Shippers Seek Partnerships With the Air Cargo Industry

The European shippers support a possible merger of TNT and FedEx, as it may reinforce competition and have a positive effect on the rates. And pricing is the main concern of the shippers in their dealings with the air cargo industry, says advisor Joost van Doesburg.

Joost von Doesburg - Air Cargo Advisor for ESC
Joost von Doesburg - Air Cargo Advisor for ESC

A few years ago the European Shippers’ Council (ESC), which represents the logistic interests of manufacturers, retailers and wholesalers, strongly opposed the merger between UPS and TNT. “Our members heavily complained about the possibility of losing one of the three (TNT,UPS and DHL) European express carriers as this would result to lack of competition in the European market”, says Joost. “UPS and TNT were active in the same areas of the European Express market and provided the European industry the same type of services.”

The plan of FedEx to take over TNT, however, received another response from ESC, which sent out a survey to its members. The outcome of this survey was that 90% of the ESC members welcomed the TNT-FedEx deal. “There were various reasons why the merger was almost unanimously welcomed. The express customers/users never saw FedEx as an option for the Intra-European market. FedEx is in the eyes of many European shippers a great way to move cargo from Europe to and from the US, but not for moving packages from EU member state A to EU member state B. This Intra-European market is still dominated by TNT, UPS and DHL. But even after this merger, there will still be 3 big providers on the European market.”

TNT’s finances
Another reason for the shippers to support this merger, is the financial situation of TNT, Joost explains. “Without a takeover and a financial impulse, TNT will probably not survive for a very long time in the express market. Competition will probably grow due to the strong position of FedEx and better logistic services will be provided to the European industry.”

The air cargo business was something Joost had to grow into, when he joined the Dutch shippers’ organization EVO (Eigen Vervoersorganisatie) as a European lobbyist. EVO  tends to put its experts at the disposal of the European organization so that today Joost works 2,5 days a week for each organization.

“At first I wasn’t very keen on having to focus on the air cargo industry, which gave me the impression of being a conceited little club. I have to admit, however, that I pretty soon got quite enthusiastic about it. I was also asked to get into this matter for ESC, which was not so active in dealing with this industry, except for the odd security issue. What I found was that  if you only focus on the Brussels environment, you have no clue about what is happening in the industry and vice versa.”

One of the main topics of interest for the shippers vs the air cargo industry, is the relationship between the price, which is at a historically low level, and quality. “Apparently the only things we seem to be paying for are fuel and security surcharges and this low-rate situation is most likely to continue as more and more cargo-friendly passenger aircraft are entering the market. Still, the shippers maintain a critical attitude, because the quality is not good.”

“What we believe in is a partnership, which would give the shippers the opportunity to talk to the handling companies and the airlines and vice versa, apart from the forwarder. In the present tripartite of shipper, forwarder and airlines the only things that are considered important  are volume and price. How much volume doe you have to offer and what are you willing to pay?”

Joost has the impression that both the airlines and the shippers are in continuous evolution, but they are moving in 2 distinct directions: “They never talk about service levels or the reasons for the modal shift from air to ocean and/or express, without thinking about improving the service level. If, as an airline, you would be willing to listen to the shipper, you might be able to reverse the modal shift.”

Quality first
“A recent Seabury study has tried to establish what can make shippers decide to make more use of air cargo. The survey revealed that some 20% of the shippers wanted a lower price before anything else. The remaining 80% however, named different aspects of quality. So for these 80% price is not the main issue, but service levels, quality and reliability. The rates cannot get any lower as they are today. Nobody is making any money anymore. The shipper is forced to opt for the lowest price, the forwarder opts for the cheapest airline and the airlines opt for the cheapest handler. At the end of the day, the shipper gets a chain of service providers with the lowest price and walks away from them. Express is 3 times more expensive than air cargo, and yet the shippers move over to this far more reliable mode.”

According to Joost even airlines that claim to deliver good quality, will eventually focus on pricing. “As for the forwarders, they first demand good payment and then promise to deliver good quality. For us shippers it is difficult to find a chain form the consignor all the way up to the consignee that meets our high demands all the time.”

The end of the surcharge system?
Transparency too  is an issue as old as the air cargo industry. For some years Joost has been nicknamed ‘Surcharge’ van Doesburg within the airline industry for his never-ceasing campaign against the surcharge system. “Even when the fuel price is at its lowest, the fuel surcharge never seems to drop. Mostly thanks to the Middle East carriers at last we seem to be evolving toward 1 rate. Let’s hope that others will follow –Lufthansa Cargo is rumored to consider this- and that this one rate his will be fixed for a year or so.”.

And this surcharge system has been a pain in the neck of the shippers for decades, so it seems. “When the logistics manager of a company is asked for an estimated budget for his air cargo shipments by his finance department, he will never be able to give the right answer due to the unpredictability of these surcharges.. Shippers like to look ahead for a year at least.

And at the end of the line, they also want quality, which means reliability. “When the airline has committed itself to delivery on Monday, the shipment has to be delivered on Monday. All the products that have been promised by the freight forwarder, must be delivered by the airline.”

 

Marcel Schoeters

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