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Geoffrey Arend Air CArgo News Thought Leader
Vol. 13 No. 57                                                                                                                             Tuesday July 1, 2014

 

Air Cargo News For July 1, 2014Air Crgo News For July 1, 2014

 

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Afraid For Freighters

Fred SmithAt the IATA WCS 2014, Fred Smith described the 747-400 and MD11-9 as the workhorses of a golden age. Now they have become very expensive to run, and airlines need to rethink their freighter strategy.
     A triple seven-freighter flight from Hong Kong to Anchorage costs $30,000 less than a 747-400F while carrying almost the same payload.
     New, fuel-efficient, twin-engine freighters in the form of the 777F and the A330F provide airlift with much lower unit costs than the 747-400 and MD11.
     Given all these factors, and with current freighter capacity exceeding demand, forty-three Boeing 747-400s and twenty MD11s are parked in the desert, and six 747-400s and four MD-11s have been scrapped.
     Fred closed his speech by stating that in the absence of a change in the outlook for overall global trade, and given the introduction of over 200 efficient 777, A330, and 747-8 freighters, more 747-400Fs and MD-11Fs will have to be retired.
     Their economics simply cannot compete with the more modern airplanes.
     Moreover, underbellies will be increasingly attractive for the smaller shipments that do not require priority service.
Karl Ulrich Garnadt     All of us may wish for a return of the days of double-digit air cargo growth, but we are creatures of much larger forces and the winds are not favorable.
     Former Lufthansa Cargo head Karl Ulrich Garnadt (right) told media when he got bumped to a higher position at the airline that he too didn’t believe there was a strong future for all-freighter operators.
     “The combination carrier model is the only one I believe has a future in traditional air freight,” he said.
GErt Jansen      Gert Jansen, (left) executive director of Seabury, said that the average large- and medium-freighter is flying increasingly shorter sectors to “vacuum clean” for cargo, with the range capabilities of the aircraft typically not used.
     Gert also shared that while freighter orders placed since 2009 will continue to provide new deliveries in the next few years, after 2014, deliveries are not (yet?) expected to come close to the 2012/2013 peak.
     Many industry leaders continue to push for a rethink.
     IAG Cargo recently signed a long-term commercial agreement with Qatar Airways to purchase capacity on Qatar-operated freighters, terminating their agreement with Global Supply Systems for three leased B747-8 freighters.
     QR will now operate five B777F flights a week between Hong Kong and London on behalf of IAG Cargo.
     The trend is also downward:
     Air France-KLM has cut freighter capacity by 11.5 percent and Cathay has ceased freighter operations into Manchester.

Russell Tom and Patrick Murray


     In contrast, Russell Tom, Boeing’s Regional Director of Marketing for Air Cargo, stated at the IATA WCS 2014 that main deck’s share of cargo continues to remain steady at about 60 percent.
     Boeing figures say the world’s freighter fleet would increase from 1,730 to 2,300 by 2032.
     Calogi Head of Cargo is bucking a trend?
     I think freighters are here to stay,” says Patrick Murray.
     “But we will see more retirements over the coming years.
     “The challenge is to be competitive; carriers have to use more modern fuel-efficient freighters and making a case for a new passenger plane is always going to be easier than making a business case for a new freighter.
     “It’s also worth bearing in mind the passenger business normally picks up most of the costs for belly cargo, whereas the cargo side of the business pays for freighter operations in their entirety.
     “The main demand will continue to come from integrators, but where it makes sense to do so, larger airlines will continue to use freighters to serve markets where they have no passenger flights and where the demand makes it sensible.”
Geoffrey

