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     Vol. 10 No. 115                                                                                                                      Friday November 18, 2011

 

     2011 has been a coming out of sorts for Turkish Air Cargo.
     First, IATA held its 2011 World Cargo Symposium in Istanbul and later, THY Cargo was quite an attention getter in Munich as Air Cargo was held in early May 2011.
     If you ask Mr. Abdullah Soner Akkurt, Turkish Cargo Senior Vice President, what message can be derived from all of this, his answer is crystal clear:
     “As one of the fastest growing airlines of Europe, we are calling people to work with Turkish Cargo.
     “Turkish offers the best cargo service with our dynamism, hospitability, 75 years of experience and eager attitude toward further development.
     “Turkish Cargo is now at its customers’ disposal with our new organization.
     “In order to listen to the market and define our partners’ needs and demands, our staff, especially our local managers everywhere, is ready to communicate with everybody.
     “We are open to offers from our customers anytime, with integrated solutions for their needs.
     “Our hope coming out of Munich cargo week and also the earlier World Cargo Symposium is that we can establish good partnerships.”
     By all reports, this year’s IATA WCS edition set records for attendance and attention, while also serving to showcase the expansive growth, innovation and possibilities available in Turkey to the world transportation industry.
     “What we want our friends and potential business partners to know is that the geographic position of Istanbul, offering the shortest connections to important trade lanes, underpins the growth of Turkish Cargo.
     “No highly populated area on the globe is further than 4 hours flight nautical miles away from Istanbul.
     “We are amongst the top European carriers in terms of network capabilities, and we currently operate to 72 airports in 37 European countries.
     “As the national flag carrier, the strategy of Turkish Cargo is not separate from the foreign trade focus of Turkey.
     “European countries are the top trade partners of Turkey, especially Germany, the UK, and France having the biggest part of the export and import traffic.
     “Thanks to geographic proximity and improved airport network and infrastructure, the major Turkish air cargo traffic takes place on these trade lanes.
     “When we look at our company figures, approximately 45 percent of our cargo traffic is with European countries.
     “And Germany, the biggest trade partner of Turkey and our biggest destination, is very important for us. Cargo mainly focuses on Germany, the biggest air cargo hub in Europe, and main export partner of Turkey.

     “At Turkish Cargo, taking advantage of hub capabilities of Istanbul, we have an important voice in terms of transit cargo traffic in the region.
     “When we look at our figures, the total amount of transit cargo is 52 percent of the total cargo carried in 2010.
     “Our policy of an ever evolving network and fleet capabilities will improve this share of transit cargo more and more in the coming years.
     “This is a critical year, especially since rising fuel prices will deteriorate the profits margins for the second half of 2011.
     “But as business is about growth, since the last quarter of last year we have focused on Far East and American destinations, and started to widen our network capabilities in these regions.
     “Since the second half of 2010, A330-200F with a 70-ton capacity has been incorporated into our freighter fleet, and HKG & PVG via Tashkent twice-weekly freighter services have been launched.
     “In addition to freighter services to these cities, pax schedule frequencies have risen, thus offering plus belly capacity.
     “So, at the moment, we have 24 international freighter destinations besides more than 170 destinations currently served with belly hold capacity.
     “In 2011, we added some more new cargo freighter destinations including Kabul, Bombay, Riyadh, Jeddah, Addis Ababa, and Arbil.
     “The surprise destinations will undoubtedly be Warsaw and Stockholm in 2011.
     “We are planning to start cargo flights to these destinations during the second half of 2011.”
Geoffrey/Flossie

 

Michael Vorwerk CNS Report
At JFK Club

     The JFK Air Cargo Association Luncheon on November 17, 2011 was held at the International JFK Airport Hotel and featured as guest speaker Mr. Michael Vorwerk, President for Cargo Network Services Corporation (CNS). He is IATA Regional Director Cargo Americas, covering Canada, Central /Latin America and Executive Director for Cargo 2000. Mr. Vorwerk covered in his talk CNS updates, an industry overview, discussion of the Global Cargo Agenda and E-Freight.
     In introducing CNS, Mr. Vorwerk reminded the audience that the corporation had been founded in 1985 “with the objective of providing support to the newly deregulated air cargo industry”. While factually correct, it didn’t explicitly mention that this was after IATA lost its anti-trust immunity in the U.S. Another interesting tidbit was the statement that “CNS is structured as a “for profit” company and all our surpluses are re-invested in industry development and reducing participation costs. Its parent company, IATA remains non-profit in name and structure, but equally has been acting de facto as a “for profit” organization – a very fine line that is!
Next the CASS e-billing system was mentioned with its 2011 billings of $5 billion and the “adjunct to these services”, the provision of industry statistics based on data from its billing system, community information and distribution services that leverage its nationwide network of airlines and endorsed agents with 1,200 Agents and 2,500 offices in the USA.
     Talking about the falling margins, as shown below, over the last 10 year period, Mr. Vorwerk remarked that it was not unusual in the cyclical aviation business and this was the reason airlines always found the decision to make capital investments a difficult one.

