Flowers: demand spikes up

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As the air cargo industry is gearing up for the flower season, newer markets in Latin America and Africa are opening up for exports.  And Europe still continues to be a major importer of this commodity. The flower industry is very crucial to air cargo. Probably, because it is one of the few commodities that can still provide positive margins to the business. “On average, we see an increase in production of 3-5 percent per year, which is higher than the global growth levels. It is important to mention that the industry continues to innovate on for example growing methods or packaging. It also continues to innovate and explore new species to be produced,” says Pieter Fopma, Air France-KLM cargo director for perishables. Demand for flowers usually originates from Africa and South America. But in the African region, the focus has been shifting away from traditional markets like Kenya. It was announced that Kenya’s neighbouring country Ethiopia is planning to increase its revenue from the export of horticulture products to $371 million during 2014-15 fiscal year, compared to $245 million in the previous year. Logistics companies are now witnessing an increasing shift of flower exports from Ethiopia than its other African counterparts. Jan Prins , owner of Horti-Projects in Africa, owes this development to “favourable conditions, climate, government support and cheap labour.” To make matters more complicated, because of the initial failure to make an agreement between the European Union (EU) and the East African Community for an Economic Partnership agreement (EPI),Kenya Flower exporters have to now pay a 5-8.5 percent import levies to the EU. This development could have had a major impact on air cargo, however, Prins assures that “This import tax will disappear in February, so effect is almost zero.’’ Fopma too confirms that the EAC has been able to reach an agreement with the EU. This means that the import levels are only charged for a temporary period. “The flower industry is healthy enough to absorb these charges for a short period of time. Hence, we do not see any huge impact on the air cargo market as such. If there was no agreement between EAC and EU yet, this picture would obviously be very different and impact would certainly be noticed on flower exports from Eastern Africa.” The South African flower industry has also been developing steadily over the past few decades across segments like Greenhouse flowers such as roses, foliage and fynbos such as proteas. “The market moves in line with normal business cycles and is affected by other factors that influence consumer demand,” says Saxen van Coller, CEO of Dube TradePort. Meanwhile the Latin American flower trade continues to be important to carriers across Europe and in North America.“Indeed, at current rates we can expect volumes from the two key flower markets – Colombia and Ecuador – to finish 14 percent up on last year,” says Rodrigo Casal, VP Commercial, LATAM at IAG Cargo. He further adds that the shape of the market has changed: while the overall trade in flowers from Colombia and Ecuador into Europe has remained flat -with Holland, at 80 per cent by far the biggest regional importer-there has been significant industry growth to Asia, especially China and Japan, and the Middle East.“Our strongest flows originate in Colombia and Ecuador and terminate in Spain and the UK. As our hub airports, it makes sense that Heathrow and Madrid lead demand for this commodity.”For combined shipments from Colombia and Ecuador the carrier will reach 14 percent ahead of last year.“Flowers make up close to 17 per cent of our total Latin America business. It is therefore an important flow for what is becoming one of our strongest competitive differentiators: our exceptional connectivity between Europe and the lucrative economies of Latin America.”Though demand for flowers has always been concentrated around peak events such as Valentine’s Day, All Saints Day, the end of year festivities and Mother’s Day, Casal explains that this trend will continue and make it more important than ever for retailers to be able to effectively manage their stock. “Air cargo is effective in this respect as it allows retailers to respond rapidly to changes in demand, ensuring they don’t lose revenue through excess stock or stock shortfalls.” The Colombian and Ecuadorian flower industries will no doubt continue to grow into its natural markets of the USA and Latin America. When it comes to Europe, however, the picture is less clear and will depend largely on costs, volume growth and competition from other source markets such as Africa. However, any losses here could be offset by continued growth in the Asian market. American Airlines Cargo has also witnessed a positive trend for their flower traffic from Colombia and Ecuador. The carrier transports on average 6,000 tonnes of flowers a year throughout their network. “These volumes make it clear that we have a strong focus on this commodity. We believe that our joint network with US Airways and our international growth to the largest world’s markets will drive significant growth in our flower volumes,” says MD Cargo Sales MCLA, American Airlines Cargo. Earlier this year, AA Cargo introduced daily services from Dallas to Hong Kong and as well as to Shanghai. Last December, the airline started new services to Campinas, Brazil and also announced new services this year to Beijing and Frankfurt.“American’s focus on introducing ‘new services’ to preserve the quality of the flower to the final destination will remain key, explains Taylor. AA Cargo has also invested in coolers in major hubs such as Miami, Dallas, Los Angles, Chicago, New York, London and Philadelphia. As part of the airline’s strategy to be innovative, it has also introduced new protective material that shippers can use as part of the packaging. “The material protects flowers from sunrays as well as from rain during transit to/from warehouses and the aircraft,” assures Taylor. Even though AA Cargo widely caters to the US market, it has been extremely successful at maximising its network by focusing on the traffic to the European markets as well as targeting new destinations in Asia such as Japan and Korea. “This has allowed us to deliver higher yields than what the USA importers are willing to pay.” For the airline, European destinations still remain strong, particularly London, Amsterdam, Paris, Madrid, Milan, and Barcelona where it offers a significant choice of schedules via various hubs. Overall it looks like Europe will continue to be the main driver for demand for the exports of flowers. But Russia has considerably shown less interest over the past months, especially with the collapse of the Rouble. “With strict money transfer measures that are currently in place, it increases the costs to do business. Ruble has lost around 40 percent versus the dollar so far in 2014. Needless to say that we are closely monitoring the developments,” says Fopma of AF-KLM For South Africa’s there are traditional markets and established trading partners such as The UK and Netherlands. “There are also emerging markets such as Russia and the Far East. These markets are driven by factors such as price competitiveness, quality and vase life of products and consistency of supply,” adds Coller. 
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