ATC Ad

emo
FlyingTypers Logo
#INTHEAIREVERYWHERE
Ukraine Red Cross
   Vol. 21 No. 28
Monday July 18, 2022
linespacer
linkedin
facebook
Instagram
twitter

ULD White Paper

Regarding Air Cargo Pallet availability, a perfect storm is approaching: this is the conclusion of a relatively brief read published by our good friend Bob Rogers. He states that “for a good many months the air cargo community has been struggling with the demand for PMC pallets to handle the significant increase in air cargo volumes. There are a number of reasons behind this critical operational shortage and the main solution has been for airlines to buy or rent additional equipment.”
     On the other hand, we also hear that we are fast getting back to the belly-hold capacity we used to observe in pre-COVID times, but the appetite for freighters is not diminishing. Considering the kind of specialised equipment, there is only a certain amount of capacity that airlines can add by just buying or renting additional equipment and this is not the only element at play in this conjure.
     Our friend Bob Rogers argues that things are “probably about to get significantly worse as we have three negative factors coming together to create a perfect storm.” The cost of raw material has roughly doubled and is about 80% of the cost of a new PMC (see below).

ULD Chart


     Even if you are prone to readily part with the money necessary to subsidize the increase, that is no fix to satisfy the hungry shippers’ community: Bob Rogers observes that “there are only a handful of rolling mills in the entire world capable of rolling the high strength aluminium alloy sheet used in the manufacture of air cargo pallets to a width of 96 inches. Such high width sheet has only a few applications and hence there are only a limited number of rolling mills with this capability. And here is the problem, the four rolling mills are located in China (two), one each in the USA, and Russia. With the Russian rolling mill now embargoed, the question is whether demand can be met from these other facilities, this is an unknown at the moment.”
     In addition, the already scarce supply of aluminium will become the battlefield for other customers: these rarefied sheets will also be used for the fabrication of main and lower deck containers for express cargo and e-commerce further affecting the supply of pallet sheet available for PMC.
     All this being said, there is a legitimate question that can be asked: with an estimate of 400,000 PMC in circulation in the air cargo industry why is there a problem? ULD CARE have published their White Paper identifying the longstanding habit of not charging demurrage in air cargo as the reason why efficiency is lost. ULD CARE argue that freight forwarders do not have any incentive in using the equipment immediately and returning it swiftly to the airports following the breakdown of the cargo, as the idle time spent at their premises is not charged. ULD CARE also suggest a number of pieces of equipment are returned with five or more days’ delay, and maintain the opinion that one of the low hanging fruits on this tree is the issue of lag times in the return of empty equipment from freight forwarders. We read the data collected by ULD CARE: “from a representative group of airlines we believe that between 20 to 25,000 empty PMC are overdue for return by 5 or more days.” ULD CARE argue that “this is perhaps unsurprising given that, with the exception of a couple of airlines, there are currently no kind of financial penalties for late return of equipment, it is left entirely up to the convenience of the forwarders to put these PMC back into circulation. The days of treating PMC pallets as just a convenient means of building up cargo, to be treated without much in the way of responsibility by the various players in the cargo chain are now behind us.”
     These are somewhat strong statements that need to be taken with a grain of salt and with the perspective of balance. In their White Paper ULD CARE tell us that “this practice runs contrary to the International Air Transport Association’s (IATA) documentation that sets the industry standards for aviation: IATA’s Air Cargo Tariff and Rules Manual (TACT) under Section 4.8 - Unit Load Device Charges stipulates that “demurrage charges may be levied, subject to provisions in applicable tariffs of the airline or ULD owner, against a party that retains a ULD for an excessive period of time. The charge is designed to encourage prompt return of ULDs rather than generate revenue.” And then ULD CARE further argues that evidence exists to show that air cargo adopts a profoundly different approach as compared to containerised shipping industry: “We asked those involved in the ULD management process why, not charging demurrage for off-airport build-up and breakdown, is acceptable. The responses indicated that there were several prevailing points of view, which included: airlines’ fears of losing their customer to someone who doesn’t levy such charges; a lack of an efficient system to track the transfers and times, and therefore fees; and a questionable legal justification for charging demurrage.” Details of these and other reasons given by respondents in research carried out in Q4 2021 by ULD CARE can be found in Appendix 3 - Why are airlines reluctant to charge demurrage for their ULD?
     Further along, the document argues that “there seems to be no direct equivalent in the maritime industry to the ‘asset management’ operations in the air cargo industry, e.g. ACL, Jettainer and Unilode. However, at the end of the day, someone has to pay for inefficiency. Even if the airline has outsourced its ULD operations to a third party, that doesn’t mean that shippers can delay return of the ULD. Ultimately, this will add to the cost of operation for the airline in loss of utilization, and the cost of additional ULDs.” In other words, part of the explanation for some of the inefficiency could come from the airlines’ excessive tendency to outsource bigger and bigger parts of their business. And one could also argue (and some actually do) that these unwanted consequences entailing from an exaggeration in outsourcing are just part of the issue, whilst one could counter argue that were it not the case, there would be no airlines as such in operation today to talk about. This could become a never ending and pointless discussion. In reality the practice of dealing with air cargo outside of the airport sites is now almost universal and it has grown in the last 4-5 decades in parallel to the air cargo expansion, and these choices made more than half a century ago strongly reverberate today in our daily business. It is really difficult to even remember how the business was industrialised over half a century ago.

