Quarterly Magazine Af-kl Cargo Volume 24 ˆ No. 35 ˆ

8/14/2019 Quarterly Magazine Af-kl Cargo Volume 24 No. 35

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QUARTERLY MAGAZINE AF-KL CARGO VOLUME 24 NO. 35 JANUARY 2009

cargovisionMatchmakerOlympic Hangover

Anatomically Correct


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Demand for goods andservices is still decliningand financial conditions

look even more bleak thanwhen the economic crisiswas first recognized a fewmonths ago. Is it just a veryrough patch or a lastingchange in economicconditions?

BY MICHAEL WESTLAKE

RickBarrentine/Corbis

Several months into a recovery pcontinues to teeter on the edge of di

worlds financial state may no longer

deaths door, though its likely to be a

leaves hospital. And for many busine

many members of the general publicreal. Orders for manufactured goods

demand for basic commodities has d

and restaurants are doing less busine

in general are spending less. At least

closed, and more airlines and other b

ties are inevitable.

A European-led rescue plan kick-sta

pushing money into the system again

The original United States plan to bu

assets was not enough. It took Euro

mid-October to buy up bank shares

recapitalizing banks and guarantee

spark similar action by the US, a patt

lowed by the rest of the world. That w

stop the panic that froze financial ma

September and killed credit just abou

But following the panic, there was anspread lack of trust. The advent of a

istration will inevitably raise expectati

how much a new president can do w

resources at hand is open to debate

Barack Obama can at least inspire co

will already have achieved a lot.

LIKE DOMINOSThe financial meltdown and its hoped

illustrate the interdependent nature o

kets. That an economic crash was o

been widely predicted; economies h

bling to new heights for a long time. T

Republican administration would bac

declared free-market principles by ba

gage and insurance giants had not b

Nor had the effective trigger for the fimarkets: the collapse of investment b

Brothers.

Allowing Lehman to go under instead

is now seen as a mistake, but it prob

matter in terms of the crisis. By the ti

imploded, just about any corporate fa

SURVIVAL

TOUR


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6 cargovision | JANUARY09

have been fatal to confidence in the economy.

Outside the US, the problem was seen as Americanflu, a consequence of bad US sub-prime mortgage

loans that caused write-downs wherever they were

sold as investment-grade material, but not a huge

problem except to minimize the chances of infection.

Then Iceland announced it was bankrupt. Iceland?

Yes, Iceland, a tiny country that had become rich but

was now in trouble because it had been parking

money of its own and from offshore funds into vari-

ous investments, including sub-prime mortgages. In

effect, Iceland had turned its economy into a hedge

fund, and it was just as vulnerable as any other

hedge fund. The credit crunch stopped Icelands

economy in its tracks and the government sought

help from the International Monetary Fund, as a

lender of last resort, and from Russia. Iceland also

began offering various assets for sale, including

property holdings in Hong Kong and Macau. Europebegan to take serious note of t he crisis.

The next unlikely prime mover was Ireland, which

announced that it would guarantee all Irish bank

loans, a move that effectively forced the rest of

Europe (at first reluctantly) to do the same. This

became part of the game plan announced by the

European Union, in addition to recapitalizing banks.

Then the rest of the world, including the US, cascad-

ed along the same route. Credit is now becoming

available once again, but slowly, and it is almost cer-

tainly going to cost more.

DOUBLE-SIXESAll this leaves a lot of questions about where the

world economy goes from here, and what effects the

crisis is likely to have on trade, in particular trade withChina, which for some years has been the Workshop

for the World. China was riding an emotional and

nationalistic high, having hosted the 2008 Olympics

during the summer and following up with a space-

walk in late September. Alas, a surge in demand for

passenger seats during the Olympics was not fol-

lowed by a continued surge of interest in visiting

cargovision survival tour

China after the Games ended. Then came a crisis

over contaminated baby formula, plus a fall-off inorders as foreign demand dropped and the credit

crunch hit.

In the short-to-medium term, there will be pain, but

there will be a recovery, even if things are not quite

the same as before. The problem now is to define

medium term, and the fear is that it may be longer

than had at first been thought. One China-based for-

eign economist says: We are witnessing a change

and it started earlier, not just in economics, but in the

structure of the economy. We have seen this before,

he says, with Chinas reaction to the Asian financial

crisis that began in 1997. It lasted about two years.

Chinas economic model is more controlled than the

Western free-market equivalent espoused by the IMF

when it helped Indonesia to revamp its economy.

We should be modest, he says. The Beijing and

Malaysian models fared better.

Eric Eugene, global head of the Transportation

Group at BNP Paribas in Paris, agrees that whats

happening is the beginning of a major, long-term

change. The definition of fair value in banking and

accounting systems is likely to change, and moral

hazard, the notion that people take greater risks if

they know theyll be bailed out, needs to be

rethought. Looking at the world economy in general,

he says: The inter-bank problem, lack of lending,

has been dealt with by government guarantees.

Thats the core issue. It brings back some sense to

the system, even though it wont bring recovery

overnight.

A second China-based foreign economist believes

that the current crisis will last until at least mid-2009,

with the risk that it could spread to other sectors ofthe economy, because of the slowdown and the

higher cost of credit.

MAH-JONGWhat is the risk specifically for China? Its not so bad.

The second economist points out that Chinas huge

trade surplus has always accounted for only a part of

Chinas economic growth. The main t wo factors areinvestment and consumption, he says. For exam-

ple, in 2007, with GDP growth of 12%, commercial

surplus accounted for less than 3 percentage points,

whereas consumption accounted for 4.5 points and

investment for 4.5 points. If investment will remain

strong, the real challenge for China is to increase the

growth and the GDP parts of consumption.

Also on consumption, Eric Eugene says: With the

slowdown of the Western economies there will be

less demand for Western products. There may be a

re-balancing of trade, but it will not overcome Chinas

five-year plans. There will be a slowdown for one or

two years, and China will try to move up the value-

added ladder. According to the first economist:

Europe is a bigger trading partner for China t han the

United States, so China has already diversified. In the

short term, well see a decrease in Chinas exportsurplus, while in the long t erm, there will be more

outsourcing to China, because of cost advantages.

All three men agree that Asias economies have not

yet decoupled from Europe and the US. The second

economist is emphatic: Intra-Asian trade has grown

tremendously, but it is distributed manufacturing or

processing trade. The final demand still depends

heavily on the Western markets (EU and the US).

Typically in China, imports from Japan, Korea and

Taiwan will contribute to Chinese industrial produc-

tion (or industrial production conducted in China by

Japanese, Korean and Taiwanese companies) and

will be exported further, with the most important

parts going to markets in developed countries. Not

that other regions of the world are unimportant, he

points out. The three regions of South America,

Middle East and Africa contribute 17 basis points ofthe mainlands export growth (a total of around 25%),

almost twice as much as the US.

ARE WE SAFE YET?Is the Western model of capitalism broken? Does the

US buy-in of bank shares indicate a form of managed

capitalism, something Europe is used

socialism with US characteristics? Ernot: Its just pragmatism. The agree

limited so the shares can be re-sold l

adds: Pragmatism can change over

Away from general economic models

effects of the crisis linger, business fo

now become more difficult. The rece

craft orders may not suffer badly, bec

those orders are spread over the nex

longer. However, financing new aircra

tougher.

