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Government releases details of new automotive industry plan

Magazine Stories January Issue 2009
Thursday, 28 January 2016

THE AUSTRALIAN Federal Government has released details of a new A$6.2 billion plan intended to make the automotive industry more economically and environmentally sustainable by 2020.

The release of the Plan follows a number of reviews all of which addressed, in part, the operation of the Australian automotive industry.  Most specifically, the recent review undertaken by former Victorian Premier Steve Bracks included 42 recommendations, the majority of which have been included, in some form, in the Plan. 

Essential elements of the Plan

The Plan entitled “The New Car Plan for a Greener Future” includes the following basic elements.

• An Automotive Transformation Scheme (“ATS”) to replace the ACIS scheme.

• Some amendments to the ACIS program for 2010 to aid the transfer to the ATS.

• Funds to aid structural adjustment through consolidation in the component sector and labour market adjustment.

• Funds to help suppliers to improve capabilities in integration and national and global supply chains.

• An Enhanced Market Access Program.

• A new Automotive Innovation Council.

• An expansion to the LPG Vehicle Scheme.

Some additional detail on some of these aspects is set out below.

Tariff reductions and FTA

The Bracks review had recommended that the existing plan to reduce tariff levels on automotive inputs should remain in place.  That recommendation met with opposition by industry which had suggested, in part, that the planned tariff reduction should not take place.  However, the Plan makes it very clear that the existing scheduled tariff reductions will still take place in accordance with their scheduling.  Further, the Plan also makes it clear that Australia will continue to pursue markets for automotive exports through its Free Trade Agreement negotiations.  This will continue to open the Australian market to competition from overseas.

The ATS

The ATS has a number of elements which are summarised as follows.

• It replaces stage 3 of the current ACIS (previously scheduled to take place between 2011 to 2015).

• The ATS places more emphasis on research and development and green aspects to improve competitiveness and productivity especially in the supply chain.

• Funding is A$1.5 billion for the period 2011 to 2015 (increased from A$1 billion for ACIS).

• There is new capped assistance of $1 billion for the period from 2016 to 2020.

• Capped funding is 55 per cent available to vehicle producers and 45 per cent available to those in the supply chain.  All may claim a maximum of 15 per cent of their investment in plant and equipment.  However, the previous ACIS loading has been abolished.

• Those parties in the supply chain can claim 50 per cent of investment in approved research and development (up from 45 per cent) and the list of eligible activities has been streamlined.  However, there is no funding for recruitment and management expenditure.

• All parties seeking to claim the ATS will need to demonstrate progress towards environmental outcomes and a commitment to developing capabilities and skills in the workforce.

Importantly, from a day-to-day perspective, the ATS will operate by way of grant rather than by way of a duty credit.  This will have an important cash flow impact for those involved in the industry and place a premium in ensuring that applications for funding are made in advance and totally comply with the Government’s requirements.
Green Car Innovation Fund

The Green Car Innovation Fund (GCIF) has the following elements.

• It provides for A$1.3 billion over 10 years to vehicle producers, component makers and researchers.

• It will be allocated through a competitive selection process.

• Again, the focus is on research and development and commercialising technologies to reduce fuel consumption, emissions and weight.

• As a general proposition, $1 will be made available for every $3 contributed by industry but that percentage can vary.

• There will be a limit of funding made available to each recipient but enough will be made available to individual recipients to facilitate major projects.

• All parties and industry are eligible including those of the supply chain and those undertaking research and development (including international parties) as long as the work is done in Australia.

Again, the assistance is provided by way of grants.

The Automotive Industry Structural Adjustment Program

The Automotive Industry Structural Adjustment Program (AISAP) has the following elements.

• It recognises the need to consolidate the supply chain and that this may cause job losses.

• The AISAP provides A$116.3 million to facilitate adjustment in two ways.

• First, it will help with legal, relocation and merger costs.  The Plan says it is not intended to “prop up” business but only to support legitimate deals which “make the industry stronger”.  It will not cover all costs and it will be allocated at the discretion of the minister. 

• Secondly, the AISAP will provide labour market adjustment support.  This will assist those to secure employment who have been required to leave employment and provide training for those who are displaced.

Automotive Supply Chain  Development Program

This builds on other initiatives and provides A$20 million over four years to strengthen capabilities of those in the automotive supply chain.

Automotive Industry Innovation Council

This new Council will comprise representatives of the Federal Government, the Victorian and South Australian Governments, vehicle producers, component makers, unions and researchers.

The Automotive Market Access Program

This will provide funds to enable a “champion” to promote the automotive industry in China, India, Korea and the USA. 

