“The air cargo business is in for some real change treats,” says Michael Boyd, of Colorado-based Boyd Aviation Associates.
     “That includes all sectors, including logistics and distribution businesses tied to air freight.
     “The range of commodities that make economic sense being transported by air is going to be very different in the future. "Different" meaning less, mostly.
     “The air cargo pipeline's going to get smaller, and some branches may dry up completely.”
     As oil reaches toward $120USD a barrel and beyond, alarm bells seem to be going off almost everywhere.
     The quick take is that freighter guys working on 2 to 3% may have finally hit a brick wall while the integrators with their cushy yield protection will be all right.
     Bill Boesch for the past 40 plus years has served the industry in top posts including as President of American Airlines Cargo.
     Currently, he is deeply involved in building a logistics system to support the effort in Iraq. He surveys the landscape ahead for air cargo.
     "I am not a pessimist but prefer to search for the benefits of any given situation.
     "But, the air cargo industry is going through some horrific times that I believe will continue for the next few years.
     "Every index and most air cargo executives I talk with are predicting poor air cargo industry results.
     "Most agree that at the core of the problem is unimaginable high fuel prices, but add to that the low dollar, the poor economy, the lack of consumer spending and the EEC and DOJ paralyzing industry pricing investigations have created what some people are calling "The Perfect (Air Cargo) Storm".
     "I see real problems for the operators of freighters for a few reasons.
     "The first is that all-cargo operating costs are increasing as the cost of fuel increases. Many of the freighters are converted older passenger aircraft, which are not very fuel efficient.
     "Some operators are experiencing union problems with employees asking for salary and benefit increases to reverse years of cuts and givebacks post 911.
     "All of this might be manageable if a rising tide was lifting all ships.
     "But, the problem is that in 2008 the market overall is not growing very fast.
     "Yields are down as economies stall and surcharges have become a legal lightening rod.
     "A major challenge to all cargo operators in addition to everything else is that the belly carriers with lower cargo carrying costs are continuing to hold down the rates to fill their capacity.
     "Many of these operators are facing large losses from their passenger operations and I believe will continue to put pressure on cargo rates to fill their bellies to bring in much needed revenues.
     "While it is true that belly carriers in most cases are unable to market the service delivery of a freighter operator so many will continue to utilize price as a marketing tool.
     "So what is the answer?
     "I believe that this problem is now bigger than the airlines’ ability to solve it.
     " The governments of the world need to recognize the importance of air cargo and put in short term regulations to support the industry as everyone deals directly with the underlying problems of air cargo economics and especially fuel prices.
     "In USA to let the industry falter and significantly consolidate may aid a few carriers, but the overall effect of large unemployment and higher transportation prices for urgent consumer cargo will have an increasing negative effect on the economy.
     "The U.S. Congress should work toward developing sponsorship of a comprehensive "Airline Recovery Bill" which will reduce the effect of this Perfect Storm affording professional air cargo managers a fighting chance.”
       At Emirates SkyCargo, the fast rising flag carrier from Dubai has been fielding a mixed ACMI (5) and company owned (5) all cargo fleet of B747-400 and Airbus freighters operating in concert with its heavily cargo-centric B777s and other passenger aircraft across expanding world routes.
     Latest company financials released just last week underscore that somehow EK has managed to make it (to this point) all profitable.
SkyCargo carried 1.3 million tons of cargo, up 10.9 per cent over 2006.
     Revenue increased 20 per cent to AED 6.4 billion ($ 1.8 billion), up from AED 5.4 billion ($ 1.5 billion) in 2006-07. Cargo revenue contributed 19 per cent to the airline’s total revenue.
     Ram Menen, Divisional Vice President said:
     “For all-cargo operators the current business climate is delivering a double whammy.
     “The effect of the high oil prices combined with a very weak dollar has already created havoc with the U.S. economy, slowing down growth in air cargo while widening the gap in directional imbalances.