Jos Abramovici, global head of Aviat

Finance at corporate and investment

Paris, warns: The cost of financing th

lines and lessors will increase substa

major cargo airlines are generally stro

should still have access to bank finan

If we assume US$70 billion of globa

cargo aircraft deliveries in 2009, we b

be a US$55-billion funding requireme

and lessors have made a US$15-billi

bution from their own cash or from th

cash. We think that export credit age

assume US$15 billion, which will req

US$40 billion of commercial debt. W

ation banks in the market, we think t

of funding would represent US$20 to

This huge amount will have to be fille

markets such as commercial paper o

securitization when these markets re

sovereign funds; (iii) non-aviation loc

hedge funds mainly for the US airline

turers; and/or (vi) a combination of th

Declining fuel prices have brought so

lines, but not much. According to Eric

energy derivatives sales at JPMorga

London, supply is more constrained

He sees oil prices ranging between U

US$90 a barrel. But the risk is for th

next six to nine months.

Ace sto

With the slowdown ofthe Western economiesthere will be lessdemand for Westernproducts

We are witnessing achange and it startedearlier, not just ineconomics, but in thestructure of theeconomy


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AIRCRAFT - WORLD

AMSTERDAMThe Dutch aircraft lessor, AerCap Holdings N. V. agreed in July to become

the launch customer for the Airbus Freighter Conversion A320. In

September, AerCap indicated that Lan Cargo would probably operate the

first of the p assenger-to-freighter conversions when it is delivered in 2012.

The plane would be a good fit for the airline, because LAN Chile and its

affiliates already operate A320 passenger jets.

ATHENSGreek airline Airgo Airlines SA, based at Athens Int ernational Airport, began

flying an eight-tonne ATP freighter in August between Greece and Bulgaria,Cyprus, the Balkan st ates, Albania, and Turkey. The twin turboprop ATPF

has a large freight door and is subleased from West Air Sweden, which will

provide maintenance and support for the new operation.

ULYANOVSKIn October, Aviastar-SP delivered the first of several Russian-made

freighters that were ordered in 2001 by International Cargo Transport Ltd.

of China, a joint venture of Air China, Citic Pacific Ltd., and Beijing Capital

International Airport. The aircraft, a Tupolev Tu-204-120CE, is a 28-tonne,

medium-range jet powered by Rolls Royce RB211-535E4-B-75 engines,

and equipped with Western avionics. It complies with Russian and Euro-

pean aviation standards. Aviastar-SP intends to deliver two more Tupolev

204-120s to the Chinese carrier in 2009.

CARRIERS - WORLD

GOTHENBURGWest Air Europe and Atlantic Airlines agreed to merge in October. The new

entity, West Atlantic, will be Europes largest all-cargo regional carrier, with

a fleet of 41 BAE 8-tonne ATPs, one eight-tonne ATR-72, six 15-tonne

Lockheed Electras, and two seven-tonne Bombardier CRJ200PFs. The

two airlines carry postal and express traffic in the UK

and Sweden. Their combined turnover is 125 million,

and they employ about 500 workers.

ALMATYIn August, Aeroflot Cargo expanded the highway

transport for airfreight traveling between Almaty Airport

and destinations throughout the Central Asian coun-

tries of Kazakhstan, Uzbekistan, Kyrgyzstan, Turk-

menistan, and Tajikistan.

CHENGDUPending approval from government authorities, Shen-

zhen Airlines is to begin all-cargo flights between

Sichuans capital city and Hong Kong, to supplement the

belly-hold capacity traders now use to carry exports.

MCMINNVILLEThe U.S. Department of Transportation said Evergreen

International Airlines could fly six weekly cargo flights

between Shanghai and New York, with stops in Dallas,

Chicago, and Columbus. Evergreen proposed that its

eastbound flights stop twice a week in Dallas and four

times in Chicago, and that its westbound flights stopin Columbus. Kalitta Air received backup authority

from the DOT if Evergreen does not begin service.

Evergreen received the tentative approval to begin

flights next March. By then, it plans to acquire two

Boeing 747-400 freighters to fly an anticipated 360

tonnes of cargo a week out of China. The business

could be worth up to US$27 million a year.

TOKYOJapan Airlines said that it would end cargo flights

between Narita and New York in January and reduce

freighter frequencies to Los Angeles from six to five

per week. Last January, JAL discontinued cargo flights

to Atlanta and San Francisco. It is retiring its last two

Boeing 747-200Fs and canceling a planned conver-

sion of one 747-400 from passenger to freighter.

RIO DE JANEIROIn September, TAM Cargo began operating from a

new domestic cargo terminal at Tom Jobim Airport

that is four t imes larger than the old terminal. Customs

requirements dictate that international cargo continues

to move through the existing Infraero terminal in Rio. In

August, the cargo subsidiary of TAM Linhas Aereas of

Brazil opened its largest freight terminal, a 2,160-m2

facility in Manaus. During 2008, TAM Cargo invested

US$12 million to improve the infrastructure of its

domestic cargo terminals, and another US$4 million

for its national and international terminals. The first half

of the year showed a 34% growth in cargo sales to

US$261 million over the same period in 2007.

COMMODITIES - WORLD

LONDONThe global car industry is in crisis, writes Thomas

Cullen, senior analyst covering the automotive industry

for Transport Intelligence. Mr. Cullens latest report

cargovision news around tcargovision news around the world

Our quarterly review ofindustry news keeps youabreast of developmentsin key sectors aroundthe world.

Gamma/HollandseHoogte

describes how this dilemma is producing unpredictable conseque

automakers and their logistics providers around the world.

At press time, American automakers were asking the US governm

US$50 billion to help them stay in business. These firms have alre

taken in-house many of the services that attract logistics service plike Ryder Logistics, including distributing finished vehicles and m

parts inventory. In Europe, meanwhile, DHL Exel Supply Chain, Sc

and Ceva operate lucrative contracts for collecting and distributing

nents to the plants of Jaguar-Land Rover, Volkswagen, and Fiat, re

tively. Still, vehicle manufacturers have become supremely aggres

their pricing and even dedicated automotive logistics service prov

finding other markets to be more attractive.

Shifting fortunes have transformed the global automotive market i

past few years. Russia could now become a larger market than G

China could be as large as the US within a decade. The location o

assembly plants has changed, with factories designed to serve Eu

markets opening in Turkey and North Africa, and some production

in China moving to plants outside the country.

Automotive components have become an important commodity fo

and forwarders because suppliers make more of them from lightw

materials and electronics. At the same time, these electronics suptaking greater control of automotive logistics. Their growing domin

likely to divert automotive production from local suppliers to globa

sources, as will the greater use of polymers and batteries in autos

Mr. Cullen writes. Large logistics suppliers would do well to view th

tion as an opportunity to replicate the market penetration that they

achieved in consumer electronics, for example, with the growth of

freight forwarding business.

Sheet metal stamping for the motor industry


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compared to the enthusiasm shown for the question-

able impact of the Emissions Trading Scheme.

Without the Single Sky, he said, We would be

required to buy permits for the fuel we waste flying

zigzag routes and holding patterns caused by

airspace inefficiencies.The European Commission at least must have heard

the voices of Mr. Hartman and others because it

endorsed a new Single European Sky measures in

December to enable a national governments to create

functional airspace blocks within 3 years.

However, the European Parliaments Committee on

the Environment, Public Health and Food Safety took

its own shots at the airline desperados. The

committee voted in October to amend the previously

accepted ETS. They increased the number of emis-

sions certificates available for auction in 2013 and

reduced the cap on aviation emissions each year

thereafter. The airlines could feel another hand

reaching into their pocket and fired back. Among

them, Sylviane Lust, Director General of the Interna-

tional Air Carrier Association, who said that the regime

for including aviation in the ETS was adopted only 3months ago after reaching a difficult political compro-

mise. Re-opening the debate on aviation emissions

trading now only creates a high level of financial and

legal anxiety for airlines. Living in t he Old West as

never easy.