LPG Vehicle Enhancement Scheme

This has immediate impact and raises the available rebate from A$1000 to A$2000 for those purchasing LPG vehicles.

Conclusion — more work to be done

While the Plan presents a significant additional investment by government, by no means will it provide the perfect answer to industry.  Further, industry will need to be extremely careful to ensure that it understands the detail of the Plan (when that detail is released) to ensure that its projects are consistent with the policies behind the Plan and accommodates all the necessary procedural requirements.  The transition from the ACIS scheme to the new ATS will need to be properly timed and costed given that there will no longer be duty credits available through ACIS and that funding will only be provided by grants.  This will have a potential cash flow impact on those importing goods to assist with their automotive industry activities.

We will provide more details as they become available.

INTERVIEW: Fritz Heinzmann - chairman AFIF & director corporate Schenker

Magazine Stories January Issue 2009
Thursday, 28 January 2016

We need to widen education opportunities in Australia if the industry is to be competitive

FEW people in the air cargo industry have notched up 40 years working for same company. Fritz Heinzmann is one of them. He has worked for Schenker since joining the company in 1968 in Stuttgart in his homeland of Germany where he completed his diploma in international forwarding.

Heinzmann, who joined the board of the Australian Federation of Freight Forwarders (AFIF) in 2002 and has been its chairman for the past four years, became Schenker’s Melbourne branch manager in 1974, a director of the company in 1982, managing director from 1995 to 2002, and chairman from 2002 to 2004. His current position with the company is director corporate.

Heinzmann has decades of active involvement in many facets of the logistics industry. He is a licensed Customs broker, was a councillor of the Australian German Chamber of Industry and Commerce, industry representative of government committees and board member of industry organisations, as well as being a director and chairman of AFIF.

His responsibility on the board of Schenker extends to legal issues and contracts, Customs aspects — and his favourite work involvement is project cargo.

AirCargo Asia-Pacific spoke to him about his dual role with AFIF and Schenker.

ACAP: What do you see as your main role as AFIF chairman?
To combine the interests of the various businesses operating in our industry and present them through a co-operative coherent industry association. These interests ranges from the subsidiaries of global organisations and large Australian companies to highly specialised smaller operators. A balanced interaction with air, sea and other carriers, stevedores, government departments and authorities, insurers and the maritime law profession is essential for viable industry representation.

Is the industry in good shape, despite the economic uncertainty around the world?
The industry was in exceptionally good shape until recently due predominantly through globalisation of business and exceptionally high export and import activity. It would be entirely unrealistic to suggest that the global economic uncertainty will not impact on the industry. In fact, our industry is disproportionately susceptible to the boom and bust cycle of the economy. Dependency is direct and if the current economic crisis deepens, lower volumes shipped around the world will result in a necessary downsizing.

How dependent is our industry in Australia on global economic factors. Where are the major risks coming from?
Before the onset of the financial crisis, we faced a direct risk in relation to a worldwide adjustment to higher transport costs. This risk, however, contained an opportunity for our industry to increase productivity, improve rationalisation of processes and promised an improvement through optimum transport utilisation. A more critical selection of carriage can, for example, deliver long distance air/sea or air/surface combinations. Although the current financial crisis has driven these alternatives to the back-burner, when things settle, we can expect them to re-emerge.

AFIF is obviously very involved in industry training and education. What do you see as the major priorities going forward?
The challenges ahead are in direct relation to the increased complexity and sophistication our industry is required to cater for and to provide. A bottom-up on-the-job education no longer suffices and formalisation of all available training and education in our industry has become essential. Our industry needs the complete range of education — from certificates for attainment of a specific competence to diploma level in higher education for the forwarding and logistics sector. Educational opportunities, which have been a given for generations in the European forwarding industry and adopted in North America, Asia and are now also provided in Asia and even in many developing countries, cannot remain at the current informal level in Australia. It is a fact that the Australian education system is an important export initiative and our industry has the challenge and opportunity to participate in this development.

What other goals would you like AFIF to achieve in 2009 - and perhaps beyond?
To embrace the wider concept of logistics, otherwise described as end-to-end supply chain management. Many AFIF members’ core businesses are based on this principle. We should be mindful that in the not so distant past, our industry was viewed as cargo agents and the concept of the forwarder as principal carrier was not a concept accepted overnight. We most definitely have achieved that goal. Likewise, this step will provide considerable intellectual and organisational challenges for co-operation and extension of our activities to using all means of transport.

