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   Vol. 17 No. 9
Wednesday February 14, 2018

      As President Trump enters his second year, it’s time to reflect on the impact of his policies on the air cargo industry.
       No one can disagree that it has been a good year for all segments of the air cargo industry despite the typical Washington gridlock and opposition obstructionism.
       The U.S. economy is strong—U.S. GDP may increase by as much as 4 percent in 2018, fueled by high job growth, low unemployment, and raising salaries, allowing consumers to increase their spending.

Value Added America

      Because of the financial environment and some advantageous policy changes (most notably sizeable tax cuts in 2018), businesses—both foreign and domestic—are saying they see the U.S. as a good place for manufacturing. Now overseas money is flooding back into the U.S. economy and there appears to be a bump in domestic investment.
       Taken together with a more assertive trade policy, the U.S. has returned as a value-added manufacturer, and not just an exporter of raw resources and services.
       This has meant a boom for air cargo; one, I think, that is likely to continue so long as the U.S. dollar doesn’t appreciate against the Euro or other major currencies. 

Call For Scheduled All Cargo

      But despite all this good news, the U.S. is still missing a scheduled all-cargo international airline able to take on the non-U.S. scheduled freighters. Long gone are Seaboard World Airlines, Flying Tigers, and North West Orient freighters, and no U.S. passenger carrier is flying freighters like many of the foreign airlines do.
       But in this environment, it may only be a matter of time before U.S. scheduled cargo airlines return and take to the skies.
       The timing seems right with the growth in the commercial market and the DOD’s desire to preserve its military organic freighter life span.

Looking Into CRAF

       The Department of Defense maintains that ability through its Civil Reserve Air Fleet (CRAF) program, but it may have trouble doing that much longer. CRAF depends on the integrators’ and non-schedule U.S. airlines freighters (Charter Carriers) for its cargo movements. Since the latter are shifting more and more to long term aircraft leases to protect their profit structure, especially given the risk of increased labor costs (triggered by the shortage of pilots in the U.S.) coupled with an increase in leasing large freighter aircraft (triggered by Amazon’s entry into the market) and the military pallet interoperability issues of the B777 freighters purchased by FedEx, there may develop a problem in the DOD getting sufficient CRAF cargo lift.

Pilots In Short Supply

      The pilot shortage has exacerbated much of this. One cause of the pilot shortage is the FAA requirement for commercial U.S. pilots to hold 1,500 training hours, compared to only 250 hours in most other countries. U.S. carries are busy adjusting the effect of this policy, including large pay increases to its pilots, but a total durable solution will take time without policy changes, putting U.S. carries at a severe disadvantage compared to their foreign airlines competition. This requirement was put into effect for safety reasons, but comparing safety records across countries—as well as U.S. ridership on foreign carriers—it might not make sense to insist on requirements so far out of line with international standards, especially since many believe the policy change was a reaction to an incident that had little or nothing to do with pilot training hours.

The Trump Effect On Cargo 2018

      What can I predict for the air cargo industry for President Trump’s 2nd year in office? His pledge to improve American infrastructure, including airports, will surely help the airlines. He has also vowed to work on cyber security, effecting “free flight” that will reduce flight time and airline costs, which may potentially enable the large passenger hub and spoke carriers to add an additional bank of flights. Increased disposable income brought about through tax cuts, low unemployment, and salary increases will help more Americans afford vacations and increase consumer spending, boosting passenger volume and increasing demand for door-to-door parcel delivery and inventory management. Increase in domestic manufacturing will also spur demand for schedule airport-to-airport air freight, which will either move in passenger aircraft bellies or on non-U.S. freighters.

Air Cargo Step Up & Raise Your Voice

      The Trump effect has helped air cargo grow to record levels, but the industry cannot afford to be complacent. Airlines need to take an active part in developing the sector and support and encourage the U.S. Government to help solve problems. Carriers—individually and through industry groups—need to align their tactical plans to achieve the strategic plan for industry growth. These are the times when the airlines need to speak with one voice.
Bil Boesch