UNITED NATIONSThe UN stirred up particulate of its own when it strode

into the environmental debate during October. The UN

Food and Agriculture Organization released its annual

report, saying that biofuels will offset only a modest

share of fossil energy, but could have great impact on

agriculture and food security. The turnaround from the

agencys prior s tatements that fuels made from agri-

cultural commodities offered both opportunity and

challenge, came after findings that some biofuels

result in more greenhouse emissions than consump-tion of fossil fuels. Apart from the Brazilian fuels made

from sugar cane, none of the worlds biofuel produc-

tions is likely to be profitable, the agency said. More-

over, demand for biofuels contributes to higher prices

for agricultural commodities used to produce them. Fly

those eco-friendly green beans from Nairobi, but use

only Jet A, please.

EUROPEBut progress has also been made in Europe. In

September, IATA, Eurocontrol and the Civil Air Navigation

Services Organization agreed on a six-month work

program to improve European air traffic management. It is

expected to save 470,000 tonnes of fuel per year, worth390 million, and 1.5 million tonnes of CO2 emissions. The

work program comes in addition to other existing efforts to

improve European air traffic management. For example, air

traffic grew 25% between 1999 and 2007, yet delays

caused by traffic control fell 66% and air routes were

shortened an average of 4 km. Together, these efforts

reduce CO2 by 3.5 million tonnes a year.

FORWARDERS - WORLD

EKATERINBURGIn October, Russian forwarder STS Logistics opened a

freight terminal in Ekaterinburg. The new STS terminal is

part of an industrial and logistics park in this city of 1.3

million and is one of t hree offices STS will open in CentralAsia this year as it swings its logistics focus around

towards China.

JOHANNESBURGSeko Synergy opened its doors in August, offering air,

ocean, brokerage, warehousing and distribution services

from offices in Durban and Johannesburg, including a

4,000-m2 warehouse near Johannesburg Airport. The

startup is the brainchild of three South African logistics

professionals: Richard Mallabone, Chandra Booysen, and

Samantha Bellaram, who all previously held senior posi-

tions at multinational logistics firms in South Africa. Seko

Synergy is the newest member of the Seko network of

120 locally owned and managed offices around the world.

GATEWAYS - WORLD

PARIS AMSTERDAMAroports de Paris and the Schiphol Group s aid in

October they would develop a dual hub f or passengers

and cargo by optimizing connectivity between the two

airports, aligning processes, and improving airside operations an

baggage and cargo handling. The industrial cooperation is expe

for 12 years and includes the proposed launch of a high-speed r2010. The two airport operators agreed to an 8% cross-shareho

agreement that will cost the Dutch 530 million and the French,

million. The operators anticipate that by 2013 the agreement wil

a net 71 million a year in additional revenue and cost savings an

annual capital expenditures by 18 million.

SINGAPOREThe Singapore government has decided to separate the busines

ating its airport from the business of controlling the airport and ov

national aviation policy. It is reorganizing the Civil Aviation Author

Singapore.

Beginning in July, Temasek, the governments investment agency

acquire Changi airport and its operating businesses. A new, yet u

company will take control of Changi. In addition, a new civil aviat

authority will oversee Singapores national aviation policy and its

and air traffic issues.

INFRASTRUCTURE - INDIA

DELHIIndias airlines are developing cargo hubs in a variety of locations

to help them distribute airfreight services around the country. Ac

cargovision news around the world cargovision news around t

CharlieNewham/Imageselect

ENVIRONMENT - EUROPE

BRUSSELSNot all cowboys live in Texas. A large gang of them is kicking up dust in

the streets of Brussels. Late in the summer, the European Parliament

adopted a compromise agreement with the European Council to include

aviation in Europes Emissions Trading System beginning January 2012.

European airline operators were not amused. They said the initiative couldforce passengers to pay an additional 4.60 to 39.60 for a roundtrip

ticket by 2020 if they had to pass along its full cost.

Airline operators from other regions roundly condemned the go-it-alone

nature of the EUs initiative also. Cathay Pacific ceo Tony Tyler noted the

absurdity of taxing each flight according to the distance flown between its

last point of departure and its European destination. Flying from Hong

Kong to London, an airline would pay a higher tax on a fuel efficient, non-

stop flight than it would for one that burns more fuel during the journey by

landing and taking off in the Middle East. "How does it help the environ-

ment? Mr. Tyler asked. It doesn't. If anything it makes matters worse.

Then there is the matter of priorities. Europes inefficient air traffic control

system costs airlines 5 billion a year, says Peter Hartman, ceo of KLM and

current chairman of the Association of European Airlines. This is a wasteful

figure at the best of times and a crippling burden during the ongoing finan-

cial crisis. From the environmental perspective, better air traffic control

would reduce airline CO2 emissions over Europe by 16 million tonnesannually while no one is sure just how much the ETS will lower emissions.

Given the potential benefits, how can the EU make no progress on unifying

air traffic control since talks began in the 1960s yet create a European

Trading Scheme for aviation in a year an a half?

Mr. Hartman scoffs at the lukewarm political response for a Single Euro-

pean Sky, which brings demonstrable benefits for the environment,

Souvenir market, Ekaterinburg


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COMPAN

The World C

privately he

local and re

forwarders.

of operation

sents nearly

forwarders iA staff of 54

WCAs Bang

and anothe

its regional

Amsterdam

Las Vegas,

and Shangh

SHORT RESUME:

David Yokeum is a native of

Los Angeles. He founded the

WCA Family of Logistic

Networks 11 years ago in

Bangkok after previously

creating his first independent

forwarding network, United

Shipping, in Seattle in 1988.

Mr. Yokeum views his mission

as helping to advance theinterests of small, medium,

and regional international

freight forwarders. He located

WCA in Thailand because of

its proximity to China, its direct

air connections to other Asian

cities and its appealing culture.

I have been

opportunity

is to help the

airfreight for

community.

model is des

them. I am p

we do and th

proud of the

belong to.

David Yokeu

the World C

based in Ban


Q: Mr. Yokeum, what are the main benefitsof joining an organization like WCA?

We offer our members two main benefits: the oppor-

tunity to meet and talk face-to-face with other

forwarders from around the globe during our annual

meeting. And second, we offer parties financial secu-

rity to a transaction.

Our annual meeting is unusual, because we reserve

80% of the time for forwarders to sit down and talk

with one another. They can arrange beforehand to

meet someone through our scheduler on theinternet. We expect to see over 1,400 agents sitting

at conference tables and developing partnerships

during our meeting in Bangkok this February.

Q: What about the financial aspects?

We propose two financial services. Firstly, bank fees

constitute a higher proportion of costs when a

forwarder makes a small payment than when hemakes a large one, which means they can really

erode his profit. Last year, WCA members spent over

US$10 million in bank fees. We therefore negotiated

an arrangement that enables our partners to credit

as many members as they need with only one

transfer fee. Nearly 500 members are using this

service and have reduced their bank fees by 80%.

These savings exceed their US$3,500 annual dues

to WCA.

Our second initiative was to provide risk manage-

ment. When international forwarders kept bringing us

problems involving errors and omissions or legal

liability insurance, we realized there was a huge

knowledge void there. Forwarders in North America

and Europe understand legal systems and insurance

issues, but not everyone else does. To help out, we

now offer Freight Services Liability, an insurancepolicy through our company that includes errors and

omission and legal liability. We can protect our

members receivables under our own policy. In addi-

tion, if a member can show he has proper risk

management insurance, we put a logo by his name

in our directory. Otherwise, we can sell him a policy

for 40% to 70% less than he would pay elsewhere.

Q: How can you offer such low rates?

During their audit, our underwriters realized that wehave first-hand knowledge of claims. For example, if

a container is released by accident, the consignee

doesnt go immediately to t he insurance company.

