Air Cargo in Europe revives its vibe

If recent trends are anything to go by, air cargo market in Europe is definitely showing a recovery. Though we may not go back to how things were in 2011, optimism is definitely there in the air with players looking at new products and innovative solutions.

Europe as an air cargo market is characterised by high quality service levels, constant investment and flexible tariff policy. It has a key role to play with some of the major business hubs situated in this region.The airfreight market has shown a recovery from mid-2013, a trend that has continued so far in 2014. However, the industry is still far from the growth and profitability it was used to before 2011. “Volumes are picking up again, we still see a lot of players in the market that aren’t quite at cruising speed yet,” says Bert Selis, cargo and logistics manager, Liege Airport. “Price pressure and a customer-base that is increasingly demanding are creating a widening gap between the ‘haves’ and the ‘have-nots’, and therefore, for the companies whose business is picking up well and those whose business isn’t,” he further adds.
Even though Europe is still not in an easy position, there is not much room to complain with air cargo. “If we look at airports and logistics players involved with them, they are in a better position than struggling airlines. The big growth figures are not there. But it’s not going to be too bad logistics wise,” says Steven Polmans, head of cargo, Brussels Airport Company. For the first six months in 2014, Brussels Airport saw a growth of six percent year on year (YOY) and handled 650,000 tonnes of freight in the previous year. “We are expecting a good growth this year. I think we will end the year on an YOY of 8 percent,” adds Polmans.
Coming to all cargo airlines, they are indeed in a difficult state. “We have seen yields continuing to be under pressure. In fact we believed to have reached the lowest ever level at least from the last six to seven years that we have looked at them,” says Dirk Reich, CEO of Cargolux Airlines. He admits, demand has been picking up and going forward, demand and supply will remain the same level for the next two or three years. “We do hope it stabilises but we have not seen it yet.” Today freighters control roughly half of the market, with the other half taken over by belly cargo. “There are some passenger airlines that put wide-body aircraft on new routes, and they just give away the belly space and kill the freighters in order to gain market share.” In a scenario like this, creating long-term solution is difficult, especially when belly capacity is just dumped into new markets at unreasonable costs, only to gain more market share.
Going forward, China will be the country of growth for Cargolux with scheduled operations to Zhengzhou in China. “We plan to increase these flights to once a day up to the end of the year. And the mid-term plan is to go up to three flights a day. So, this is the destination and also the hub of our new shareholder. Which explains why we should go there so much,” says Reich. Last year’s results were affected by some extra ordinary results. The underlying figures were lower and in fact negative.
Brussels Airport has witnessed considerable growth in pharmaceuticals where transparency and standardisation of procedures play an integral role. “We started working as an airport on what we can do to gain more transparency,” says Polmans. Which is why Brussels Airport joined hands with IATA Time and Temperature Task Force (IATA TTTF) to improve the cool chain and pharma handling at the airport.
The airfreight market shows a recovery as from mid-2013, a trend that continued so far in 2014. “The recent economic slowdown in Germany however could affect this positive trend. We are still far from the growth and profitability we were used to before 2011,” says Sander Heijmans, CEO, Maastricht Aachen Airport. Maastricht Aachen Airport and Maastricht Handling Services are integrated companies and mainly focused on air cargo traffic servicing key full freighter customers like Cargolux, Turkish Airlines, Royal Jordanian and Ethiopian Airlines. In these times where price and flexibility, combined with a quality product, are of the utmost importance, we continue to prove that we are able to grow our business in difficult circumstances,” he adds.
The situation is getting stronger than before with more stability in the market. “There is certainly an air of more optimism in the industry as a whole, and that has now spread to Europe – reflected in modest growth at all main hubs. But the air cargo industry is highly-volatile and very reactive to world events and sentiments,” says Enno Osinga, senior vice president – cargo at Amsterdam Airport Schiphol. “The political situation in Ukraine and current sanctions against Russia, and how the matter may develop, are of some concern and may hold back the ongoing recovery.” Given that the recovery started last year in August, Osinga expects that growth figures will decline from September onwards and will end the year approximately at a growth rate of five percent.
Liege Airport is seeing an increasing cooperation with airlines, forwarders, shippers, and government bodies such as customs or health inspection services. “This type of cooperation, supported by ongoing investments in facilities and improved procedures, create actual improvements and we believe this is making the difference today and driving the growth we know now for more than 12 months in a row,” says Selis. However, though volumes are rising again in almost each segment, airfreight still is in a tough position. “The need for airfreight specialists is bigger than ever,” he emphasizes. In the first seven months of 2014 volumes were up by two percent, and YOY volumes are up by three to four percent. In cargo volume this represents a YOY volume of 567.042 tonnes.