     “On top of this for the airlines, cost of operation has virtually doubled with fuel at almost 55-60% of operating expense on freighters.
     “The effect on the bottom line is huge. “Those operating older equipment are hurting the most.
     “I am certain that a lot of older freighters will become unviable.
     “Even with the higher yields my take is that integrators are also hurting as well.”
     Speaking of older freighters those B747-200s operated by Northwest Airlines on routes from USA across the Pacific apparently keep on lifting despite soaring fuel prices.
     Although we requested comment from newly named NW Cargo boss Tom Bach, as we go to press there had been no reply.
     But one can reasonably surmise that despite higher operating costs, NWCargo and the airline itself would be hard pressed to drop freighters because right now cargo provides a significant portion of the entire throughput.
     In addition to a bunch of overly thirsty freighters, Northwest will lose a significant portion of DHL Express freight—its largest cargo account—in the fall of 2008.
     Northwest by the way is the only U.S. carrier that still has a dedicated cargo fleet, with 12 older Boeing 747 freighters in operation.
     What will be interesting to watch after Delta takes over Northwest is how DL as a lifelong cargo belly operator will address NW Cargo.
     Expect DL CEO Richard Anderson who interestingly held the same job at Northwest before switching to Delta less than a year ago, and now is moving to have DL acquire Northwest, has already considered the options.
     One USA-based logistics expert sees it this way:
     “The market has turned.
     “You have rates all over the place to certain destinations.
     “Fuel and security surcharges are applied as needed, so that process remains unchanged.
     “But freighters seem not directly affected by all of this.
     “Firstly the industry needs freighter uplift to move cargo to meet TSA rules about known/unknown shippers.
     “For the foreseeable future I don't believe that carriers will take their freighters off the market.
     “Too much export now.”
     At Air France /KLM Cargo despite a keen Franco/Dutch focus on the bottom line, reaction from spokesman Jean Claude Raynaud include some words of amazement at the “skyrocketing increase of fuel prices,” as “something one had not expected - at least at this level and so suddenly.”
     “For many airlines, all around the world, an underlying factor in all of this is that older aircraft types can be too expensive to fly!”
     This month Air France and Boeing are throwing a party to celebrate the world’s first B777F aircraft at a swell ceremony and party in Seattle put up by Boeing that hopes it will help sell even more twin jet freighters.
     With near term delivery prospects for its much-ballyhooed B787 heading straight for the crapper (see companion story here) Boeing Commercial once again is facing some stiff criticism.
     “No surprise,” JC continued, “that some operators, in the U.S., and probably elsewhere around the world, have decided to ground part of their fleet.”
     “AF-KL, although preoccupied with this situation, is lucky to feature a modern, fleet of aircraft—both long and medium-range—that afford us a better chance to face down the heavy fuel cost challenge.
     “On AF side we were happy to put an end to our B747-200F operations at the end of December 2007, as not being profitable to fly anymore.
     “The AF-KL Cargo fleet now includes 9 B747-400 ERFs (the most efficient freighter in the world, presently flying) and 4 B747-400 BCFs.
     “On top of that, AF Cargo (after having been the 'launch customer' for the B747-400 ERF Extended Range Freighter in October 2002) will again lead the way as the launch customer of the brand new B777-200 LRF (Longer Range Freighter) in late October 2008.
     “This aircraft will actually bring additional performance & cost-effectiveness to our cargo activities & fleet (we have ordered 5 of the type + 5 options).
     “The B777 ERF will bring us one step closer in our permanent search for cost-effectiveness, since that airplane will indeed be at that time the most efficient freighter existing in terms of costs savings, fuel consumption, efficiency and silence offering savings of 17% in terms of better fuel-efficiency as compared to the present best aircraft (the B747-400 ERF).
     “Half of AF cargo is being carried in the belly holds of our passenger aircraft.