     Having largely recovered from the 2008-09 recession by 2010, and profitability back to acceptable levels, airlines faced the rise of oil prices in Q4 which impacted the cost of jet fuel and again profits declined. “Since then margins have been on their way down, oil has continued to show price volatility but with a definite rising trend and therefore margins going forward will become even smaller,” said Mr. Vorwerk. Oil and jet fuel prices remain remarkably high given the economic gloom and remain 30%-40% higher than 2010 levels. If we have a recession then they will fall sharply, and if we muddle through, then high fuel costs will remain a challenge
At the same time, in response to IATA surveys regarding whether volumes and yields were rising or falling over the next twelve months, the results for the period from March 2006 to April 2011 indicate that the consensus was that volumes will continue to grow – marking a certain level of confidence compared to earlier surveys - but only a slim majority now expected yields to improve over the next twelve months, which is a further deterioration in the position at the last survey.

     The latest survey in October showed, most expect volumes to hold up over the year ahead but the outlook for yields is weakening. “The business inventory cycle is a key driver of major turning points in air freight; whenever inventory/sales ratios get out of line. While this looks OK for the time being, a fall in expected sales, due to the general economic gloom, could have raised the inventory/expected sales ratio in recent months and contributed to the latest fall in air freight,” according to Mr. Vorwerk.
     He went on to say that “once inventories had risen to normal levels relative to sales, shippers no longer needed more expensive airfreight to quickly get products to sales facilities or components to production facilities. However, restocking is not the only reason for using airfreight – so we could expect to see further expansion of air cargo as final sales of consumer and capital goods continue to grow back”.
     The “good news” until April this year was that world trade has been growing since 2009 and looked poised to continue; however, world trade has stopped growing, which is worrisome. In late 2010 the weakness in air freight was because of losses in market share (partly commodity and trade lane effects as well as mode [sea, road] shift), whereas now overall world trade is weakening as the economic situation deteriorates.
     The question arises that with inventories restocked, yet world trade not growing, what are the implications for business and its propensity to spend? This is where consumer confidence plays a big role, as illustrated below:

     “It’s a mixed bag” says Vorwerk, “in Europe, represented by the red line, they have lost confidence, with weak economies in the region coupled with tighter fiscal policy and high unemployment that have caused the growth in confidence to stall.
     “Here in the U.S. they also lost confidence, cutting spending on products manufactured and shipped from Asia”. The figures in green are for China, a positive, where Chinese consumers and consumers in other developing economies remain confident. This will provide some support, but these consumers are still relatively small compared to the U.S. and Europe.
     So having taken a look at what airline heads of cargo think, what business in general thinks, and what consumers think, “we zeroed in on a group that should carry more weight than most – purchasing managers,” says Vorwerk.
     As global business goes, purchasing managers in manufacturing around the world are a good indicator of trends. They seem to have lost confidence, pointing to continued weakness. Their actions usually lead growth in air freight by 2 months and they are saying that they will not be increasing orders, which in the past has at least meant an impact on the growth in the air cargo market.
     To complete the sweep, we also have views from economists; generally most forecasts still point to some growth hotspots in Asia and Latin America while the view is that Europe may ‘muddle through’, in which case 2012 will see another year of 2-speed economic growth, yet a European recession would likely drag down the U.S. and Asia.
      In the good news category, to sustain some optimism, Mr. Vorwerk believes that despite such volatility in the air cargo market, it is perhaps worth reassuring ourselves that, in his opinion at least, despite these challenges, there will be an ongoing demand for airfreight, and despite the current inhibitors, the underlying drivers will still produce mid-single digit growth for the global airfreight market in the short and medium term.
      A case in point here at JFK, looking at figures from the CASS statistics, we see that the global trend is reflected locally. First quarter figures show a volume increase of +5% year on year, with a corresponding increase of 12% in value.
      The top 20 destinations from JFK indicate clearly a volume impact with far east destination like Shanghai, Hong Kong and Seoul; for Europe we see strong growth into BRU.
      Moving on to the global cargo agenda, Mr. Vorwerk said “if we take steps now to address some of the underlying problems in our industry we can turn this downturn into the basis for a stronger & better future”. This comprises “protecting the industry’s cash through CASS, adopting and expanding e-business measures, continued quality efforts with Cargo2000, work on safety and security and last, but not least, the environment.
      He indicated that all the necessary information concerning the e-freight documents was available on the IATA web site, together with the IATA handbook and local field resources. Keeping the benefits in mind was important as these include lower costs, better service, regulatory compliance and increased security. Equally, if not even more important are key factors such as data quality and timeliness which require the evaluation of internal processes and supply chain performance, with Cargo2000 the industry’s quality system of performance metrics and reporting. Vorwerk extended an invitation to an ongoing dialogue with shippers and all other stakeholders improve communications.
     Touching on IATA secure freight, he reiterated the need for a harmonized global approach, securing cargo at the point of origin rather than security checks for transfer cargo and the pilots in Mexico & Chile in 2012. In the U.S., efforts are underway to obtain recognition by the TSA for secure freight.
     An ambitious tour de force from soup to nuts, with few surprises, except no word about GACAG and what makes CNS unique in a sea of CASS operations.
Ted Braun


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