ULD History


     ULD CARE rightfully observe that “the early days of air cargo did not involve containerization - all cargo was handled in bulk. ULDs were introduced with the advent of wide-bodied aircraft in the early 1970s. Since then, ULD have become indispensable to the efficient movement of air cargo and baggage around the world with a current estimated global fleet of 900,000 units. The practice of airlines providing ULDs to freight forwarders and even shippers to build up or break down cargo consignments (known variously by terms such a pre-pack, shipper pack, shipper loaded, etc.) has gained popularity over the past 50 years.” But they also contend that “the reality is that an airline cannot operate an efficient air cargo operation when 5 to 10% of their freight equipment assets are not available at any given point in time.”
     However, this idea that 5 to 10% of the equipment should be available at any given time to ensure efficient and smooth operations appears a bit far-fetched, if not finally naïve. In many industries 5 to 10% buffer capacity in asset management is considered a bare minimum to ensure efficient operation. In what many called “the excesses of JIT” that we experienced in recent years with inventory reduced to the bare bone, some observers argued that this practice was not entirely healthy. COVID-19 taught us all some severe lessons in this regard. Today many start thinking that a balanced approach seems to be the right one. Nobody should keep excessive stock, but on the other hand nobody should start painting the big picture with just enough colours to get to the last stroke. An unfinished picture could be the result…
     The comparison with the maritime industry continues in this document that we are digesting and there comes a significant appraisal: “a single PMC pallet, the most common type of ULD and the workhorse of the air cargo industry, will move about 7 times a month, or close to 100 trips a year. Each of these trips generates revenue for its owner airline, the amounts varying according to the actual sectors flown. Compare this to ocean freight equip¬ment, on which demurrage is universally charged, where a typical container makes around 5 trips per year.” So the argument is: where demurrage should cost less it is universally (almost) charged, but where it should cost much more it is almost never charged. Maybe we could also ask ourselves if charging demurrage in proportion with the alleged cost of these movements could actually speed operations or not. At a certain point of the comparison with the shipping industry we land on firm ground by stipulating that “the application of a demurrage charge for late return is in the interests of all parties to rectify the situation as increased utilization may very well result in greater efficiency and lower cost for shipping”, but in my view the comparison is not always truthful: these are two industries which both play with transit times, but their individual game is substantially different. Operators that use aircraft are ready to pay a premium cost for the service by air that they would never allow in waterborne transport. Rail transport, when it is possible, stays in the middle. Different modes have some analogies and some profound, well rooted differences. In my personal opinion it is legitimate to compare the two and the observation of their similarities and differences offers good lessons, but it does not tolerate a quick jump to conclusions.
     My view is that air cargo is reasonably efficient as is, considering the variety of actors and stakeholders at play. I remember many years ago, when I was still employed in the sector, we had calculated that air cargo was sitting idle for something like 74% of the total transit time and Customs was the main culprit in that – now outdated – literature. This appeared to be shocking at the time, but when you consider the complexity of the many-to-many relationships that lead to the air cargo movement, this merely appeared to us as a territory where a lot of improvement could be made, but no prisoners should be taken.