Bill BoeschMr. Boesch started his career in global transportation and logistics in 1965 working for Seaboard World Airlines. He later joined Flying Tiger Airlines and Emery Worldwide. Mr. Boesch then left Emery to become Pan American World Airways’ Senior Vice President where he headed both Passenger and Cargo Sales and Operations. He left Pan Am to lead American Airlines’ Cargo operation and retired from AA in 1998. Under his direction American became a world leader in the air cargo and logistics business.
     Mr. Boesch was part of the extensive on site planning and support of the Iraq drawdown, involvement with the Afghanistan operations, and has worked on all aspects of the Civil Reserve Air Fleet (CRAF) from both an airline and government standpoint.
     Mr. Boesch has also served as Chairman of the International Air Transport Association (IATA) Cargo Executive Subcommittee in 1996 and 1997, Vice Chairman of IATA’s Cargo Committee. Mr. Boesch served on the Board of Directors of Air Cargo Incorporated, Air Cargo International, The International Air Cargo Association (TIACA), Envirotainer, Cargo Logistics Solutions, Deutsche Post/DHL Global Mail, al Seqir and consulted for major U.S. companies including Flight Safety.
     Mr. Boesch is the recipient of numerous awards including the Lifetime Air Cargo Achievement Award, the Ellis Island Medal of Honor and various awards from the U.S. Department of Defense.
     Mr. Boesch is presently continuing his work for the U.S. Government and heads up The Council For Logistics Research.

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Chuckles For Feburary 26, 2014

      It is interesting to see the reaction from various parts of the industry as disrupters come and present new concepts in improving the market place.
      There is a fear of the unknown that takes over and everybody huddles down to resist the changes taking place rather than adapting to the new environment and looking for opportunities. The airfreight industry has traditionally been lagging behind.
      At the same time, our ocean cousins have been far ahead in embracing the evolutionary process.
      All you have to do is look at how far air cargo has come in digitization during the last thirteen years since e-Freight was introduced as a concept.
      Some have evolved, but they are generally held back because the majority of players haven’t moved forward!
      Unfortunately, the lowest common denominator tends to act as a drag and slows the industry from moving forward.
      If you boil it all down, before we work on process improvements, we need to work on mindset change.
      The relationships between the various players have to change for better transparency of processes, without any fear of being pushed out of the equation.
      The traditional “making a buck off of each other” has to disappear.


New Approach To Shippers

      Our new approach must embrace charging for services rendered as the order of the day. Freight forwarders seem to be the most sensitive to the issue of being cut off if there is direct interaction between the carriers and the shippers.
      The fact remains that forwarders have nothing to worry about in the airline partnership as they perform essential services.


Airlines Need Forwarders

      The reality is that a carrier does not really have the infrastructure to deal with the forwarder function.
      Pure business logic says airline core competencies are in creating distribution networks, domestic as well as trans-continental cross borders with very capital-intensive assets, highly perishable capacity, and very thin margins.


Maintaining Distribution Networks

      Airlines, in my experience, would rather keep their eye on the ball and optimize their operations to create a very cost effective and efficient distribution network. Airlines tend to operate in one of the most regulated arenas and are very sensitive to economic downturns.
      This applies to all modes of transportation. Unlike their passenger colleagues, cargo tends to be directional and empty sectors can be a killer on their operating economics. Then, on top of that, all you need is one diversion because of weather or any other reason, and that can punch a big hole in the bottom-line.


No Set Up For Logistics

      So, for all the above, airlines are unlikely to focus on creating a logistics network.
      Put another way, the air cargo business partnership is far better off letting the experts manage their specialties.
      The story is the same on the shipper side.
      To take on the infrastructure to effectively manage logistics in the supply chain is an expensive option, so in most cases shippers are likely to keep out-sourcing their logistics needs.
      Forwarders are able to create economies of scale from which the shippers can benefit.


Integrators: A Horse of a Different Color

      Integrators are different and will remain different, as they tend to create a global system of efficient first and last mile networks, operating their own aircraft on high-density routes and using other carriers on low-density routes.
      Integrators are basically a hybrid operation.
      The downside is that their costs tend to be extremely high.
      Integrators tend to be extremely good when dealing with small packages, but face challenges when dealing with complex logistics requirements.


The Sting

      Integrators have created their own forwarding subsidiaries that operate more on an autonomous basis because of the incompatibility with process requirements for small parcel express operations.
      Other carrier’s benefit from their business. The integrators are not really a threat to the traditional airline operations as was feared in the late eighties and nineties.

Reality Check

      Activities in the e-tail within the e-commerce business have changed the consumer behavior. It is the fastest growing segment of the air cargo industry and will remain so for the foreseeable future. The key to being a successful player in this space lies in the efficiency of your last mile delivery (LMD) capability.
      This where the forwarders and, nowadays, even the integrators are struggling. Forwarders LMD tend to be job based and integrators, schedule based.


Looking For A Nice Niche

      The likes of Amazon Prime now require flexible LMD with very short delivery periods.
      This poses challenges for both entities and this is where smaller localized LMD operators tend to find a nice niche.
      Focus is on the success rate of first attempt delivery.
      As the express business transcends from B2B to more B2C, it brings challenges to the operators. 
      This is where even integrators are subcontracting more and more to local operators in support of their own infrastructure, thus boosting and creating more opportunities in the local industry.


