Aviation Business

CON­NECT­ING THE GLOBAL ECON­OMY

At­tend­ing the re­cent IATA Cargo Day, AVB got the chance to touch base with Glyn Hughes, global head of IATA Cargo, to dis­cuss the fu­ture of world’s air freight mar­ket

- By Alexan­der Sopho­clis Pieri Business · Transportation · Industries · Geneva · Geneva · Austria · Air Transport Association · Switzerland · Iceland · Belarus · India · China · Belgium · Microsoft · United States of America · Middle East · The Middle East · Hughes Aircraft · International Air Transport Association · Lake Geneva · Geneva International Airport · The Middle East · flydubai

At­tend­ing the re­cent IATA Cargo Day, AVB got the chance to touch base with Glyn Hughes, global head of IATA Cargo, to dis­cuss the fu­ture of world’s air freight mar­ket

Af­ter dar­ing through the chill­ing wind spurred up from Lake Geneva and en­dur­ing the light but bit­ing driz­zle from the low-ceil­ing over Geneva’s skies, AVB ar­rived at In­ter­na­tional Air Trans­port As­so­ci­a­tion’s (IATA) ex­ec­u­tive head­quar­ters to find both a wel­come re­cep­tion and much-needed warmth.

Lo­cated within walk­ing dis­tance of Geneva Air­port in Switzer­land, the pub­li­ca­tion was on hand to at­tend the avi­a­tion as­so­ci­a­tion’s an­nual IATA Cargo Day. In ad­di­tion to gain­ing in­sights on the for­ward progress of the global air freight mar­ket, AVB con­nected with Glyn Hughes, global head of Cargo at IATA, who shared his view­point on the state of the mar­ket and his ex­pec­ta­tions for the fu­ture.

Ac­cord­ing to the lat­est mar­ket fore­casts from IATA, cargo rev­enues for 2019 are ex­pected to pass $116bn and will likely rep­re­sent more than 13% of air­line rev­enues. This pro­jec­tion is up from the $109.8bn es­ti­mated for 2018.

In terms of cargo tonnes car­ried, the pro­jected fig­ure is ex­pected to rise from 63.7 mil­lion as re­ported in 2018, to reach 65.9 mil­lion in the New Year. Drop­ping from 4.1% (2018) to 3.7% (2019), the re­duced de­mand growth is the slow­est pace recorded by the or­gan­i­sa­tion since 2016 and is likely a re­sult of sub­dued global trade in­flu­enced by in­creased pro­tec­tion­ism.

IATA also noted that al­though cargo yields for the New Year will grow by a mere 2%, a sub­stan­tial de­crease over the 10% yield growth of 2018, the cargo busi­ness con­tin­ues to re­main strong thanks to de­pre­ci­a­tion in cost in­creases.

“I think 2018 and 2017 have re­ally demon­strated that air cargo is back … we had a pe­riod of some dif­fi­culty fol­low­ing the global fi­nan­cial cri­sis — about four to five years of flat vol­ume growth,” ex­plained Glyn Hughes, global head of IATA Cargo.

“The con­tin­ued growth of e-com­merce, par­tic­u­larly cross-bor­der e-com­merce, and the con­tin­ued growth of spe­cialised sup­ply chains, such as phar­ma­ceu­ti­cals, live an­i­mals and per­ish­ables, has re­ally re­sulted

The rea­son why we are quite, very buoy­ant right now is that things like fresh fruit, veg­eta­bles, flow­ers, and phar­ma­ceu­ti­cals. These are very longterm growth com­modi­ties.”

in the fact that cargo growth pro­jec­tions are very solid.”

He pointed out that there has been a lot of traction in the trans­porta­tion of an­i­mals, a chal­leng­ing ser­vice to de­liv­ery given the zero tol­er­ance for fail­ure and that has drawn huge in­vest­ments from high-pro­file air­lines.

At the same time, the pop­u­lar­ity of phar­ma­ceu­ti­cals has also in­creased re­cently gain­ing ground in mar­kets like In­dia and China, which have his­tor­i­cally favoured tra­di­tional herbed-based medicines.

“A lot of things which flew by air cargo, 15 or 20 years ago, are no longer man­u­fac­tured. We used to fly soft­ware. Win­dows used to be re­leased as a two kilo­gram book with a CD and Mi­cro­soft pro­duced 20 mil­lion of these and flew them around the world. Now you up­load soft­ware by press­ing a but­ton,” ex­plained Hughes.

“We used to fly do­mes­tic print­ers around the world. Now you can buy a do­mes­tic printer for 25 to 30 eu­ros.