     Much of the improvement in the last few years has been due to more advanced technology and much of the improvement that did not come to fruition appeared to be due to the inability to consistently adopt new, more efficient technology across the supply chain. However, you need a fair degree of ingenuity to expect such changes to become available quickly and universally. After reading the documents produced by the G7 initiative in the 1990’s I was young and hopeful that universal paperless transactions could become commonplace before the end of the millennium. In the many years I spent discussing these issues with many governmental and non-governmental organisations at different levels, I came to the conclusion that universal is a very complicated word to use when you deal with so many variables. We must realise that little of what we had expected then has become available in reality, and there is so much that got lost somewhere in the pipeline.
     The White Paper however sees that “these new developments in technology are making the possibility of an automated tracking and transfer platform [for ULD equipment] more realistic. However, the elements fundamental to an effective demurrage system in air cargo have always existed. The application of that system is where the industry has fallen short and, at this point, technology may not solve the issue if the asset owners do not enforce demurrage rules.” The document further suggests that “Nobody likes to pay a fine or a penalty, but this can be made far less painful with the intelligent application of technology. For airlines to enjoy these benefits requires that:
            There be an industry level acceptance that demurrage for ULD be a standard practise.
            That a single common platform be established to process ULD transfer transactions, avoiding a multiplicity of airline-by-airline approaches, offering transparency to shippers and delivering a pain-free process for all involved.”
     The grounds for it appear to be there (and yet they go undisturbedly forlorn), as you read in the IATA TACT Manual here.
     I must however say that consulting IATA’s website in this section does not provide the clarity and straightforwardness that one would wish for. Universal acceptance seems a bit far in this regard.
     At the same time ULD CARE seeks the active engagement of the three major industry trade associations to support the acceptance of the practice of demurrage across the entire air cargo industry, and will seek to actively engage with these bodies to achieve this goal. In so doing ULD CARE read Fiata’s statements (2018) as to be pronounced in favour of charging demurrage in the air cargo domain.
     Let me go straight to the point, as I have been involved with FIATA so many years. Obviously FIATA cannot write that they like demurrage and detention to be charged or, as the case may be, not charged, because that is actually none of its own choice. FIATA recommends a balanced approach in this area and warns the enthusiast that this may become complicated, in particular when balance is lost: “demurrage and detention charges are intensely disliked by customers using maritime transport and should be avoided whenever possible. This guide identifies the legitimate reasons why charges can be incurred but further explores situations where charges can be minimised or avoided.” It is a clear statement and it actually throws the ball back onto the pitch: there could be several ways to improve efficiency without necessarily relying only on the efficiency injected by a charging policy. In addition, I dare say FIATA deals with maritime demurrage and detention, in a situation where liners have been found to have several venial and capital sins to atone for. FIATA never actually unilaterally raised the issue of demurrage and detention in air cargo and probably would not appreciate being identified as the main target of any such measure in the industry. What FIATA writes (with regard to maritime) is the following: “FIATA respects that demurrage and detention charges are valid and important tools for shipping lines to ensure that their equipment is being returned as fast as possible. Merchants exceeding relevant free times should be penalized for the use of the container” as noted by ULD CARE, but the statement continues with this observation: “However, merchants should not be subjected to unjust and unreasonable charges. In this context, there are strong indications that shipping lines abuse the charging of demurrage and detention to maximise profits. It is understood that shipping lines have been suffering in a very tough business environment and do everything they can to develop revenue streams that are not necessarily derived from freight, but FIATA does not believe that merchants should be subjected to predatory pricing of this nature, especially as delays often occur through no fault of the merchant.” In other words, when demurrage and detention is usually charged, the temptation to use these fees to generate revenue (against IATA’s expressed intentions) may become too strong to resist.
