their stuff on the same flight.
     If they can now use cargo rates it does create additional revenue on the cargo side, but won’t revenue be lost on the passenger side (and most probably more than is gained by cargo)?
     Will more passengers bring additional baggage/items?
     We doubt that.
     Will they have more guys with their chopper bikes rolling down Route 66?
     Sorry, but we doubt that as well.
     We note that the fine and always helpful Andreas Pauker of Lufthansa PR declared that myAirCargo will be an easy process and the passenger only has to enter dimensions and weight and will immediately receive the price for transportation.
     Andreas also assures that the procedure is transparent and much less complicated than handling via a local forwarder.
     In fact, for all intents and purposes, the claim is that LH is taking care of the whole chain, including customs.
     But Mr. Paulker also says that LH will utilize contracted forwarders for the handling to and from the airport.
     Our question is what rate are they quoting when I have a huge toolbox of 75kgs and I fly from Frankfurt to Hong Kong?
     What about pick up from my home?
     When will Lufthansa do the packing?
     How will they direct delivery in Hong Kong if I still have to book my hotel?
     How much will all of this cost and come to think of it, what about customs, etc?
     Let us step back a bit and see how all of this works if, as advertised, the service is rolled out this summer.
     We will also report how well the contracted forwarders are doing with this new model, which, as one industry wag said with a smile, will most probably be “a pain in the neck.”
     As is said around the Arend and FlyingTypers family every time something new is on the horizon:  Break a Leg!

Our very best wishes,

Nils Haupt and Geoff ArendP.S. About those Lufthansa Cargo Press Conferences . . . In the modern era, Nils Haupt (pictured here with myself) and later Matthias Eberle hosted the most wonderful and expansive press conferences in air cargo.
     Wonderful because the gatherings were always business and also social, allowing for the Fourth Estate to gather, ask questions, learn something, and later talk amongst each other in a completely relaxed setting. Lufthansa Cargo made the press conference work and in our minds made the media better.
     Today the air cargo press conference is for all intents and purposes a dead duck, with the exception of the trade show and on the rare occasion when a carrier wants to show off something, for example as Qatar Airways did about six months ago, and after that, when we all went to see Emirates SkyCargo’s big operation at Dubai World Central.
     That’s too bad.
     And yes, while scolding Lufthansa gently here, we hope they and others pick up the air cargo press conference tradition again sometime soon.
     Give and take can open new doors.

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LUfthansa Cargo's Long Hot Summer

     Ever since she was a little girl, Nisha Dhankar wanted to fly.
      In the early days, she used to look up at the birds in the sky and wanted to be like them. But as she grew older, Dhankar had to adapt herself to the changing realities.
      Though circumstances prevented her from flying, she could still have something to do with aviation.
      “I was always excited to join aviation and its related businesses and at the first available opportunity grabbed the air cargo industry,” she told ACNFT
      She has never regretted her decision and seven years later as Cargo Manager with European Cargo Services (ECS), the young lady looks out for challenges in the business every day.
      Dhankar would like to see more ladies like her step into the air cargo business.
      She admits disappointment that the “number of women working at the top levels in the cargo industry is far fewer by a wide margin than the number of men.
      ‘This situation exists despite the fact that women have what it takes to face the unique challenges of the cargo industry every day.
      “There is a great need,” she said, “for women in leadership roles throughout our industry.”

Time To Elevate Women

      “Elevating women up where they belong would help close the gap and help more females enter the logistics industry.
      “My seven-year stint,” she said, “taught me various business modules.”
      Even as we were speaking, Dhankar was preparing to gain more knowledge about the intricacies of the air cargo trade.
      “I do understand the nitty-gritty to handle perishable and dangerous goods.
      “Gaining experience is an ongoing process for me,” she said.
      “I am planning to go on a Dangerous Goods training program very soon as this is an important part of our industry today.
      “It will enhance my knowledge about these particular goods.”

Hello Delhi

      Unfazed by the difficulties of working in an environment that often has to brave harsh weather—the sweltering heat and the bitter cold of Delhi—the young lady pointed out that “the major challenge for a professional like me is to maintain good business relationships.” 
      She was quick to point out that while cementing relationships was one thing, the commercials and the bottom line of the business had to be kept in mind always.
      “We all work in a highly competitive world with wafer-thin margins leaving us little scope to maintain flexibility.”
      “Regular sales counseling helps us maintain ongoing business with our customers,” she said       

What Really Matters

      “What matters at the end of the day is how you solve any problem with your people management skills or how you tackle a situation.” 
      She has seen a lot of changes in the years she has spent in the industry but what has struck her most was the fact that “the system is now much more transparent today. “Customer service is much more valued than it was earlier where the airlines and air freight companies used to take the customers for granted.
      “This was because competition has increased over time due to the entrance of many players.”
      She pointed out that today reports are shared for all the loads handled by the whole team and that never used to be a practice earlier.
      In her few years, Dhankar has seen a whole range of regulations and standards coming in and she said these were “helping to maintain discipline. International standards at par with some of the developed countries also bring a lot of challenges along with them, which could temporarily post a slowdown in the business.”
      But that did not worry her at all since “India has been a major player among the BRICS (Brazil, Russia, India, China, and South Africa) nations… Business movements can certainly not get stalled due to standard regulations and enhanced standards,” she emphasized. 
Tirthankar Ghosh

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