He wants to claim it and comes to us. We investigate

and usually resolve the issue. When underwriters

saw the extent of our knowledge and our willingness

to take action on a company in default, they gave us

a commensurate rate. We have had no problem

kicking scofflaws out of the group. In fact, we reject

75% of applicants that come to us, because they are

not financially qualified.

Q: Which other services do members use?

In Bangkok, we have a graphics department,

webmasters and other IT professionals, administra-

tors, and people who plan and execute meetings.

About 75 members use our marketing staff to createand produce all their marketing materials. Id say we

spend over US$6 million a year just on staffing,

offices, and paying claims.

Q: How many claims do you handle?

Members come to us with problems every day

Partnerships are the backbone of internatio nal airfreight forwarding. However, good ones can bedifficult to find and even harder to m aintain. Fortunately, a number of associations can facili tatethese marriages. Headquartered in Bangkok, the World Cargo Alliance is one such organization.

Cargovision asked its founder and president, David Yokeum, to explain how WCA works.

BY MARK W. LYON

WCA

Art Kowalsky/Imageselect

usually matters of communication. We try to resolve

them with both parties through our dispute resolutionservice in Bangkok. But if our staff cannot help, we

will take the issue to an arbitration group like

fowarderlaw.com. Our members transact over US$5

billion a year between 2,500 offices. If someone in

China, for example, doesnt understand a specific

law in Brazil, it can get nasty.

Q: Sounds like payments are a big issue,right?

They are more of an issue outside our association.

I mean, would you travel 4,000 miles to sue some-

body and how much would you spend? Within WCA,

when someone has waited 90 days for payment and

comes to us, we listen to both sides of the story and

send the participants to arbitration, if necessary.

Most of the time, the delinquent is embarrassed anddoesnt want a bad name within the group. However,

we have expelled good companies with good

records because they were arrogant and wanted to

spin payments out 120 to 150 days. If members do

not pay according to the agreed terms, they know

we will approach them. Mostly, they pay and settle

before the matter gets to us.

MATCHMAKER


9/16


With worldwide business conditions heading toward a ryou might think that the Beijing Olympic Games were thhurrah we would hear from China for some time. But wenever jump to conclusions. There is certainly cause for o

BY KAREN E. THUERMER

Even in June 2008, before the Olympic Games got

underway, airlines serving China began suffering from a

hangover as fuel prices headed north and airfreight growth

turned south. Now that some time has passed since the last

athlete headed home, carriers are st ill encountering chal-

lenges in the long-haul air trade.

According to New York-based Seabury Cargo Advisory,

June 2008, the month the games got underway, marked the

first indication of a downturn in Chinese-made exports. The

consultancy viewed the change as significant because the

Asia-Pacific region comprises 45% of t he global airfreight

market. Chinas air cargo exports decreased by 10.3% that

month compared to the same month one year earlier. It was

the largest one-month decline since Chinas export boom

began in 2007, following its entry into the World Trade

Organization in December 2006. That year, China registered

10.4% growth.

However, in June 2008, Chinas air exports to t he United

States, its largest market, declined 17%, according to

Seabury. Exports of televisions and computer parts to the

US dropped 46%. Significantly, air trade with Hong Kong,

the United Kingdom, and the Netherlands also declined by

over 20% in June.

July and August were not much b etter. Compared to the

same months in 2007, the Association of Asia Pacific Airlines

reported a 5.5% drop in cargo traffic for airlines based in the

Asia-Pacific region the worst since 9/11. It was the sixth

straight month of accelerating declines in the regions

airfreight trade.

In response to weakening demand, airlines

efforts to remove aircraft from the region. B

reduced capacity 5.9% compared to July 2

Pearce, chief economist for the Internation

Association, reported that cargo load facto

79.2%, down 1.8% point compared to 200

included an even larger decline posted by Aairlines of 3.7%. Our great concern is that

in load factors, despite attempts t o slow ca

reducing unit revenues and adding to press

ability.

There is no doubt that the current airfreight

dysfunctional, says Ned Laird, founder of th

Management Group in Seattle. It is disloca

depressed because of high fuel surcharges

recession in Europe, and the existing reces

States. Who knows what impact Washingt

bailout will have on the ability of US produc

consumers to afford foreign manufactured

them imported by air. As the year goes on,

become less favorable for high-value good

heavyweight freight. Meanwhile, the marke

and opportunities for profit are limited. Mr.

expect the airfreight industry to recover unt

TAKE TWO ASPIRINNevertheless, some growth is anticipated.

to demand airfreight services out of China,

asking for less capacity than they did six m

suggests that airlines can survive if they staGettyImages

OLYMPIC HANGOVER


10/16


A round of golf, a Do It Yourself project or some football would hardly be enough for Pier Luigi Vigada,who just switched from AF-KL Cargo Director for East Africa to Cargo Director for Argentina, Chile,Uruguay & Paraguay. For him, its the Zen of adventure.

BY MARCIA MACLEOD In the summer of 2008 Pigi as Pier L

known to friends and colleagues, spent s

12,800 km from his African home in Nair

home near Turin, relying on his trusty Lan

for horsepower. Why? The same reason

work in Africa: the scenery, the people, th

Now 40, but 20 inside, Mr. Vigada got a

from his parents, who crossed the Sahar

had traveled all over the continent before

Kenya post in 2001.

I always said that I would leave Africa by

It was physically challenging, driving 72

and dusty environment. The tenth day wa

July 21, negotiating 971 km from Kharto

by myself.

Pigi's friend, Thomas, joined him from Na

and his wife, Brigette, from Cairo to Italy.

between Khartoum and Cairo. Car troubstages didn't help; nor did bureaucracie

crossings frustrating. But I learned to be

which has never been my strong point.

Rewards were plentiful, too, Mr. Vigada a

was stunning, especially in Libya. You re

middle of the Sahara. And you learn how

mentally and physically on a trip like this.

your own, you have a lot of time to think

and what you leave behind. I learned so

African people. They have such dignity, y

and generous.

Now, our adventurer is looking forward to

new culture, as well as dealing with new

with cargo is much more exciting and fas

with passengers, which is where I started

1995, Mr. Vigada recalls. Always up for asat on a horse for the first time just a few

arriving in Buenos Aires and ended up pl

managed to hit the ball!

Where next? The Antarctic, Mr. Vigada s

return trip to Africa. This time touring the

hope Landy can keep up.

their markets, revamp their networks, and find the correct

balance between lift and capacity.

Early in the summer, Air France Cargo-KLM Cargo felt a drop

in the airfreight volume out of China. It responded by refining

its network and reducing capacity, says Arend de Jong, AF-

KL Cargos Senior Vice President for Marketing & Network.

Between mid-June and September 2008, we suspended

service to Beijing from Charles de Gaulle. In August, we

suspended Air France freighter service to Guangzhou.

The volatile market requires AF-KL Cargo to monitor load

factors daily, Mr. de Jong explains. If load factors are too

low, freighters will not fly unless their cargo provides higher

yields. We can play that game on destinations where we

have twice-daily passenger flights, like Hong Kong and

Shanghai. Aircraft flying those routes have sufficient bellycapacity.

Nevertheless, adjustments must be continuously made. The

fourth quarter of 2008 saw the CDG network reduce the

number of freighters from 11 to 10. In addition, it removed

five to six weekly flights f rom Asia and from other destina-

tions in Buenos Aires, Japan, Hong Kong, and Guangzhou.

KLM is grounding some of its 747 combis and replacing their

capacity with more fuel efficient and economical aircraft,

Mr. de Jong says. For the remainder of the winter season,

we will reduce the use of these aircraft, because of the

downward pressure being felt from the passenger side.