Air cargo tonnages through Amsterdam Airport Schiphol continued to build throughout the second quarter of 2014, leading to overall growth of 8.84 percent in the year to date. “Part of our growth has been an increase in our market share as airlines have chosen Schiphol for their expansion, or moved services from other gateways, driven by our efforts to streamline processes, creating a better customer experience,” says Osinga. Schiphol has also seen organic growth in pharmaceuticals and other sectors by developing new traffic sources in partnership with its community. There is an underlying shift in the base commodities that support the airfreight industry. “We see more consumer hi-tech products relying on ocean freight once new products are launched. This business is being replaced by pharma and perishables, both are an important aspect of Schiphol’s business.”
Indeed, major European airports are busy positioning themselves as the gateway for pharma to other parts of the world. As Selis puts it, the European cargo landscape is ‘hot’ for pharma nowadays; even though that is off course the temperature condition the pharmaceutical sector fears the most. “Volumes are growing, facilities are growing, but it is only one of Liege Airport’s key products.” Besides pharma, Liege Airport’s other fields of expertise are oil, mining and gas, equipment, perishables (flowers and food, of which we handle more than 250 tonnes daily), express and parcels and live animals (horses and cattle to be more specific). “Having this broad pallet of cargo expertise, combined with our new 60 hectare logistics area open for developments as from Q1 2015, we are convinced that the future for cargo looks bright at Liege Airport.” However, the mix between perishables, pharmaceuticals, express products and general cargo is not shifting a lot. “What we do notice is a rise in charter volumes. Ranging from An-124s over 747s to An-26s, we see a serious rise in charters mainly loaded with oil, mining & gas equipment, pharmaceuticals or automotive.”
Another key market affecting Europe’s business is Moscow with dozens of international airlines’ route network intersecting here. “In recent years the Russian Federation mostly repeats European trend of the cargo traffic dynamics. Whereas air cargo traffic in Europe started to show growth, we are expecting the same in Russia and in Moscow Air Hub,” says Daria Korshunova, PR director, Moscow Domodedovo Airport. But the recent economic measures taken against Russia are bound to affect the trade in general and consequently air cargo, which is something the airport is much aware of. “We observe some trends of downward import volume and airfreight activity,” says Korshunova. “It results from such factors as, for example, the instability of currency rates, declining oil prices, and factors caused by global political reasons.”
The revival of consumer confidence in Europe seems to be helping air cargo. “It does generate some more business and we see that volumes are rising but to make a correct analysis we have to make a split between European cargo and intercontinental transit cargo,” says Selis. In Europe, the revival of the Consumer Confidence Index (CCI) is less solid than in other parts of the world. As a result, there is sharper rise in cargo transiting from Asia to Africa or US to Africa than in cargo into or ex Europe.
Though air freight accounts for one percent of world trade by tonnage, it holds a value of 35-40 percent. “When consumer confidence is high and economies are strong, airfreight prospers; but when any major market sneezes, airfreight catches a cold,” says Osinga.
A key challenge is to get the air cargo process modernised to a more electronic format to allow increase in speed and transparency. “The latter is especially important for both shippers and forwarders, as only then can they optimise their logistics operation. The success of the integrators proves this point,” adds Osinga.
Fortunately, the air cargo supply chain is getting more evolved than earlier. Although Liege Airport is located centrally in Europe, with the shortest transit times into Germany, France, UK and Benelux, it is not very popular with end customer. “Forwarders are finding their way to Liege Airport for reasons of speed and quality of handling, cargo-friendly rates and plenty of land development opportunities, but we do notice shippers are not at all familiar with these advantages yet,” observes Selis.
But who can ignore the intense competition between its players? “One of the challenges is that European carriers are struggling. Although cargo is not doing bad, full freighters are struggling. We all as airports are competing for a fewer customers and fewer flights and that is having an impact on how we compete with each other,” says Polmans. Brussels Airport benefitting with concentration of forwarders getting stronger because of its focus on building a community. “After three years of consistently working with the shippers, forwarders and customs to streamline procedures, to build up trade lanes, it has started paying off. We notice that we can now attract more cargo flows.”
But very often in the European market, forwarders are obliged to use traditional gateway hubs rather than using a certain airport that could provide them cheaper and faster connection. Hence, the forwarder is forced to truck to these gateways when they could have just used the airport to give them an easier alternative. This poses a serious difficulty in doing business, thus increasing transit times.
In the end, Europe will continue to remain world’s biggest consumer market. While some European countries are successfully developing their manufacturing sectors, and attracting customers that would once have gone to China or India, others are still suffering severe trade imbalances fuelled by heavy importing. In a scenario of this kind, market trends are hard to predict. But modal shift is definitely a concern for many. “This down-gearing to ocean freight is nothing new: it’s an ongoing evolution where new products initially use the speed and reliability of airfreight for early stocking of retail outlets and distribution centres before and immediately after launch, to be followed by larger stocks carried by ocean,” says Osinga. “Everybody has been talking recently about modal shift from air to sea; but what will be interesting is to observe if there is a reversal of this trend due to the ocean carriers’ problems with port congestion and slow-steaming. A minute loss of ocean freight volumes could provide a very significant and welcome boost to air freight,” says Osinga. 