It’s the toner car­tridge that has the value but the catridge doesn’t weight any­where near the do­mes­tic printer. A lot of the cargo prod­ucts only have a lim­ited life be­fore they no longer are ac­tu­ally vi­able to fly or are no longer man­u­fac­tured,” he added.

When pressed about the slight de- cline in the mar­ket’s per­for­mance over 2018, Hughes ex­plained that while the global econ­omy was in a ‘healthy’ state with a num­ber of key economies were grow­ing, there was one fac­tor dis­cour­ag­ing global trade.

“All the ma­jor economies were grow­ing, how­ever, there was one statis­tic which is a con­se­quence of the trade wars or the es­ca­la­tion of the trade wars be­tween the US and China. That is con­sumer con­fi­dence,” com­mented Hughes.

“We saw a dra­matic drop-off dur­ing the sec­ond half of this year in con­sumer con­fi­dence. And that has re­sulted in peo­ple be­ing a lit­tle bit more cau­tious about what they are buy­ing. Just be­cause of the un­known ef­fect of what’s go­ing to hap­pen with an es­ca­lat­ing trade war.

“When you’ve got two gov­ern­ments who are num­ber one and num­ber two in the global econ­omy, not a dis­agree­ment be­tween two mi­nor economies, there is a nat­u­ral spill over to other parts of the world.”

De­spite the neg­a­tive im­pact, how­ever, such de­vel­op­ments could also have some pos­i­tive ben­e­fits for the econ­omy in the long-term. For ex­am­ple, if man­u­fac­tur­ers feel they can no longer op­er­ate in one coun­try due to the im­ple­men­ta­tion of tar­iffs, they will likely move their pro­duc­tion to a neu­tral third coun­try.

In ad­di­tion to help­ing com­pa­nies avoid ex­pen­sive op­er­a­tions, the shift will un­doubt­edly cre­ate new sup­ply chains that will source the new man­u­fac­tur­ing lo­ca­tion.

“We would still ad­vo­cate that all gov­ern­ments keep the global econ­omy open be­cause, at the end of the day, an open global econ­omy ben­e­fits all con­sumers and all na­tions. Both de­vel­op­ing and de­vel­oped,” added Hughes.

Switch­ing gears to dis­cuss the progress of the Mid­dle East mar­ket, the head of global cargo pointed out that the re­gion is home to some high-per­form­ing car­ri­ers with ro­bust cargo op­er­a­tions. In fact, ac­cord­ing to some of IATA’s own re­ports through­out last year, there were sev­eral months over 2018 that the Mid­dle East posted solid per­for­mance fig­ures.

Back in Oc­to­ber, air­lines in the re­gion saw a 5% in­crease in freight vol­umes over the same pe­riod a year prior, while in Sep­tem­ber, the re­gion led the world in terms of cargo growth with a re­ported

6.6% in­crease.

“The global econ­omy is about global con­nec­tiv­ity. Car­ri­ers based in the Mid­dle East are per­fectly po­si­tioned for that be­cause their net­work is very much about con­nect­ing points of pro­duc­tion and points of con­sump­tion,” com­mented Hughes.

“The Mid­dle East has a lot of con­nec­tiv­ity, which is its key sell­ing point. It’s also in­ter­est­ing to note that in­traAfrican cargo is more ef­fi­cient when it flies via the Mid­dle East … be­cause of the open skies agree­ment with the Mid­dle East that fa­cil­i­tates greater con-

The in­dus­try has to em­brace the dig­i­tal­i­sa­tion wave even more and I’m very pleased to see how much in­vest­ment is be­ing made this year.”

nec­tiv­ity, the ser­vices op­er­at­ing there means you’ve got more choice and you tend to have big­ger, wider air­craft that are more cargo friendly.”

An­other stand­out fea­ture of the Mid­dle East is the fact that a num­ber of low-cost car­ri­ers in the re­gion have be­gun to re­fo­cus their ef­forts within the air cargo game. Point­ing to the suc­cess­ful model of fly­dubai for ex­am­ple, Hughes shared that the car­rier has “a very good cargo prod­uct.”

“It is all based on dig­i­talised in­for­ma­tion. They don’t have pa­per air­way bills. It tends to be smaller con­sign­ments, eas­ier to off­load and un­load but it’s a very im­por­tant com­po­nent. Par­tic­u­larly when you look at e-com­merce, for ex­am­ple, which is about re­gional dis­tri­bu­tion and good ac­cess to lots of dif­fer­ent mar­kets,” com­mented Hughes.