Mr. de Jong acknowledges that these cuts will affect

customers, but says that AF-KL Cargo is making changes

prudently. For the short-term, the market in China is

declining, but we are confident that in the medium and long-term, we will see an average 4% to 5% growth between

China and the rest of the world. As we go forward, we are

not pessimistic.

Another near-term strategy for improving flight results on Air

France-KLM routes between Europe and Asia has been to

incorporate intermediate stops such as Moscow, Istanbul,

cargovision people make a difference: Pier Luigi Vigadacargovision olympic hangover

EXCURSIONISTand Almaty, Mr. de Jong adds. This allows us to addressdirectional imbalances and increase purchasing power in

China and Asia.

PARTNERS WITH CURESThe merger between SkyTeam partners Delta Airlines and

Northwest Airlines, dovetails nicely into the AF-KL Cargo

network and provide the opportunity for additional growth.

Our flights have been performing extremely well, says Neel

Shah, Deltas Vice-President of air cargo. The Atlanta-based

carrier has been revamping its cargo business, trimming

unprofitable domestic flights and expanding its international

network. Our team is learning to be more creative in

searching for business.

Delta, known mainly as a strong passenger airline, also has a

robust cargo network serving South America, Europe, and

the Middle East. Merging with Northwest will add consider-

able strength to its cargo operations by introducing a vibrant

presence in Asia. Northwest, the only major US carrier oper-

ating freighters, has a long history of serving Asia, although it

canceled freighter service at Guangzhou and Taipei in July. It

also shifted its cargo hub operations for Asia to Shanghai,

where it now operates 12 weekly freighters to the United

States. Earlier this year, Northwest halted freighter serviceover Tokyo to Singapore and Bangkok.

From a network perspective, joining Northwest will be

phenomenal, Mr. Shah says, the combined network is

compelling. Its a real game changer.

Mr. de Jong concurs. The combination of Delta and North-

west will bring us two bilateral North Atlantic routes: one that

has existed for a long time between KLM and Northwest,

and the second between Delta and Air France. These will

migrate over the longer term into a two-way joint venture

with the new Delta-Northwest and existing Air France-KLM

combinations.

SkyTeam partner Korean Air also brings opportunity into the

mix. This cargo carrier has been building its global network

aggressively by developing new routes and differentiated

services. Koreans network is so st rong, that it continues tobe a valuable partner even though it reduced frequencies on

12 routes this summer and will continue it s scaled-back

schedule during winter. The changes included flights from

Incheon to San Francisco, Seattle, Dallas, and Prague, and

to Amsterdam and Madrid. It is also in the process of

merging some European routes from Incheon, namely to

Vienna and Zurich. CourtesytoPierLuigiVigada

Closing ceremony Olympic Games 2008

HollandseHoogte


11/16

CHARTER

CHATTER


A backup plan to diversify the business should be an

essential part of running an air cargo company. It is a

business that has always been fast-moving and required

flexible thinking, says Chris Chapman, co-founder and

chairman of Chapman Freeborn Airchartering in London.

These are particularly turbulent times, but we have

always had to contend with volatility in the market.

AVAILABILITY LISTSThe recent downturn in scheduled airfreight demand is

likely to feed through into the charter sector, Mr.Chapman acknowledges. However, there is a positive

side to this trend. We recently went through a period

when it was extremely difficult to obtain certain types of

freighters. Now, with a drop in demand resulting from a

difficult global economy and the fact airlines are going to

the wall, we find more aircraft available for charter.

You could not get your hands on a Boeing 747 freighter

six to twelve months ago, adds Darren Finucane, the

Dublin office director of Avico Air, a French international

air charter and aviation services company. Now,

freighter operators that did not have t o advertise previ-

ously to get business for their aircraft are emailing us

regularly with availability lists.

World Airways, a US-based supplier of MD11, Boeing

747-400 and DC10-30 freighters, sees clear signs that

air cargo customers are feeling t he economic downturn,

says Steve Dix, senior director of cargo sales for that

operators parent company, Global Aero Logistics Inc.For one thing, forwarders are refraining from operating

their own freighters, preferring instead to play it safe and

continue using scheduled airline capacity. For another,

airlines are being more cautious about acquiring addi-

tional freighter capacity in the short-term, Mr. Dix adds.

Longer term, though, we are happy. Supplying

freighters is a good business. Obviously, there is a lot of

concern now about how the economic situation will affect every

business, but we have always been very flexible and adaptable.

PROJECT MANAGINGIn one area, international air cargo charters are still experiencing

demand: outsize and heavy shipments. This sector, known as pr

cargo, is most often served by Russian AN-124 freighters. Oil an

industry exploration and production drives much of the demand

project cargo, but government and military organizations are oth

tant sources, according to Avico. The French company has a str

involvement in the latter sector and frequently charters AN-124sRussian sources like Volga-Dnepr and Polet Airlines.

Price is not the dominant factor when it comes to service selecti

these organizations, says Gilles Gompertz, Avicos Paris-based g

manager. We provide air cargo charter services to many custom

have no other choice. The equipment they are moving is too larg

even into a nose-loading Boeing 747 freighter. So they have to u

tered Russian freighters, either the AN-124 or the IL-76.

Air cargo charters encompass a wide array of activities,aircraft, commodities, and destinations. Predictably, then,the assorted charter operators offer a mixed outlook for theirmarkets: while some see their business hit hard, others seea silver lining in the clouds.

BY PHILLIP HASTINGS

One bright spot is t he variety of freighters available for charter, asscheduled carriers encounter slower demand and seek to redeploy their

under-utilized aircraft. A second source of optimism is the fact that oil and

gas operations are still running at high levels, which in turn are stimulating

demand for air cargo charters to carry heavy project equipment.

However, some cargo charter operators say that times have become

much tougher and have forced them to develop new strategies to survive.

North American firm 9-1-1 Air Charter provides cargo charter and

onboard courier services to move automotive production parts within the

US, Canada, and Mexico. That sector of the companys business has

declined 75% in the past year. It has suffered from the sharp drop in new

car sales in the US.

To counter this slump, 9-1-1 Air Charter has broadened the scope of its air

cargo services to include trucking goods from the supplier to the origin

airport and from the destination airport to the consignee. The company

plans to develop its truck brokerage activities further through acquisition,

says Mark Mangrum, 9-1-1s chief strategist. We aim to grow our trucking-

related activities from nothing to 20% or 25% of our overall business.

AF-KLCarg

o


12/16


MONDAY:BeijingMy daughters 16th birthday and Im away. As

she reminds me, it was the same last year. This

time, I suggested she come with me since shes

off school. A look at the hotel website and the

promise of a weekend with no work convinced

her to join me. The local sales team lend us the

company driver for the day and the car with

white curtains and dark windows impresses

Sophie. We see sights, walk four hours on the

great wall, and play the fool together. That

evening the local sales team brings cake and

sings happy birthday in the hotel lounge. Wethen retire to the bar and tell stories until late.

MONDAY:BeijingMy week always starts with reports to ten

airline leadership teams on their bookings

through our portal. Because this is sensitive

data, I run the reports and add a few words of

encouragement and maybe insight. I spend

the rest of the day with a client. Lunch is a

challenge. Its a banquet and Ive forgotten

how to drink at midday. The local custom is to

propose a toast to each of the others in turn

and drink a small glass of wine in one go.

Water is not allowed. That aside, I enjoy t he

cut and thrust. Debrief with the local team and

finalize actions in the evening.

TUESDAY: SEAT14KMiracles do happen: BA upgrades us to busi-ness class. Sophie is impressed and gets the

wrong idea about global travel. The cabin ser-

vices director quietly asks if Im OK with her

having a second glass of champagne, 30

minutes into the flight. I tell him her grand-

mother is French, so he chills. Third time this

year Ive done the trip, but I still gaze out of the

window at the huge wilderness below. After a

little sleep, I prepare a presentation, approve

client change requests, and winnow my in-box

to one page.

