Germany’s flagging domestic air cargo fortunes are seeking a revival amidst changing market dynamics as new opportunities for growth emerge.
There is a sudden rush of adrenaline. An emotional upsurge even and a sense of fascination and wonder when you arrive at a place for the very first time. It is a voyage of discovery as every place, country or city bears its veritably unique insignia. Much akin to that of gazing into the vast expanse of the ocean; serene, limitless and hypnotic, certain places can mesmerise you.
Germany is one such place. From the very first few moments of being hauled into a rolls-royce cab; the city is pulsating with energy and life. It is another reality altogether. A kaleidoscopic melange of the ordinary and the extraordinary. The German autobahns are an absolute delight. Among the first things that one notices is the carnival of cars. Everything, right from a Porsche, Volkswagen, BMW to an Audi on the roads; the city is a car connoisseur’s dream. And everything is moving at nearly 200 miles an hour. It is perhaps the epitome of on road logistical efficiency. For traditionally, Germany has relied extensively on its motor transportation system to transport goods. Rapid industrialisation has greatly increased the reliance on air cargo. Especially with the emergence of e-commerce in recent times.
So much so that the air cargo industry has become the lifeline for many industries here. Since it helps sustain lives. Supply chain efficiency is the focal point of many organisations here amidst challenges. Recent statistics highlight that air freight has a market share of 30 percent representing two percent of tonnage. Statistics highlight that a tonne of air freight is worth on average €70,000, compared to between €1,200 and €3,000 for surface and marine freight.
However, with few exceptions, regional airports in Germany have experienced a decline in the past decade. The total passenger volume at German regional airports decreased steadily from 2010 to 2014. In a longer-term comparison, the volume in 2014 was barely five percent higher than in 2005.
“The market environment remains challenging while capacities are increasing. As Europe’s leading cargo airline we will continue to offer highest quality to our customers and to further improve our efficiency. Our customers can benefit from the large network of Lufthansa freighter and passenger flights. We will continue to manage it flexible to meet the demand as good as possible. We have successfully introduced our new pricing model, which is easier to handle but still transparent. Furthermore, we see good opportunities in cooperating with partner airlines,” says Florian Pfaff, vice president, Area Management, Germany, Lufthansa Cargo.
Despite the bleak scenario presented, there are certain individual airports that are also doing extremely well with rising freight tonnage volumes and can act as a paradigm for the rest of the country. Germany is also home to two major air cargo express hubs, DHL in Leipzig and UPS in Cologne, in addition to Lufthansa’s global hub in Frankfurt. However, Germany is facing competition, both from within Europe and from emerging and developing markets in Asia so it needs to create the right policy landscape to ensure Germany maintains its competitive position.
Markus Heinelt, director, Traffic Development Cargo, Munich Airport, avers, “Germany is still the biggest economy in the European union with air freight being a major component because a lot of companies like BMW, Audi and Porsche among others are in the country. The strong manufacturing base in Germany provides impetus to air freight. The biggest challenge is always safety and security. Transportation is very sensitive in terms of costs. Germany is a transit hub and a lot of goods are moving via Germany. With border controls the impact is felt on the entire industry.”
The new Schengen EU Regulations in light of recent events have also increased dwell times and cross-border logistical efficacy within the region. Since increased screening and border curfews have led to longer waiting times for vehicles transporting goods across borders.
“With falling volumes competition in the German aviation industry is becoming ever more intense. In addition, there is enormous political pressure on this industry sector demanding shorter operational hours, less noise, less emissions etc. Despite these difficult circumstances LUG is continuing on its course. We are going to implement further quality, process, and efficiency improvements. One of our goals is to reduce dwell times of cargo in our stations. This is in line with IATA’s Cargo Strategy 2015-2020 to reduce end-to-end shipping time by 48 hours. We shall also strive to win additional customers for our stations in Frankfurt and Munich in 2016,” highlights Nina Strippel, manager, Sales & Customer Service, LUG aircargo handling.
Pfaff adds, “As Lufthansa Cargo, we clearly adhere to our hub in Frankfurt. It has many advantages like highest quality and very fast connections times. But basically it is important that the international competition in the air cargo industry is fair and unbiased. On a long run, this is also important for our customers.”
Competition has also fostered the evolution of the cargo industry in Germany. The rise of middle-eastern carriers has also impacted the freight market in Germany.
Heinelt adds, “What we can see of course is for Germany but also for the European aviation industry is the trans-location of capacities into the middle-east. For example if we are to talk about the years before like in 2007, the market share of Europe was 28 percent and at present it is around 24 percent which depicts a decline. On the other hand, the middle-east aviation, in 2007 it was 8 percent and now it is 16 percent which indicates that their freight capacity has doubled. This has impacted the European aviation industry, the other thing is that besides a trans-loaction of capacity there is more and more emphasis on sustainability.”
More changes are expected in the years ahead as mergers and strategic alliances will play a significant role in shaping the course of action for the cargo industry; allowing it to build value added services while further optimising existing processes.
Hans-Georg Emmert, managing director, Frankfurt Cargo Services, observes, “The integration in the WFS Group, the world’s largest cargo handler, as majority stake holder offers Frankfurt Cargo Services GmbH the opportunity to evolve from a regional supplier in Frankfurt to a provider with a global network of services in the field of air freight. This development is desired and encouraged by the customer portfolio of FCS and offers airlines the opportunity to market their products with a strong partner with internationally consistent standards and service levels. “
Consolidation of the country’s aviation is inevitable and is part of the transition of the air cargo sector. Given that consolidation is necessary to circumvent traffic congestion and delays that have resulted from the rise in regulatory norms that govern terrorism, climate change among others. The present scenario of the aviation industry has impelled a need to revaluate long standing business models as the dynamics of the industry are changing at a rapid pace. The Germany market is also characterized by recent events and intense competition that has led to a flux in the air cargo industry.
Emmert adds, “Although the demand is relatively stable for cargo space there are, however, still overcapacities available which are influencing load factors and yields. The European providers compete with a strong supply of foreign air carriers and are forced to optimise their cost structures to keep pace with the existing offers. The high performance and price pressure supports changes in the industry and gives new providers the opportunity to conquer market shares by effective pricing and services tailored to the customers’ requirements. Especially in this segment FCS is looking forward to increasing market shares considerably due to the new ownership of WFS Worldwide Flight Services offering the possibility to provide customers with optimized handling services broadening the range of services on a global basis. “
Also with IATA 10th annual World Cargo Symposium set to take place soon in Germany, it provides all the more impetus for a revival of air cargo fortunes. It would also act as a platform towards fostering new opportunities for growth. The World Cargo Symposium (WCS) is the largest and most prestigious annual event of its kind and the only one to bring together key stakeholders from the entire air cargo supply chain. One of the key areas of focus in the consonance of standards in the supply chain.
Strippel intones, “We must also look for more standardisation in service level agreements (SLA) with airlines if we want to measure and compare process quality in air cargo handling and drive efficiency. Whilst IATA sets minimum handling standards GHA actually work according to the standards and KPI agreed with individual airline customers. In addition, GHA must meet the expectations of forwarders and regulatory authorities. Unfortunately, the different players in the supply chain do not always pursue the same objectives all the time. Standardisation to improve service quality and cut costs is one of the big challenges in the years ahead.”