“That is what the low-cost model has been for pas­sen­gers. It’s about cre­at­ing a greater de­gree of choice and ac­cess to per­haps smaller and se­condary mar­kets. So we ver y much see the low-cost prod­uct or low-cost car­ri­ers, mov­ing into a cargo prod­uct and can cer­tainly sup­ple­ment greater con­nec­tiv­ity for the air cargo in­dustr y.”

Look­ing ahead, the global head of IATA Cargo be­lieves that the chal­lenges sur­round­ing con­sumer con­fi­dence will likely per­sist over the New Year.

The on­go­ing geopo­lit­i­cal cli­mate will con­tinue to im­pact con­sumers, which in turn will af­fect air cargo sup­ply chains. Sadly though, it is an area that IATA and the avi­a­tion in­dus­try have lit­tle in­flu­ence over.

That’s not to say there aren’t also in­dus­try-spe­cific chal­lenges to over­come as well. Im­prove­ments to­wards fore­cast­ing vol­umes and peak de­mand will be needed to en­sure cargo is de­liv­ered

when needed and to avoid ex­cess. This can be ac­com­plished with im­proved re­la­tions and col­lab­o­ra­tion be­tween ship­pers, freight-for­warded and air­lines.

And while there are cer­tainly a lot of in­vest­ments go­ing into de­vel­op­ing pas­sen­ger ter­mi­nals, cargo fa­cil­i­ties haven’t re­ceived the same at­ten­tion. In­stead of new sites, cargo fa­cil­i­ties are go­ing ver­ti­cal and are more fo­cused on au­to­ma­tion. The re­sult of that is a greater de­gree of vol­ume pro­cess­ing of cargo.

The global head of Cargo for IATA also ex­plained that the ad­vent of dig­i­tal­i­sa­tion has im­pacted not only con­sumer be­hav­iour but also the air cargo sup­ply chain.

Where it used to be the case that the sup­ply chain was fo­cused on mov­ing freight from points of pro­duc­tion to re­gional dis­tri­bu­tion cen­tres and then fi­nally to re­tail out­lets, now, thanks to e- com­merce, it is about get­ting the prod­uct to the con­sumer as fast as pos­si­ble.

Af­ter pur­chas­ing a prod­uct on­line, con­sumers ex­pect to re­ceive the prod­uct on time, as per the de­liver y sched­ule. When it doesn’t ar­rive on time that’s where prob­lems arise.

“This is where the cargo in­dus­try has to lever­age dig­i­tal­i­sa­tion to a much greater de­gree … they [cus­tomers] want to know where their pur­chases are. It’s only through mak­ing that in­for­ma­tion trans­par­ent that is ac­tu­ally sat­is­fy­ing to­day’s con­sumer,” said Hughes.

“Even with the con­firmed date, they still want to know that it hasn’t changed. That in­for­ma­tion can­not hap­pen if it is still pa­per-based,” he added.

A con­tin­ued push to­wards dig­i­tal­i­sa­tion will con­tinue to dom­i­nate the bet­ter part of 2019.

“The in­dustr y has to em­brace the dig­i­tal­i­sa­tion wave even more and I’m very pleased to see how much in­vest­ment is be­ing made this year,” as­serts Hughes.

“The in­dus­try has re­turned to a solid healthy po­si­tion of rev­enue gen­er­a­tion, which means they are in­vest­ing a lot more back in tech­nol­ogy and ad­vanced au­to­ma­tion and I ex­pect that trend to con­tinue next year as well. As well as the growth in spe­cialised sup­ply chains,” he con­cluded.

The global econ­omy is about global con­nec­tiv­ity. Car­ri­ers based in the Mid­dle East are per­fectly po­si­tioned for that, be­cause their net­work is very much about con­nect­ing points of pro­duc­tion and points of con­sump­tion.”

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 ??  ?? Ac­cord­ing to IATA’s fore­casts for 2019, cargo rev­enues for 2019 are ex­pected to pass $116bn and will likely rep­re­sent more than 13% of air­line rev­enues.
Ac­cord­ing to IATA’s fore­casts for 2019, cargo rev­enues for 2019 are ex­pected to pass $116bn and will likely rep­re­sent more than 13% of air­line rev­enues.
 ??  ?? IATA Cargo Day delved into the lat­est news in spe­cial cargo, dig­i­tal cargo, and e-com­merce.
IATA Cargo Day delved into the lat­est news in spe­cial cargo, dig­i­tal cargo, and e-com­merce.
 ??  ?? Cargo yields for the New Year will grow by 2%, a sub­stan­tial de­crease over the 10% yield growth of 2018.
Cargo yields for the New Year will grow by 2%, a sub­stan­tial de­crease over the 10% yield growth of 2018.
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