Some Turbulence, Some Smooth Air for Freight

If orders for all-cargo aircraft are indicators, the world’s airlines are expecting sustained growth in air freight for some time to come. For example, Boeing freighters experienced a third consecutive record sales year, with 83 gross orders for freighters in 2007, compared with gross orders for 81 in 2006 and 74 in 2005. The company claims its production and post-production freighters provide about 90% of the total worldwide dedicated freighter capacity, dominating the world’s air cargo fleets.

For the Boeing competitor, Airbus, at the recent Singapore Air Show, BOC Aviation, a leading Asia-based aircraft leasing company, signed a firm contract for five Airbus A330-200F all-cargo aircraft, the newest member of the A330/A340 family. Further, in January Guggenheim Aviation Partners, LLC (GAP), a US-based aviation investment firm, acting on behalf of one of its investment funds, signed a contract for the A330-200F. GAP becomes a launch customer for the new Airbus freighter with deliveries expected to commence in early 2010.

While there may be light at the end of the financial tunnel for the industry, the International Air Transport Association (IATA) has forecast a decline in industry profitability for 2008 from 2007. IATA represents 240 airlines comprising 94% of scheduled international air traffic.

Reasons for the slippage include the cost of fuel, declining freight volumes particularly in the US domestic market and waves of pain caused by the credit crunch. In looking at shippers shifting from air to ocean carriers, the association points out that while costs for aviation fuel rose 300% between 2002 and the first half of 2007, fuel for ships increased by 200%.

While there was growth in air cargo in January 2008, up 4.5% year over year, one month does not a year make and IATA Director General and CEO Giovanni Bisignani cautions there is likely to be turbulence ahead. While Asian Pacific airlines saw cargo demand increase in January over December, there was a decline of 0.4% in European freight.

There are further complications for air freight carriers. Bisignani notes, “World trade grew 7.5% last year and our growth forecast for this year is 4%. Our sea competitors are gaining market share with faster ships, lower prices and innovative solutions. And new capacity coming into the market—200 to 300 wide bodies entering the market each year to 2011—will put even greater pressure on yields. This is a tough business that is only getting tougher. The only way to succeed is to please the customer.”

In order to increase customer satisfaction, Bisignani points to five areas in an air cargo supply chain agenda that need to be addressed. About safety, 16% of the industry total were cargo accidents in 2007, significantly lower than the 25% recorded in 2006. This trend can be continued.

Security “is still a $5.9 billion uncoordinated mess for the air transport industry,” says Bisignani. “Our risk management capabilities are excellent but our stakeholders still want to treat air freight like baggage. It is not. Effective security must involve the entire logistics chain. To clean up this mess we need a coordinated effort across the supply chain.”

For environmental issues, IATA member strategy is to invest in technology; fly planes effectively; build and operate efficient infrastructure; and use positive economic incentives.

To answer the need to improve efficiency and quality, IATA offers Cargo 2000 that was established to simplify processes and implement effective quality standards from order to delivery. “We simplified the supply chain process from 40 to 19 steps and developed common parameters for quality measurement. Now we need to move faster to increase Cargo 2000 participation and implementation,” says Bisignani.

Felix Keck, managing director of Traxon Europe, says that only a fraction of the world’s cargo carrying airlines are taking advantage of the IATA Cargo 2000 initiative (C2K) and are applying its measurements to achieve higher quality and efficiency. Traxon claims to be the world’s largest e-communications platform for air freight.

“The learning curve is long,” says Keck. “Despite some encouraging exceptions, old-fashioned forms of communications such as fax and telephone are still all too common in the air freight industry. Only a handful of forwarders are profiting from the innovative technological potential offered by the market.”

The Board and members have decided on a new structure, explains Cargo 2000’s Lothar Moehle. Where previously the only two who were directing C2K activities were Moehle and Ron Cesana, who died last year. “In the future we will have a new executive director, three regional directors plus a technical director rather than, as previously, only Ron and myself,” explains Moehle. “I will be regional director of Europe, the Middle East and Africa.”