     Fact is some liners have been found responsible of unfair and sometimes reckless behaviour in quite similar circumstances. Some of these issues have been discussed at different levels with competition authorities and maritime commissioners. In FIATA’s recent Headquarters’ meeting in May an exceptionally high level discussion panel saw Commissioner Rebecca F. Dye, U.S. Federal Maritime Commission, share her views together with her counterparts from China, the EU and the African Union; it was an elegant debate discussing the topic of fairness in maritime contracts, but it also included an ample section regarding demurrage and detention. I personally listened to the discussion and I must underline the extreme professionalism of Commissioner Dye, who came straight to the point both in her speech and during the Q&A, announcing some of the measures that had been adopted by the U.S. administration.
     I confess I did not find the same approach in all the other speakers and in particular I was perplexed in listening to the EU representative’s statements, who appeared to be stuck to the “there is no evidence” approach. Commissioner Dye instead was extremely precise in describing the circumstances where evidence might be absent for certain reasons, even the fear of possible retaliation.      In her approach the fact that evidence could hardly be brought to the table of the Commission to initiate its investigation was clear, as clear was the fact that the EU would not take an interest in any of this, unless strong evidence of wrongdoing was hitherto brought to its table and such evidence could then stand the EU Commission’s scrupulous scrutiny.
     Fortunately, the FMC actually adopted measures meant to overcome the questions brought to the table in FIATA’s discussion, whilst FIATA published an agile toolkit for the benefit of its members in need, where one could read the following statement: “the FMC also concluded that whether commercial arrangements are lawful is the point. Ocean carriers and marine terminal operators (and ocean transportation intermediaries) do not have an unbounded right to contract for whatever they want. They are limited by the prohibitions of the Shipping Act, one of which is § 41102(c) i.e. being just and reasonable. Ocean carriers and marine terminal operators do not have an inviolate right to contract with their customers free from government scrutiny, and there is reason to question whether demurrage and detention practices are normally the subject of arms-length negotiation between parties with remotely equal bargaining power. This is not to say that shippers and intermediaries do not negotiate certain aspects of demurrage and detention, such as free time, in service contracts. But many, if not most shippers lack significant bargaining power as compared to ocean carriers.” This is a statement that says it all.
     Coming to the end of this long reflection on the opportunity, or requirement to charge demurrage and detention for ULD in airfreight operations, I think the question of balance is delicately important. Whether commercial arrangements such as demurrage and detention charges are lawful is indeed the point, as the FMC stipulates. My conclusion is that it may be adequate and appropriate to charge demurrage when sufficient free time has been allocated, whilst at the same time sufficient is an adjective whose meaning should include an assessment of the type of operations to be performed, if the use is one way only or it implies, as many would wish, the reuse of the unit on the way out, the distance covered and the circumstances of the regulatory system where the transaction takes place, etc. In the maritime we have seen very often an unreasonable attempt to write down rules that respond to the principle of one size fits all, when we know only too well that in logistics this often tends to become a systemic inefficiency.
     If we wish to address this estimated and yet to be demonstrated 5 to 10 percent inefficiency, we must be quite sure that we use a balanced and fair assessment, where everyone must have a voice, and we are not inventing measures that could lead to other problems and even greater inefficiencies.
Marco Sorgetti