WEDNESDAY:LondonBack-to-back meetings. I work from home, as

most of my colleagues are in other countries,

so everything is on the phone or computer.

Start early to finalize a summary for our

Chinese friends, based on input from the US

when I was flying. Then take a shower. TwoEuropean clients call and one internal. At

10:30 the US wakes up, so lots of talking.

Steal a coffee between calls and then one of

our global sales leads and I present a big new

opportunity to our global deal review board.

That goes well. They understand our business,

but ask about the risk of debt. I tell them that

as core system managed services, were top

of the payments tree. They approve and wish

us luck. Team meeting follows, so review key

metrics, share thoughts about clients and

competitors and hear feedback. Then, chal-

lenge team to find synergies between our ser -

vices. Close off around 18:30, but creep back

for a 30-min fix later on.

THURSDAY:London

With two colleagues, I present to a carrierssenior staff meeting on progress towards inte-

grating two cargo carriers. Attendees include

the airline CEO, who wants it all tomorrow;

finance and operations, who want it cheaper

but right; and the clients technology groups,

who must deliver the changes that will connect

to other airline systems. Were doing radical

things, which include combin

software with ours and bring

optimization engine from JDA

works well because we sent

hand, so can focus on d ecis

background. Later, I join my n

monthly meeting. Three mon

he's being radical, which I lik

vision.

FRIDAY:LondonRun a quarterly review of our

use with head of cargo and sRemember to walk carefully b

them how theyre doing, and

should do more since they pa

Theres lots of agreement, bu

will change. Determine to pu

for e-Business in next FastFo

newsletter. Talk to a colleagu

clever new security offerings

them with five organizations

Late afternoon, I meet a senio

Consultants with whom Ive j

partnership deal for their reve

software. Shes in London an

home office. We do a review

around the dining room table

wife and I take her to a local

dinner.

SATURDAY:LondonMy cousins family comes for

Sophie talks up her dad, his j

mates. My cousin is a proper

his clients come to him or he

in the UK. Its one of those tim

travel has its rewards.

CHRISTOPHER SHAWDON

Airlines and forwarders will recognize Mr. Shawdon as a strong advocate for more effective industry a utomatioSince becoming vice president of Logistics Solutions for Unisys Global Transportation Division in 2001, Mr. Shas expanded the business by making all its services web-based, partnering with third parties and launching popular air cargo booking portal. Before joining Unisys, he managed Syntegras air cargo community systemsfollowing a successful 12-year term with IBM.

BY ANDY WESTON

cargovision a week in the life of

2008PhotoShelter


13/16


The London-based company, Marken, is one of a

small group of specialized businesses that provide

logistics and support to biopharmaceutical compa-

nies and contract research organizations. Markens

daily activities include moving trial medication,

vaccines, clinical trial material and bulk drug supplies

around the world. The firms export departments

manage shipments from its distribution offices in

London, New York, Miami, and Los Angeles, as well

as from sites in Basel and Singapore.

Private pharmaceutical companies carry out clinical

trials of their treatments all over the world, says Fred-

eric Labeque, Markens personal service manager

based in Paris. You have thousands of sites in each

country and patients who go to these sites. Samples

from these trials, perhaps blood or urine, must betransported at a constant temperature to a central

laboratory. Specialist companies operate these labo-

ratories in the United States, Europe, and elsewhere.

We are able to provide all the logistics support the

laboratories need to ship biological substances.

About 80% of our activity is providing premium trans-

port to those very important facilities.

Air shipping such delicate samples calls for s pecial

treatment, Mr. Labeque continues. Depending on

the type of material, we have special packaging that

conforms to its particular requirements for transport:

dry ice, for example, to keep a specimen frozen. A

specialized transport company, such as Marken,

must understand the physical and chemical proper-

ties of the subst ances we are shipping, as well as all

the rules governing its transport. For this reason,

there are only a limited number of companies moving

these goods. At Marken, we have biologists and

pharmacists who know about the commodities we

ship. This specialized business is not simply picking

up a sample and bringing it to another part of the

world.

THE OPERATING THEATERWe must also bear in mind that each shipment we

transport contains a vivid human story, Mr. Labeque

continues. There is someone who needs it and for

those people the result will be used for their treat-

ment. Ultimately, this is not just business. We share

responsibility for the patient.

Working with medical companies that t ransport

goods internationally is a small but important activity

at Transmanage Worldwide, states Rick Ringhausen,

CEO of the Arkansas-based forwarder. The firms

clients include facilities that conduct research on

internal organs, blood and tissues and often need to

transfer samples to other sites or laboratories.

We work mainly with hospitals, universities and

research centers, Mr. Ringhausen says, although,

we also move anatomical specimens for emergency

surgery. The operation may be in progress and the

doctors just waiting for us to deliver specimens so

they can finish the work. In those situations, we co-

ordinate all of the logistics support.

Its easy to see how the commercial activity of acompany like Transmanage has become consider-

ably more complex since 9/11. This is true, Mr.

Ringhausen confirms, but the vast majority of t he

complications have all had positive impact on our

security. The world has changed dramatically for our

industry. Before 9/11, I could take a phone call from

a company I didnt know and fly their package from

New York to Miami the same day. Now, I cant even

talk about taking a consignment unless we know the

shipper.

COMPLICATED PROCEDURESIt gets even more complicated, Mr. Ringhausen

adds, Some of the specimens, tissues and blood fall

under the heading of dangerous goods and you

need to be sure you have correctly prepared the

paperwork. Depending on the commodity, we may

work with other vendors that have additional certifi-

cation so we are sure that we operate within the

confines of all requirements and regulations.

Although shipping anatomical goods is a small part

of Transmanages t raffic, Mr. Ringhausen believesthat it is a worthwhile business; one, because there

is a lot of activity and, two, it creates an opportunity

for Transmanage to demonstrate how well it could

serve a companys other logistical requirements.

Our approach has always been that if you can

service one segment of somebodys business you

may have an opportunity to service him in another.

A largely unsung sector of the airfreight industry specializes in shipping anatomical parts, medicalmaterials, and tissue samples. We asked some of the companies involved about the skills required tomove this cargo between public and private research facilities or to meet urgent clinical needs.

BY TONY CARDING

ANATOMICALLYCORRECT

Frederic Labeque:

We share responsibility

for the patient

Rick Ringha

Some of th

tissues and

under the h

dangerous

A box with a human organ ready for transport


14/16

NEED TO KNOW

Size: Canada is the second-

largest country in the world,

behind Russia, but 90% of the

population lives within 160 km of

the US border.

Capital: Ottawa

Population: 32,507,874

Languages: English, French

Power: 120 V, 60 Hz

Currency: Canadian Dollar

C$ 1 =US$ 0.8902

Climate: Canadas climate

varies due to its size and geog-

raphy, from temperate in the

southern regions to sub arctic and

arctic in the northern territories.

Summers tend to be hot and

humid, and winters cold and

snowy.

Industries: transportation equip-

ment, chemicals, processed and

unprocessed minerals, food prod-

ucts, wood and paper products,

fish products, petroleum and

natural gas.

Export: US$431.1 billion f.o.b.

(2007 est.)

Export commodities: motor

vehicles and parts, industrial

machinery, aircraft, telecommuni-

cations equipment, chemicals,

plastics, fertilizers, wood pulp,

timber, crude petroleum, natural

gas, electricity, and aluminum.

Export partners: US 79.3%,

UK 2.8%, China 2.1% (2007)

Import: US$386.4 billion f.o.b.