Cargo 2000 explains that “priorities for the new team will be full implementation of Cargo 2000’s phases 1 and 2, improvement of data quality, strong support and assistance for Cargo 2000’s 26 Local Associations and improved audit processes to support individual members. The introduction of the new Qcargo Network for small and medium-sized forwarders and further membership growth will also gain emphasis.”

C2K seeks to streamline air cargo processes by establishing quality standards that are measureable. Phase 1 manages airport to airport freight movements. Plans are automatically created that permits every aspect of an air freight shipment to be managed and measured. Phase 2 provides interactive door-to-door monitoring of shipments based on House air waybills. Phase 3 will manage shipment planning and tracking at the individual piece level while providing tracking of documents.

Beginning this year, Cargo 2000 will launch Qcargo Network for small- and medium-sized freight forwarders. Once they join the Network they will be linked to others and be able to gain visibility of shipments as they move through the air cargo supply chain.

In terms of success for C2K, the monthly report for January shows significant growth, with 115,307 shipments measured, up by 23, 261 year over year and the number of lane segments for the month at 24,742, up over 2007 by 4,380. Some 88% of all shipments were flown as planned with a 92% booking quality level and accuracy of electronic data. On time notification of freight arrival and document availability was at 82% for January, up 11% year over year.

What’s Cargo 2000?

The web site (www.iata.org/whatwedo/cargo/cargo2000) explains: “Cargo 2000 is an industry initiative aiming at implementing a new quality management system for the worldwide air cargo industry. The objective is simple: to implement processes, backed by quality standards that are measurable to improve the efficiency of air cargo.

Cargo 2000 re-engineers the air cargo transportation scheme from shipper to consignee. Individual processes in the supply chain are reduced from 40 to just 19, cutting down on operational costs and enhancing customer service.

More and more customers now choose Cargo 2000 companies among their preferred suppliers as it provides quality performance backed by reliable data.”

The Newest Cargo Airline

Lufthansa and DHL Express will base their 50-50 new joint venture cargo airline at the Leipzig/Halle Airport. Called AeroLogic, the new carrier was announced at a launch ceremony on January 28. It expects to begin service in Summer 2009. By 2012 the AeroLogic fleet will be made up of 11 leased Boeing 777s. The first four of the planes will be delivered next year, with four more to follow in 2010, two in 2011 and the final one in 2012. In addition to major Asian cities, AeroLogic will serve destinations in North America.

Continental to Test Biofuel

With the goal to identify sustainable fuel solutions, Continental Airlines will join with Boeing and GE Aviation in a biofuel demonstration flight in the first half of 2009. While UK-based Virgin Atlantic has completed the world’s first commercial aircraft biofuel test, Continental is the first US-based carrier to do so.

The flight will be made with a Boeing 737 equipped with CFM International engines. CFM is a joint venture between GE and French manufacturer, Snecma. Continental explains that the three companies will work with an unnamed fuel provider to “identify sustainable fuel sources that don’t impact food crops, water resources or contribute to deforestation, and which can be produced in sufficient quantities to support a pre-flight test schedule that includes laboratory and ground-based jet engine performance testing to ensure compliance with stringent aviation fuel performance and safety requirements.”

In late September last year, Air New Zealand signed a Memo of Understanding with Boeing and the engine manufacturer, Rolls-Royce to conduct a test of a biofuel-kerosene mix. The blend will be used in just one engine of a Boeing 747. The test is projected for later this year or early next.

Continental sees this project as part of a company-wide commitment to environmental responsibility. It claims a 35% reduction in greenhouse gas emissions and fuel consumption per mainline revenue passenger mile flown over the past 10 years. As Mark Moran, Continental Airlines executive vice president of operations, notes, “Exploring sustainable biofuels is a logical and exciting new step in our environmental commitment. For more than a decade, we have been focused on reducing fuel consumption and carbon emissions, while providing industry-leading service to the places our customers want to go.”

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