Germany-based freight consolidator IGLU Air Cargo reports a 20 percent drop in volumes from January until now. Despite this worrisome figure, the association’s Managing Director Guenther Gasthuber remains relaxed since the main industrial parameters indicate a recovery of the market, provided the world won’t be shaken by new or additional political and economic turbulences caused by tariff disputes.
Being in the air freight business for 40 years, Guenter has experienced a number of good but also bad times in cargo. Therefore, a dip, such as the current one, doesn’t bring beads of sweat on
his forehead. “Back in 2008 the industry went through its latest crisis; conversely this means that we enjoyed a decade-long upswing. It’s the longest growth phase in air cargo that I can
remember,” he recalls.
His main argument for an impending revival of the business in IGLU’s home market: The mechanical engineering industry, Germany’s second largest sector, next to automotive and followed by chemistry, is still on track, despite suffering a decline in order volumes lately.
Automotive however, he admits, is a problem child, not because of quality shortcomings, but primarily because of the tariff and trade dispute between the U.S. and China. This has sent Chinese orders for Europe produced cars south, especially German luxury brands such as Mercedes Benz, Audi, BMW but also Volkswagen.
VW back to old strength…
The good news is, however, that at least VW seems to be back on track again, following the disastrous diesel exhaust fume manipulation that led to penalty payments of US$ 25 billion in the USA, including legal expenses. In Germany, VW and its daughter Porsche were sentenced to pay 1.53 billion euros for the same “Dieselgate” offence.
In an analyst call last Thursday, the car maker’s management anticipated sales growth of 5 percent in 2019, with EBIT climbing in a corridor between 6.5 and 7.5 percent. Promising figures after several years marked by privation. This also applies to Peugeot that just reported promising half-year figures.
In contrast to VW and Peugeot, most of their European competitors, including suppliers, issued profit warnings because sales figures for the first half year 2019 remain clearly behind last year’s results.
…but trade war looms
Germany's flagship sector accounts for 8 percent of the total economic output, directly employs 820,000 and indirectly even 1.8 million people.
“The European automotive sector is currently our biggest problem child, causing negative impacts on the air freight business,” states Herr Gasthuber. Only exceptions are VW, Porsche and Peugeot, he adds.
The downward trend could be aggravated should Trump impose punitive tariffs on the German car producers in his attempt to penalize the industry for their export successes, cementing an unbalanced import/export ratio with the USA. If so, this would trigger a fully-fledged trade war between Europe and the USA with significant effects on the transatlantic air freight business, EU officials keep warning.
Small and medium-sized firms ensure IGLU’s daily business
However, in contrast to automotive other industries still run well, spurring the freight business. This accounts predominantly for many of Germany’s small and medium-sized companies, IGLU’s by far largest group of shippers, that are still in good shape, Gasthuber says.
The 2000 incepted consolidator manages part of the freight exports of 24 affiliated firms, depending on trade lanes and available cargo capacity. It’s a two-prong business model because the club members can individually decide if they hand over their exports to IGLU for consolidation purposes, benefitting from favorable rates, or – alternatively – fly the goods on their own account, but mostly to less attractive prices. “It’s up to each associated firm; there is no contribution obligation,” emphasizes Herr Gasthuber.
The higher the volume, the better the rates
Among the members are some globally well-known names such as EMO-Trans, QCS-Quick Cargo Service, both based in Frankfurt, or Hamburg-headquartered Ipsen Air Logistics, currently IGLU’s largest contributor of cargo volumes. The association’s business model is based on bundling air freight on key trade lanes with volumes contributed by different member companies. Higher tonnage achieved this way enable better rates, benefitting the contributors.
An obviously attractive model evidenced by the fact that small or medium-sized forwarders are regularly knocking on IGLU’s door to join the club. “But we do not want to exceed a certain size in order to keep the amount of administrative work at low level,” he says.
For the second half of 2019 Mr Gasthuber is cautiously optimistic. “The demand for high-quality products marketed by the German medium-size industries will increase rather than stagnate in the months ahead, this way also spurring our IGLU business.”