(2007 est.) Import commodities: machinery

and equipment, motor vehicles

and parts, crude oil, chemicals,

electricity, and durable consumer

goods

Import partners: US 54.4%,

China 9.4%, Mexico 4.2% (2007)

TRAVELER

Passports are

anyone traveling

Canada and wer

be required for la

starting in 2008.

However, travele

reprieve until a la

Speed and dist

measured in met

(km/h and km).

Human weight

measured in pou

and inches.

Outdoor tempe

ured in degrees C

ovens are measu

Fahrenheit.

Liquids are me

according to type

are sold in liters,

in ounces.

Canadian mon

nated in $100, $5

$5 bills. Coins are

(toonie), 25 cents

cents (dime), 5 c

1 cent (penny). W

introduced the C

people nickname

because one sid

common Canadi

loon. When Cana

the C$ 2 in 1996named it after a

the toonie (two lo

Tipping 10% to

customary in res

pubs, taxis and h

service charge is

restaurant bill, it


Buoyed by a strong currency and booming

exports, Canada seemed immune to the ailments of

its southern neighbor, but the gloom has now sp read

across the border. Some sectors, such as manufac-

turing and transportation, were already feeling the

pinch of a soaring Canadian dollar and a t roubled US

economy.

The transportation sector has felt the pain from

manufacturers who are suffering from the strong

currency and weakening demand in the US, Canadas

largest export market. A good portion of t he busi-

ness of our large clients is tied into their distribution in

the US, observes Bill Gottlieb, president of David

Kirsch Forwarders and a director of the Canadian

International Freight Forwarders Association.

Despite the strong dollar, Canadian intercontinental

exports have remained stable. The currency may

have diminished the quantity of cargo that f orwarders

can draw out of the US, but overall traffic has not

declined, says Lori Burrell, Director for Canada at AirFrance Cargo-KLM Cargo.

Panalpinas Vice President of airfreight, Angelo

DAmico, agrees that the strong Canadian dollar has

undermined the viability of moving US exports over

Canadian gateways. On the other hand, soaring

exports from the US have led t o a space crunch at

gateways south of the border, pushing some freight

north, says Eric Allard, Vice President of international

airfreight at Schenker. Despite dedicated freighter lift

to US airports, the Deutsche Bahn subsidiary has

moved some US exports through Canada, chiefly via

Toronto. Agents have had no problems finding

capacity out of Canada and rates have been corre-

spondingly steady.

Air France-KLM operates 55 flights a week in and out

of Canadian airports during the summer and 43

during winter. Mrs. Burrell is glad that KLM is onceagain flying Boeing 747-400 combis to Toronto three

times a week, citing forwarders strong demand for

upper deck space.

We need main deck capacity, says Nikos Simou,

Vice President of airfreight at Kuehne + Nagel. There

are opportunities out of Chicago and New York, but it

is important to have more upper deck capacity in

Canada.

Indeed, freighter lift has been a problem in Alberta,

where a strong oil and gas industry has generated

soaring exports and a booming economy. The lions

share of this business moves by ocean vessel, but also

definitely plays a role for airfreight, says Mr. Simou.

Canadas strong dollar and the rising price of its raw

materials have hurt much of the manufacturing

sector, except aerospace, which is doing well. W ith

its integration of BAX Global now complete,

Schenker has been targeting specific industry

sectors and has generated strong growth from aero-

space, Mr. Allard reports.

While the pharmaceutical industry is producing

healthy growth for forwarders and carriers operating

in Canada, concerns about avian influenza have

devastated its trade in hatching eggs and baby

chicks, formerly strong airfreight commodities, Mrs.

Burrell adds.

The volume of seafood has also gone down signifi-

cantly, says Mr. Simou. Canada used to export large

quantities of lobster, fish and seafood by air from itseastern seaboard, mainly to Europe, but also to Asia.

However, higher airfreight rates and surcharges now

absorb all the profit and force shippers to search for

other markets and cheaper transportation. Most of

this years catch went to the US by truck.

Canadian airports on the East Coast want to attract

freighter operators to fly seafood, but they face two

hurdles, Mr. Allard says. First, only lobsters move in

sufficient quantity to fill a cargo aircraft and then only

twice a year. Second, fierce competition among fish-

ermen in the Maritime Provinces has spawned a

stubborn refusal to pool their catch in order to fill a

freighter.

Another trend that has hurt the airfreight business out

of Canada this year has been the model shift from air

to ocean, Mr. Simou says. Weve seen many big

corporations that formerly moved traffic by air switch

everything to ocean, even in the healthcare sector.

Cost pressures, the uncertainty about how the

economic slowdown will affect Canadas economy,

and the financial turmoil in the US, are forcing logis-

tics companies to concentrate on cost management,

Mr. Allard says. The key words are: manage your

costs intelligently. Anybody can move freight. Now,

its how you control cost and deliver value.

On the bright side, Schenker hopes t hat electronic

communication will bring greater efficiency. Mr. Allard

says that his company participated in the first round

of e-freight trials last year and the experience waspositive. Schenker wants to use the concept with

more carriers and adopt it throughout Canada.

Mrs. Burrell would also like to see greater use of the

electronic booking channels available with AF-KL

Cargo. However, she says, most Canadian

customers still seem to prefer the phone.

CANADA BY IAN PUTZGER

cargovision country file

SteveAllen/Imageselect

DavidBall/Imageselect

Scienceworld dome in Vancouver

Horseshoe Falls of Niagara Canadian Falls

Totem pole, Stanley Park, Vancouver


15/16

Growth of Airlines in FTK - Jan.-Sep. 2008Far East traffic only

-10% -5% 0% 5% 10% 15%

UPS

BritishAirways

CathayPacific

Cargolux

FedEx

Lufthansa

SingaporeAirlines

AirChina

AirFrance- KLM

KoreanAir

JapanAirlines

ChinaAirlines

NorthwestAirlines

EVAair


Feb07

Major Scheduled Airlines - Global Freight Traffic Growth

0%

-2%

-4%

-6%

-8%

8%

6%

4%

2%

May07 Aug07 Nov07 Feb 08 May08 Aug08Aug05 Nov05 Feb 06 May06 Aug06 Nov06

AnnualGrowth

Growth-Quarter vsQuarterprevious Year

AverageGrowthofLast3Years=3,3%

Growth-Month vsMonth PreviousYear

12%

8%

4%

0%

-4%

-8%

-12%

65

60

55

50

45

40

35

IATA FTK Growth vs JP Morgan Global PMI3 months leading

IATA FTK

JP Morgan PMI Manufacturing New Orders

IATAFTKGrowth

J an 0 7 A pr 0 7 J ul 0 7 O ct 0 7 J an 0 8 A pr 0 8 J ul 0 8 O ct 08 J an 0 9J an 0 6 A pr 0 6 J ul 0 6 O ct 0 6

Growth of Asian Air Freight (FTK)

-6%

US carriers Pacific

Asian Pacific carriers

AEA carriers Far East

-4%

-2%

2%

4%

6%

8%

10%

2006 2007 2008 Sep.

0%

ANOTHER ASIAN AIRFREIGHT CRISIS?

Fig.1.Airfreight markets worsened considerably in the second half of

2008, with most regions reporting very negative growth by

October. The growing financial crisis and high fuel prices curtailed

both consumption, investments and production in the West. The

crisis started in America and spread to Europe, eventually causing

all airfreight sectors to and from the Far East to feel the brunt of the

drop-off. In the current world economy, the Middle East, Africa and

Latin America seem to be the best markets for airfreight.

