The downward spiral, in which particularly European cargo carriers have been trapped in lately, was illustrated by Lufthansa Cargo CCO Alexis von Hoensbroech at the recent meet of the German Air Cargo Association (ACD). He complemented his basic remarks on the status of the industry by an announcement that immediately caught the attention of the forwarding agents.
Lufthansa Cargo intends levying charges for paper documented air freight shipments. “We are seriously considering this step,” exclaimed the manager at the ACD attended by 75 participants, mostly
forwarding agents. He left open any precise date and amount but spoke of a “timely introduction” of this measure.
Reason for the carrier’s rushing forward in this matter is the extremely slow global spread of electronic air waybills (e-AWB) standing at a market penetration of no more than 50 percent after their introduction in 2010.
Air freight needs to modernize
This despite the fact that e-AWBs significantly remove the requirement for paper AWBs, thereby simplifying the supply chain process and are less prone to error.
In his presentation von Hoensbroech combined the announcement on paper AWB charges with a harsh criticism of the industry which he accused of backwardness and lack of innovation. As the proper authority he cited Nicholas Negroponte, the co-founder of the MIT-Lab in the U.S. and pioneer of the information revolution who said: “Everything that can be digitalized, will be digitalized.”
This prediction, which must have been widely overheard by the cargo industry until today, Negroponte had made already in 1995.
European cargo carriers are under extreme pressure…
Turning to Lufthansa Cargo’s own business, von Hoensbroech predicted sales in 2017 substantially exceeding original expectations. The company’s 2017 financial results will be presented next March with market observers expecting profits exceeding €150 million, after operating losses of €50 m in fiscal 2016.
A chapter Mr. von Hoensbroech circumvented in his presentation but said that all major investments had been frozen as reaction to the 2016 losses. Lacking liquidity, the much needed push for fleet or ground infrastructure modernization was not possible. “If we had achieved better financial results we would have been able to realize important investment projects,” he confessed. Adding to this that without profits no growth through own efforts is possible, resulting in loss of market shares.
… they are among the losers
This is evidenced by AF-KL-MP Cargo, the former global air freight leader, losing 23 percent of their market share between 2006 and 2016 because of consecutive losses. Slightly better but still dissatisfying are the results of British Airways-IAG Cargo that lost 9 percent of their former market share after terminating freighter operations in 2014. LH Cargo was hit less hard, losing only two percent of the market share they held some time ago. “We are ‘the short-sighted leading the European blind,’ he remarked. Topped by Cargolux that report a growth rate of 28 percent in recent years resulting from capacity increase. However, the carrier struggled frequently to remain in the black.
Mr. von Hoensbroech didn’t forget to mention that it’s not only the mentioned carriers to be blamed for their downturn. Night flight bans enacted by politicians as is the case in Frankfurt, bureaucratic hurdles or traffic siphoned off by the highly state aided Gulf carriers have their share in the downfall of the European freight airlines.
The future looks brighter again
Regarding the general market prospects for air freight, the manager highlighted some trends that favor an enduring upswing. Key growth factor is the accelerating and breathtaking spread of e-commerce, with cross border shipments growing substantially faster than domestic transports. Since international e-commerce depends on velocity and fast local distribution, most of the consignments will be flown, he estimated. Other encouraging factors are the lasting global economic growth, the purchasing power increase in a number of important consumer markets, and last but not least the visible swap from ocean to air freight. “If only 0.5 percent of all goods transported by sea would be flown, air freight would grow by 30 percent,” the LHC executive told the ACD members.
However, he did not touch on the subject of whether the handling agents are doing a good job or whether they should have more of a share of the cake by receiving better payment from the carriers. Especially when e-commerce, which is growing fast, leads to better revenues and yields all round!