Chuckles For July 18, 2022

Nils Haupt
  Just thought about it and realized that July 9th was Nils Haupt's birthday.
  For people that might not know, Nils is a good-guy that when he had his head handed to him by Lufthansa Cargo, landed on his feet pivoting perfectly, becoming Nils Haupt, Senior Director Corporate Communications at Hapag-Lloyd AG almost eight years ago after having served for more than 12 years at Lufthansa Cargo and Lufthansa Passenger.
  But we knew Nils best at Lufthansa Cargo where his imagination and innovation always kept it interesting. But if the "Haupt Touch" was sky high during his time in aviation, his moves across the bubbly waves for the past eight years at Hapag have been splendiferous for the positioning. and elegant for the ease and professionalism he has brought to ocean.
  So while our memory of Nils is of yesterdays, we recall a time that was much more than it seemed to be.
  Once we picked him up in Manhattan and repaired to the Manhattan Theater Company, an energetic live actors stage that was featuring a young Geoffrey Arend II in a thrilling play titled "The American Pilot".
  Just prior to curtain, Geoffrey joined us for a quick bite just across from MTC, in a well-appointed Italian eatery that served truffles for the pasta from a bowl big enough to swim in.
  We recall those truffles as proper respect to Nils who really got it and still does, when it comes to working with the Fourth Estate.
  Nils is among the very best this reporter has ever seen, right up there with Tom Cole of Boeing, Janet Morris of Japan Airlines and Jennifer Pemberton of American Airlines.
  Happy Birthday dear Nils.
  Thanks for the memories and happy, healthy days to you always!
GDA

FlyingTalkers podcastFlyingTalkers

The Lady Declares Her Time Is Now


Eiffel Tower

     Paris touched the sky from the top of the Paris La Défense Grande Arche at 08:30 am on July 14 Bastille Day, at one of the greatest spots to celebrate as low flying fighter jets and other aircraft zoomed above the building before heading to the Champs-Elysées.
     At 10:30 a.m., all planes and helicopters from the French flotilla flew on the historic axis of Paris, only a few dozen meters above the rooftop.
     Known as La Fête Nationale or Le 14 Juillet in French, the day is celebrated with fireworks and a parade. One of the most important days in the history of France, July 14 marks the fall of the Bastille, a military fortress and political prison in 1789.
     In 1776 the people of France, with the help of the Marquis de Lafayette made it possible for America to win its Independence from England.
     A scant dozen years later storming of the Bastille marked the first major act of violence by the people in the French Revolution against the monarchy of Louis XVI during a major economic crisis caused in part by the cost of intervening in the American Revolution and aggravated by a regressive system of taxation, as well as poor harvests in the late 1780s.
     The French Revolution lasted from 1789 to 1799 and spelled the end of the French monarchy.
     Bastille Day was celebrated with big fireworks displays from Paris to Disneyland France and elsewhere in the world.

Subscribe to FlyingTypers

If You Missed Any Of The Previous 3 Issues Of FlyingTypers
Access complete issue by clicking on issue icon or
Access specific articles by clicking on article title
FT061622
Vol. 21 No. 25
PayCargo Follow The Money
WeQare A Children's Song
Chuckles for June 16, 2022
Ram Menen Looking At Tomorrow
Wear A Mask

FT061722
Vol. 21 No. 26
The Human Rhapsody Of
Rudy Auslander

FT070522
Vol. 21 No. 27
The Lady Declares Her Time Is Now
Chuckles for July 5, 2022
High-Tech JFK Cargo System Debut
Sally Takes Another Ride Into History
The Boys Of Summer

 


Publisher-Geoffrey Arend • Managing Editor-Flossie Arend • Editor Emeritus-Richard Malkin
Film Editor-Ralph Arend • Special Assignments-Sabiha Arend, Emily Arend

Send comments and news to geoffrey@aircargonews.com
Opinions and comments expressed herein do not necessarily reflect the views of the publisher but remain solely those of the author(s).
Air Cargo News FlyingTypers reserves the right to edit all submissions for length and content. All photos and written material submitted to this publication become the property of All Cargo Media.
All Cargo Media, Publishers of Air Cargo News Digital and FlyingTypers. Copyright ©2022 ACM, Inc. All Rights Reserved.
More@ www.aircargonews.com

recycle100% Green