     “Here again, we are somewhere lucky that our long-haul passenger fleet is comprised of newer high performance aircraft such as the B777-300 ER and also the B777-200 ER, the A340-300 & A330-200.
     “For now and into the future, application of the Fuel Surcharge is an absolute ongoing fact of life!
     “No airline in the air carrier world could survive today if the fuel surcharge was not applied and regularly adapted according to the increasing costs of the fuel!
     “Fair to say that the level of prices reached by fuel now are a major preoccupation and a big concern for all of us!
     “But just like everyone else as mentioned at the top, all of us wonder where and when will these increases stop or at least level off.”
Geoffrey

Dreamliner Delay Nightmare      As you read this, a number of Boeing customers are receiving notice from the U.S. manufacturer containing disillusioning news.      Once again Boeing announces a further delay of the much-heralded B787 'Dreamliner' of up to 27 months from the originally planned date of delivery.      Affected are the airlines that had planned to phase in the B787 not earlier than 2012 or in the years after.      Among them are Spanish carrier Air Europe, Gulf Air of Bahrain, Vietnam Airlines and British Airways, too.      They had all placed their purchase orders late last year or in early 2008 putting them well at the end of the line of the 58 customer airlines that have decided to buy the twin engine passenger jet.      "This announcement by the U.S. manufacturer really blows our business strategy and affects very negatively our future international route expansion concept," stated an executive that had placed a major order for the B787 airliner last year.      Asked by Air Cargo News FlyingTypers if the airplane producer had offered his enterprise any financial compensation in the letter for breaching the contract he simply said "none at all."      "To me this announcement clearly shows that Boeing has no strategy or capacity for accelerating the production rate of the B787 in the years to come.      “Otherwise the foreseeable backlog in the manufacturing process of this aircraft, which we are severely hit by, remains inexplicable."      "We principally do not comment on any processes involving our customers," stated a Berlin-based spokesperson of Boeing when confronted with her company's announcement to the airlines by Air Cargo News FlyingTypers.      For the U.S. airplane producer the consequences of these additional delays could be extremely costly.      Many clients might follow Qantas CEO Geoff Dixon's example, who had already demanded financial compensation on October 11, 2007.      At that date, Boeing had admitted only a six-month delay in its planned initial delivery of the 'Dreamliner'.      Then, April 9, Boeing came up with a revised concept, telling the stunned public that the first flight of the B787 is scheduled for the end of 2008 instead of the second quarter, and that launch customer All Nippon Airways will get its first airplane in fall 2009 instead of the first quarter of that year as promised.      Boeing though is in 'good' company since rival Airbus is also facing major delays of their mammoth A380 program. According to sources close to the European airplane producer A380 costs have soared to well above €3 billion Euros.      One bright note, sort of, the first B777 freighter left Boeing's factory in Everett, Washington on Tuesday night.      Now, the plane will be prepared for flight tests.      Launching customer Air France Cargo will receive the first B777F in the final quarter of 2008, confirmed Boeing in a release.      So far the manufacturer has orders for 78 B777F from eleven customers worldwide, among them German Aerologic GmbH (11), LAN Chile (4) and U.S. leasing company Guggenheim Aviation Partners (6). Heiner Siegmund

Notes From The E-Freight Underground

     If reality is understanding e-freight and compliance thereafter, than it is probably fair to suppose that while movement toward e-freight for air cargo is making large strides as opposed to baby steps these days, the new process for many is still operating somewhere under the radar in air cargo.
     Put another way, to some all this talk of a new way to eliminate paper work from air cargo may still seem as distance as .99 cent a gallon gasoline in the USA.
     But undaunted a major effort to change things continues, while a closer look reveals that a new discipline for air cargo that was once thought impossible is steadily bubbling up to the surface.
     To hear IATA Cargo tell it, the initiative to do a power cut away from paper is the Topic-A part of an intensive effort to revamp the way air cargo does business before the industry finally buries itself underneath a daily avalanche of paperwork.