P3 Fortune Cookie

     How ironic.
     In a world where cooperation can only be reached if we work together, in the end it was China—where the state monopolizes politics and much of the economy—rather than the EU or U.S. that decreed the P3 alliance of shipping giants would hurt competition on the high seas.
     P3 was supposed to bring together three family-owned European giants of liner shipping—CMA CGM, Maersk Line, and MSC—on the Asia-Europe, Trans-Pacific, and Trans-Atlantic trades where 2.6 million TEU of container-carrying capacity and some of the world’s largest ships were set for deployment to cut slots costs through economies of scale. Some had also hoped the more efficient deployment of the global fleet would bring more stability to freight rates.
     But regulators in Beijing ruled that plans to operate the combined fleet from a joint operational center made P3 different from other shipping alliances due to the high level of cooperation and cost sharing this involved. They also said the interests of ports and shippers might suffer from the market concentration that P3 would have heralded, especially on the Asia-Europe trade where the three carriers command over 45 percent of the market at present.
     China’s Ministry of Commerce concluded P3 would reduce liner shipping competition and increase barriers to entry, infringing the country’s Anti-Monopoly Law. They could also have concluded (but pointedly did not) that Chinese lines had much to lose if such a scenario had played out.
     “The Ministry of Commerce does not object to enterprises using their own resources to achieve competitive standings in the market,” the Ministry said. “But for these already powerful enterprises to further their market dominance by entering into alliances, there will be a need to seriously analyze the impact on competition.”
     Shippers had long argued that the sheer size of P3 and the gigantic ships due to be operated by its members would reduce competition and/or force other carriers to buy ultra large container ships to compete, thereby increasing rate volatility due to excess supply.
     Asian shippers were quick to welcome China’s decision, which followed approvals for P3 by regulators in Europe and the US. They lauded it as the first major decision by China on liner shipping using its Anti-Monopoly Law since it came into force in 2007.
     “Asian shippers were against the formation of P3 from day one,” read a statement from the Singapore National Shippers’ Council. “P3 as proposed would have resulted in the biggest concentration of capacity seen in the history of containerization. The sheer size would have given P3 the capability to dictate the direction of the freight market.
     “For shippers in Asia, it is a landmark decision, coming after the EC’s repeal of the block example for liner shipping conferences in 2008.
     “It has given us fresh hope going forward and energized our drive to work for maritime regulatory reform to bring an end to the ‘cartel system’ in liner shipping.”
     In the meantime, Maersk, MSC, and CMA CGM have vowed to continue to improve operating performance. Møller-Mærsk Chief Executive Nils Andersen admitted the Chinese decision was a surprise, but said the company would continue to deliver “very good results” already achieved on a stand-alone basis. He also said that smaller alliances and capacity adjustments were options in the wake of the P3 rejection.
     Rival alliances such as CKYHE and G6 had extended their own vessel sharing arrangements in response to the formation of P3. What happens to these agreements and how regulators now view them is yet to be decided.
SkyKing

 