Fig.2.A decline in the airfreight market was to be expected. A bleak

economic outlook usually results in lower demand for many manu-

factured goods. The JP Morgan Purchasing Managers Index is a

good indicator of worldwide manufacturing activity. The index for

new orders stood at 36.2 as of October, well below 50, the value

for no change; this is t he lowest value ever recorded. The growth of

IATA freight-tonne kilometers lags this index by three months. It

therefore looks like the worst part of the decline is still to come.

Fig.3. Because the financial crisis started in the USA, it is no surprise

that the decrease in airfreight traffic hit US carriers on the Pacific

first. Europe is behind Americas business cycle and the decline in

Asia-Europe traffic started later. The figures also show that Asian

carriers are feeling the effects of weaker markets. Intra-Asian trafficconsists mostly of components that regional manufactures use to

assemble finished products for shipment to the West. Hence, the

decline in air cargo is affecting all sectors in Asia.

Fig.5.Major airports in Asia also provide a picture of the

crisis. Japan and Taiwan felt the effects of a weaker

ago. China was always the star in the sea and airfre

but the latest data show a weakening trend even th

The Chinese economy may still be growing at a lowe

major importers of Chinese goods, Europe and the

to a standstill and now import less from the Far Eas

Fig.4. In the past five years sea freight grew much faste

with an increasing number of sea containers contrib

export boom. However, the sea freight world is also

current economic contraction. Container traffic to N

was down in 2007 and we now see the first signs o

to Europe. This is another illustration of how recess

America and followed half a year later in Europe. It is

edged by the international economic organizations

Europe and Japan are in a recession.

cargovision market monitor

People have looked to Asia in the recent past, China in particular, for the energlobal manufacturing. Now, no one seems to be immune in the current financ

This does not bode well for the airfreight business in this dynamic region.

BY DICK VAN DEN BERG

Fig.6.The slackening growth of major airlines operating

Asia reflect the slower development of the regions a

exports. Only a few airlines are still seeing positive tr

Asian routes in 2008. Cathays growth spurt is partly

taking over Dragonair during the first quarter. For moairlines, the latest monthly results are dismal. We ha

airfreight crisis, a virulent disease that began as an i

tion in US sub-prime mortgages.

Sea Freight from AsiaGrowth in TEU

-10%

Asia to Europe

Asia to North America

0%

5%

-5%

10%

15%

20%

25%

2 0 06 Q1 2 0 06 Q2 2 0 06 Q3 2 00 6Q4 2 00 7Q1 2 00 7 Q2 2 00 7Q3 2 00 7Q4 2 00 8Q1 2 00 8 Q2

Top-6 Airports Far EastGrowth of Air Freight

-10%

2005

2006

2007

2008 u/i Aug

-5%

5%

10%

15%

20%

H ong K ong Sha ngha i PVG Se oul IC N T ok yo NRT Ho ng Ko ng Ta ipe i

0%Growthintonnes

i i i i i i f i


16/16

MASKED BANDITS

Just when Somali pirates threaten to become the scourge

of global trade, their infamy suddenly pales under the

emerging radiance of the humble letter-of-credit. This unin-

tended casualty of the banking crisis lies gasping as we

speak, draining the lifeblood from the flow of goods and serv-

ices. Bankers tighten the credit knot. Blank letters of credit

flutter in the air, inflicting casualties on forwarders, ship

owners, airline cargo executives, even whole societies if we

are to believe the more radical views like those of weblogger

London Banker:

Trade finance is rapidly communicating the stress on bank

liquidity to the real economy. Controlling access to trade

finance determines who loses their jobs, whose children go

hungry, who riots, which governments fall. It presents a

systemic risk much more frightening than the collapsing value

of bits of p aper traded electronically in London and New York.

It could collapse the employment, the well-being and the polit-

ical stability of most of the worlds population.

For over 400 years, commercial letters of credit helped traders

overcome bad weather, unfamiliar laws, fluctuating currencies

and botched instructions so they could transact business with

distant partners. To purchase goods, an importer has his bank

issue a letter of credit t o the exporters bank, creating a usually

irrevocable guarantee to pay the vendor. An importer in theWest typically funds his transaction with b ank borrowing at a

rate of 5% to 7%, the premium reflecting a risk that the goods

may never arrive or at least not intact.

Amazingly, 20 banks fund 55% of global trade. Until recently, a

large trading company that would have paid US$600 per letter


Cargovision is the management magazine of AFIts function is to disseminate information on trandistribution, logistics, information services, and business developments. The editorial opinions e

in the magazine are not necessarily those of Air Reproduction in whole or in part without writtenis prohibited.

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[email protected]

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AF-KL Cargo January 2009 Volume 24 Number 35

cargo

MARK W. LYON, EDITOR-IN-CHIEF

of credit could easily generate US$1 million in monthly revenue

to the bank. Yet, since the credit crunch, those costs have risen

six-fold, according to Pascal Lamy. The director general of the

World Trade Organization said in November that current

economic conditions have left the market for trade finance,

which funds 90% of the US$14 trillion world trade, lacking

US$25 billion in equity.

Some 41% of US retailers are seeing tight credit as a result of

the crisis in the banking sector, while exporters to China and

India cannot get funding for basics like recycled plastic, elec-

tronic components, and steel. Chinese banks began tightening

their credit standards in late summer.

NO HOLDS BARRED

Ship owners cannot get banks to issue letters of credit for

cargos of price-volatile commodities that may not provide

adequate collateral. Even when credit is available, trading part-

ners tend now to accept letters only from established banks

and they charge premiums.

At present, the LOC problem looks worse for bulk ocean traffic

than for airfreight, although that may change during the first

quarter when air cargo traffic usually slows. The Baltic Dry

Index, a measure of shipping costs across different ship sizes,

fell 93% from a record high in May. Analysts guess that 50 and

100 capsized vessels, commonly hired to haul coal and ore, sitidle today, and that number could soon reach 150. On June 30,

43 vessels were idle. According to figures from the Baltic

Exchange in London, spot rates dropped 98% in five months,

from US$233,988 a day in June to US$4,793 in November.

That is below the cost of paying for crew, insurance, mainte-

nance and lubricants.

NO FLY ZONE

The banking crisis is also disrupting the airline industry,

although estimating the damage to the cargo sector is

more difficult because no index exists for airfreight that is

comparable to the Baltic Dry Index for sea freight. We do

know that international freight traffic has been falling since

January at about 3% per month at the 322 airports

tracked by the Airports Council International. However,

ACIs rolling 12-month average for tonnage had increased

3% at t he end of September. IATAs figures show that its

member airlines carried 0.1% more cargo traffic in the first

nine months of 2008 than during the comparable period in

2007. Additionally, the following results posted by carriers

in November suggest that while cargo tonnage is off, from

a revenue standpoint, many are not suffering. However,

the overall expectation is that worse is still to come.

Airline % C hg Type* Period ( mo)

Lufthansa + 9.0 Rev 9

British Airways + 22.0 Rev 6

Volga Dnepr + 80.0 Rev 9

Airbridge Cargo + 68.0 Rev 9

Delta + 11.0 FTM 10

United + 0.2 FTM 10

Continental + 0.4 FTM 10

American - 2.7 FTM 10

China Eastern + 0.6 FTK 9

Japan Airlines - 7.5 Rev 6

ANA + 21.0 Rev 6

Singapore Airlines - 1.7 RTK 6

Cat hay Pac if ic -Dr ago nair + 2 .4 To nne 6

Royal Jordanian + 20.0 Rev 9

Kenya Airways 0.0 Tonne 6

Turkish Airlines + 7.1 Tonne 10

*Type of change is either revenue, freight-ton-mile,

revenue-tonne-kilometer or tonnes

SU

Quarterly Magazine Af-kl Cargo Volume 24 ˆ No. 35 ˆ

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