     According to Mr. Guillaume Drucy, IATA Head Of E-Freight, the e-freight effort while no walk in the park, is well underway and producing some positive and expansively hopeful results that can impact air cargo today and when further implemented, change the playing field forever.
     “The vision of IATA e-freight is to eliminate the need to transport paper documents for air cargo shipments by moving to an industry-wide, simpler, electronic and paper-free environment.
     “Twenty years ago it took 6.5 days, on average, to send a shipment internationally.
     “Despite numerous advances in the transportation industry, today it still takes 6.0 days ... 1 day to fly, 5 days for other tasks, including waiting for paper and paper processing.”
     IATA Cargo insists that out of the gate, industry benefits of e-freight are reduced costs, improved customer service, more rapid security compliance and overall savings, among other things.
     Upon full implementation, the initiative is projected to bring savings of US$1.2 billion per year.
     IATA e-freight is currently conducting pilots in Germany (Lufthansa), Canada (Air Canada), the Netherlands (AF-KLM), Hong Kong (Cathay Pacific), Singapore (Singapore Air), Sweden (SAS) and the UK (British Airways).
     The Pilots were launched in November 2007.
     “What we have learned so far is that e-freight is possible!!
     “Currently shipments are monitored and moving with no showstoppers.
     “Moreover some 70% of these monitored shipments go without pouch/envelope.
     “But the scope of possible shipments needs to be expanded to allow volume ramp-ups and also to include transit and transhipments.
     “Happy to report that the airlines are ready to pump-up volumes, but forwarders need more preparation and more standards delivered to enable a more scalable process.
     “With respect to our Pilot Program the key learnings so far is that although we have global e-freight operating procedures (e-FOPs), there remains a local element that requires attention.
     “Each location/stakeholder must conduct legal/regulatory due diligence in relation to the e-freight operating procedures.
     “Also stakeholders must be certain that archiving requirements are in line with e-freight scope.
     “Our key advancement goals ahead in 2008 for e-freight will continue to use the Pilot Programs as test bed for new standards and e-FOPs expansion in transit and transshipments, E-AWB (shipment record), and further development toward the full removal of AWB paper.
     “We will also continue development of electronic standards for invoices, packing list and certificate of origin, as well as EAW/EAP e-freight Special Handling Codes (SPHs) in Forwarder Messages (FWBs), while we progressively ramp-up volumes en-route to establishing full e-freight capability.
     “Beyond our current Pilot Program, IATA plans to implement e-freight in 7 new locations (countries).
     “Another key ingredient to be realized in 2008 is delivery of an e-freight implementation and methodology and a working e-freight “toolkit” for the industry.”
Geoffrey

In Turkey, Istanbul's second airport with our favorite name for an airport, Sabiha Goekcen (SAW) was officially transferred to the new owners on May Day.      Limak (Turkey), GMR (India), MAHB (Malaysia) will run the airport for 20 years.      Also the civil aviation authorities of Turkey and Russia signed a new civil aviation agreement between the two countries opening up destinations from 5 to 10 and allowing Turkish and Russian cargo companies to fly each to other’s market freely.      Turkish flag carrier THY including private companies will be allowed to fly to current Russian destinations of Moscow, Ekaterinburg, St. Petersburg, Rostov, Kazan as well as new destinations such as Krasnodar, Omsk, Novosibirsk, Sochi, and Ufa.      Both authorities also agreed to cooperate and work closely on ground handling, aircraft maintenance, engineering and other technical matters.

Here is that first B777 freighter rolled out April 30 in Seattle, Washington for testing as soon as Boeing can apply some of its snappy livery.       Ever notice how livery sharpens up an airplane, even an old one?      But with the price of kerosene some of those sharp looking, older cargo aircraft (passengers varieties as well) are little more than pigs wearing lipstick.      Boeing has high hopes for B777F and will deliver the first one to launch customer Air France this fall.