The Central American country’s economic development has come to a near standstill, negatively impacting the entire industry including cargo carriers serving the country. This worrisome
racehorse to snail conversion is caused by both external and internal developments.
How to keep your head above water despite strong Mexican headwind is exemplified by Lufthansa Cargo.
The economic engine of the 12th largest global exporter has been stuttering for many months. Foreign investments into the Mexican economy dropped close to zero; the gross domestic product is expected to grow by a meager 0.8 percent in 2019, thus far from former figures that fluctuated during the last ten years between 5 and 2 percent annually according to OECD data. The situation is aggravated by the repeated Trump tweets, insulting Mexicans as criminals and threatening to impose punitive tariffs on the country if immigration into the U.S. continues unabated. This leads to widespread uncertainty. By and large a worrisome constellation for Latin America’s once leading powerhouse.
Turning to Lufthansa Cargo and the consequences of Mexico’s economic woes for the carrier, Frank Nozinsky audibly lowers his voice: export volumes to Germany have decreased by about a sixth in the market compared to 2018, with imports facing similar declines, the freight carrier’s Mexican Director Sales and Handling says. Disappointing results, he admits. And it is of little comfort to him that competitors operating on comparable transatlantic routes see the volumes slide between Mexico and Europe by the same share.
Automotive remains weak
According to Mr Nozinsky, the dip is a result stemming from two factors: firstly, and above all the current global political and economic uncertainty. This lack of clarity has immense negative psychological effects, prompting the automotive, machinery and other industries to postpone planned and much needed investments in their Mexican factories. A painful situation because automotive has become Mexico’s leading industrial sector, with Volkswagen, Honda, Chrysler, Ford, Scania or Mercedes Benz Trucks erecting production sites across the country, including maintenance and supply centers. The importance of automotive is confirmed by Frank Nozinsky: “There is a constant flow of parts, tools and even entire cars between Mexico and Europe – both ways, many of the items flown by air.” No wonder that the current weakness of this sector leaves its mark on cargo airlines.
Secondly, there is a homemade problem, caused by the new government that’s in office since last year and whose decisions are not always business friendly, to express it mildly. Seen by the fact that all contracts for constructing a new airport in Mexico City, sealed by the preceding government, were cancelled, although 30 percent of the entire work had already been completed.
Not really a motivating sign for airlines and trading companies.
Therefore, the question is how Mr Nozinsky and his local 23 LHC colleagues cope with the current challenges. His answer: to deliver utmost quality to the market. “This is our main selling point, differentiating Lufthansa Cargo from other carriers that link Mexico with Europe including transits to the Far East.” First class and reliable services – that’s his formula to secure the existing business and - at best - to gain new clients. However, he can hardly influence the ongoing pressure on the yields. This also applies to the import/export ratio of goods flown on board LH aircraft to/from Mexico that is cemented at a 3:1 imbalance.
Ample capacity offering
Lufthansa has a strong foothold in Mexico, thanks to daily B747-8 passenger flights between Frankfurt and Mexico City complemented by five A350 or A340 operations out of Munich. All deployed long-haul pax aircraft offer ample capacity in their lower decks for cargo carriage.
On top of this the carrier offers the market ample main deck capacity on its five weekly Triple Seven freighters connecting Frankfurt and Mexico City, of which three call at Guadalajara on their way back and two return via Dallas/Fort Worth.
Thanks to this combination of freighter and passenger operations, “we have a market share of 12 percent of all exports leaving Mexico on transcontinental routes,” holds the manager. Conversely this means that “there are 88 percent left to be captured,” he ironically tells. So still much to do for him and his team.
Self-handling and third-party services
In addition to this, LH Cargo has developed a second mainstay in Mexico by creating LCSLM. The acronym stands for “Lufthansa Cargo Servicio Logistico de Mexico Ltd.”, a ground handling unit that employs roughly 100 staff working at the cargo station in Mexico City. Not really surprising that LH Cargo is the largest LCSLM client. However, in addition to the parent company services are provided to All Nippon Airways, the local Mexican freight airline Estafeta Cargo Aérea, forwarding agent Dachser, and LH subsidiary time:matters.
“Our founding of LCSLM was a smart move,” reasons the handling company’s helmsman Nozinsky.
Security comes first
A final question remains: the role of security in cargo. After all, Mexico is confronted with a high crime rate and years of flourishing corruption. Mr Nozinsky’s answer: “Thanks to more than 60 cameras installed in our freight facilities every single process is monitored. We even guard each consignment on its way from the warehouse to the aircraft until it is loaded.”
The result, he proudly tells, is zero theft.