Smart Boxes

      Enter the era of smart ideas and new technology in the form of remote collection smart boxes, which are also becoming more integrated into the fabric of LMD.


Shippers Through The Looking Glass

      Shippers can be viewed as partially responsible for slowdowns in the process.
      Think abut it.
      Shippers always complain about lack of transparency whilst they are best placed to create transparency for themselves and share it with all that need to know the full status. They hold the master record, so all service providers have to just push their piece of information to this master and if this information is then shared with all, it will help in creating better process efficiency. Shippers are also reluctant to remunerate the forwarder and look for extended credit periods.
      The fact remains that with growing and booming e-commerce activity, many shippers get paid before the consumer receives the goods. 
      Hopefully, the newer generation growing up in a ‘pay as you buy’ atmosphere will be helpful in creating better cash flow in the system, and service providers (read airlines & forwarders) will get paid fairly and quickly for the services rendered.


Crunch Time & Agents of Change

      Now, here is the crunch.
      If the air cargo industry thinks that it can continue to operate the way it has previously as it moves into the future, they might not see the future.
      Market place is now very common in every segment of the industry, be it hospitality, air travel, or shopping.
      Folks like Expedia, Kayak, etc. have changed the way these industries operate. Amazon and Alibaba have changed the way consumers behave.
      It is only a matter of time before major change happens in air cargo industry.
      Folks like Freightos are bringing the market place concept to the freight market. Flexport is driving the development of virtual forwarder.
      TAC (The Air Cargo) Index is bringing in fresh transparency in market rates/pricing. So, resisting the change is only postponing the inevitable.
      My view is spending more time adapting to the new environment will be more beneficial than resisting this change, which in a worse case scenario could lead to extinction.

Information, For Instance

      The new generation is now accustomed to instant information and services.
      They are not going to wait for days to get a rate quotation when it will be readily available in the likes of Freightos’ market place, which will give them one price for all the services they want within moments… and with a choice of service providers, probably with price comparisons.

Wake Up Call

      The industry should pay attention to the evolution of technologies, like 3-D printing, and geo-political aspects of on shoring and near shoring, which will change the way traditional supply chain operations work.
      The good news is that driven by the e-commerce activities, air cargo will continue to be a growing market.
      The new market place is going to create greater market access and volumes are likely to grow bigger as everyone will have access to the industry. Shipping goods will no longer be a cumbersome activity for Joe Blog.
      This in itself will be a great catalyst in growing the market place.
      So, it is time to deal with reality and join the evolutionary process.
Ram Menen

     Ram Menen, one of the original founding team of Emirates Airline, headed its cargo division since its inception in October 1985.
     With Ram Menen at the helm, the airline rose to become the largest international cargo airline in the world in 2012.
     Mr. Menen retired from Emirates in June 2013 as the Divisional Senior Vice President Cargo.
     Ram began his career in aviation in 1976 at Kuwait Airways later moving to British Airways to head its cargo operations in Kuwait.
     In 1984, he joined the Kuwaiti aviation group Alghanim Al Qutub Shipping Agencies, to set up and manage its airfreight-forwarding unit in Dubai.
     Trained as an engineer, he spearheaded the conceptualization and development of the LD-36 (AMF) type of ULD (Unit Load Device) which increased usable space on each lower deck pallet base by 33%. Ram also helped develop the cool dollies, which are extensively used at some airports to maintain the integrity of the cool chain on the ramp.
     Ram is a FCILT (Chartered Fellow of the Chartered Institute of Logistics & Transportation), as well as, FRAeS (Fellow of the Royal Aeronautical Society).
     He is one of the founding members of The International Air Cargo Association (TIACA), serving as Vice President in 1993 and 1994, and as President, CEO and Chairman of the Board in 1995 and 1996.
     Ram Menen has won every major award given by industry publications.
     Today, with his wife Malou, he splits his time between homes in Luxembourg and Kuala Lumpur.
     Their son Ram Menen Jr. continues in the family transportation tradition. Ram Jr. is currently employed by Wallenborn.

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Marcel de Nooijer     What would February14th be without at least one flower shipment story . . . So here goes.
     Tiptoeing through the tulips, Air France KLM Martinair Cargo (AFKLMP) broke with tradition and featured roses in a presser for February 14.
     According to the Euro air cargo combine, more than 3,000 tons of flowers moved via the carriers’ freighters and other main-deck lift aircraft during January and February 2018.
     Marcel de Nooijer, Executive Vice President Cargo noted:
     “We are strongly committed to the flower market and successfully met seasonal peak flower demand again for this year’s Valentine’s Day.”
     Flowers moving via the carriers from Nairobi, Quito and Bogotá can be found in Dutch, English, Italian, French and Russian and Japanese vases, KLM/AF/MP said.

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