The Logistics Gap

   Logistics most likely started with farmers moving their produce in carts to the villages, towns, and cities for sale. Then as trade developed, 3rd parties operated ships and caravans to move goods and materials from producers to users. During the Industrial Revolution trains were developed and added to our logistics arsenal. Then came the internal combustion engine and trucks were added. Finally aircraft were added to our logistics tools.
   Today we have a sophisticated global logistics system using air, ship, rail, and truck. In the simplest terms, the mode selection is based on the demographics (land or sea or both) and the time vs. cost.    But we have a large gap in our present logistics system between air and the other modes. This gap can be considerable considering the time and cost of air vs. the other modes of transportation.
   These modes of transportation were advanced through technology. The pushcart developed into powerful diesel trucks transporting thousands of tons. The caravans became trains pulling hundreds of containers through hostile terrain. The galley grew into mighty container ships transporting billions of tons of cargo across the world’s oceans. And the newest transportation vehicle, the aircraft, which first flew for 12 seconds in 1903, in a little more than 100 years has developed into huge air transports carrying an estimated 30 to 40 percent of the revenue of world trade at jet speed around the earth.
   Nevertheless there are "bottle necks": Trucks and trains require ground infrastructure, ship required ports, and aircraft required runways
   But between the logistic transportation modes using ship, rail, and sea and those using air, there is a tremendous time, carrying capacity, and cost gap. The questions are, will the technology available today fill that gap, when, and what will be the effect?
   Can technology develop a transport vehicle that can carry huge amounts of cargo over any terrain twice as fast or more as ships, trucks, or trains, but not as fast as jet aircraft, and at a cost significantly lower than air cargo? Would this technology be equipped for vertical takeoff and landing anywhere and without an expensive infrastructure? What craft would do that? How much air cargo moving today really needs jet speed and how much ocean cargo would like to get to the user faster, but can't afford the cost of air cargo? Also how would this ability fit into the logistics system?
   These are the questions that need to be debated in later articles, but right now let's look at the technology that is available.
   Aeroscraft, a new type of airship that can fly over 2 miles high at speeds over 100mph with payloads up to 250 tons at cost well below those of jet aircraft , is presently being developed. The technology uses lighter-than-air, safe technology, with modern engines and avionics systems to transport 250 tons of cargo up to 6,000 miles without refueling, and it takes off and lands vertically in any terrain. The technology allows this Aeroscraft airship to load and unload cargo anywhere without needing water as ballast. Impossible, you say! Test flights are already taking place and the airships should be ready for active testing and government certifications within the next few years.
   When this Aeroscraft airship is certified and starts operation, what will it do for logistics? How will it reduce costs, shrink the pipeline to recover payments faster, and in turn reduce the cost of goods to the consumer? How will it aid the balance of trade and advance globalization?
   We call on our readers who are among the logistic experts of the world to answer these questions as growth is needed and the future may be closer than we think.

Chuckles For July 1, 2014

 

Lufthansa 747

     To Lufthansa goes the 1,500th Boeing B747.
     It’s only fair—the German carrier kept the production line open for the venerable aircraft, ordering its latest incarnation, the B747-8.
     It should be remembered that on April 17,1970, Lufthansa Cargo became the first airline to operate the B747F, a nose loader that had a special nose dock automatic load and unload cargo terminal set up at JFK and FRA.
     In terms of future orders for the B747 type, the field has narrowed to Transaero, Lufthansa, Korean, and Air China, with aircraft yet to be delivered.
     Truth be told, dragging around two extra jugs to fly anywhere seems passé in a world head over heels in love with two engine aircraft such as the B777 and A330.
     So while it is likely that in the coming years airlines will retire more B747s than Boeing can replace, some experts predict the end of the line for the airplane, despite newer versions. Air cargo should remember that back in 1970, Pan Am went out of business introducing the B747 to the world. On January 21,1970, PAA—against no particular traffic demand—teamed up with Boeing to introduce the first B747-121 (N736PA) flying between JFK/LHR.
     I recall flying aboard the 1,000th B747-a 400 series, which Singapore Airlines picked up; it was a time when Singapore was keeping the airplane in business with big orders.
     On that flight Singapore Airlines engineers were eating box lunches and peeking out of the little porthole windows in the exit doors to make sure that the wings were performing properly.
     Such a wonderful airplane.
     Thinking about that airplane, who has ever flown aboard a B747 and not loved it?
Geoffrey

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Best Friends
Roy Stapleton, Mich Fountain and Don Quigley

   See What The Bears In The Back Room Will Have . . .
   The cargo business is about nothing if not personal friendships, which in many cases last a lifetime.
   So it’s little surprise that when (l) Roy Stapleton, Mick Fountain, & Don Quigley gathered at a favorite New Jersey watering hole last month all three fell into familiar conversation and rekindled friendships.    In the case of Don and Mick, their friendship dates back 32 years, when both worked at Jardine’s ASA Int’l UK.
   In fact, Don and Mick had not laid eyes upon each other in 32 years.
   “But the get-together was as if they last met a week ago,” Roy Stapleton, president of GLN, told FlyingTypers.
   “Time is a strange animal when you have good vibes about someone and can trust them,” he added.
   “It was a great evening, but for some reason my head hurt the next morning,” Roy smiled.
Geoffrey
Richard Malkin
Click Here To Read Intro
Click Here To Read Part I
Click Here To Read Part II
Click Here To Read Part III

 

 

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