Are there any major issues within the industry that you would like to see ironed out?
There is an ever-increasing trend for global organisations and large volume customers to shift business risk to the forwarding industry by demanding full value liability and even consequential and indirect loss recovery from the forwarder. This trend is in direct contradiction to existing transport law and convention, and some archaic liability regimes are still in existence for some carriers. Regulatory restraints apply in relation to the application of transport risk insurance - in apparent disregard to this worldwide development. Enhanced liability has become a fact of life to the global sector of our industry and an alignment of risk share in the Australian transport industry will not only become necessary but will become vital. This will be a challenge.

Talk of a merger between AFIF and the CBFCA is a topic that is often brought up. What stage are the two bodies at in regard to this process. What would some of the benefits be for the combined membership?
The historic existence of a separate International Forwarders Association and a Customs Brokers Association has in essence been rendered unnecessary by developments in our industry over the years. The large international forwarders are a significant segment of the Customs clearance industry and, likewise, the pure Customs broker without any forwarding business has become a highly specialised undertaking in a relatively small segment of industry. I said earlier that our industry needs to embrace the widest range of activity; therefore a merger between AFIF and the CBFCA is essential and ultimately inevitable. The benefits of a combined membership would be a single and coherent approach to industry issues and a broadening of our industry’s influence with other stakeholders in transport. Both organisations have come a long way to co-operate in vital issues such as education, industry representation with government, legal matters and on the world scene represent themselves as one body.

What were the important issues for AFIF members arising out of this year’s FIATA World Congress in Vancouver?
Whilst the potential effects on the forwarding industry of the worsening global economic situation was being deliberated on, cargo security was also high on the agenda, particularly so as the US moves seemingly inexorably towards 100 per cent mandatory screening of all cargo originating; arriving into or transiting through the US mainland on passenger planes by August 2010. In addition, the methodology utilised must be x-ray or other government approved electronic screening method. A risk-based approach combining a variety of technology and documentary processes — common in many countries, including Australia - has all but been ruled out by the US Congress. This remains, despite many protestations from industry and some within the US TSA itself. The WCO has also protested against this process, claiming it will delay shipment transit-times. The first stage of 50 per cent screening by February 2009 is worrying many within the TSA, as they say the TSA-validated equipment is, in some cases, not going to be installed in time to meet this deadline. Palletised and unitised cargo, which has not undergone the requisite screening, will need to be dismantled, screened and re-built. The US is looking to recognise the screening processes of another country, if suitable in a ‘mutual recognition’ program, the details of which are yet to be finalised. However, despite our stringent “RACA’ TSP air cargo security program, it appears that this will not currently achieve ‘recognition’ by the US. There were numerous other issues and members will be given access to information once the minutes of the various Institute, advisory bodies and working group meetings are made available.

NZ flower exports back in the air, but with RMP cost for growers

Magazine Stories January Issue 2009
Thursday, 28 January 2016

While New Zealand’s export flower trade, most of it handled as air cargo, is blooming once more, the solution for field-grown operators has come at a cost.

As outlined in earlier reports, New Zealand’s cut flower and foliage exports to the United States were suspended in mid-September following a USDA-APHIS (Department of Agriculture, Animal & Plant Health Inspection Service) interception of light brown apple moths in a consignment of New Zealand flowers.

Despite some doom-saying by individual growers, producer groups took a pro-active approach to the problem and worked with MAF Biosecurity New Zealand to find a solution.

This came with pleasing speed for cut flowers and foliage grown in hothouse and screen house environments.  These producers were checked comprehensively by MAF Biosecurity and subsequently gained USDA-APHIS clearance.

“We had excellent co-operation from the USDA, exporters and industry, getting a return to trade almost immediately for product grown in a closed environment, which was a very pleasing result,” said Peter Johnson, exports senior adviser for MAF Biosecurity.

But the Americans were, rightly, worried about the pesky moth - a danger to their own agricultural and horticultural sector - infiltrating flowers grown au naturel, such as peonies.

Urgent work was carried out on developing a USDA-approved risk management program (RMP) for outdoor growers wanting to resume trade to the US — a fervent desire for most, many of them faced with the real prospect of abandoning their crop rather than borrowing funds to pick it and sell at a loss on the domestic market.

Johnson said the project took about three weeks to put together.

“This was an extraordinary effort by all concerned in a very tight frame and the outcome is very pleasing,” he suggested.  “We were well aware time was of the essence as the product we were dealing with in this case is fragile and depends on a very precise and concise set of events which allow it to arrive in peak condition for sale.”

Johnson pointed out that “in these particular circumstances the trade suspension could have been catastrophic but while there are losses they are not as heavy as could be expected by a prolonged suspension in trade”.

Some New Zealand peony growers were upset at the additional costs of the RMP but AirCargo Asia-Pacific understands that all but a few small-scale growers have gone along with it. 

However, at least a couple of medium to large growers are said to be considering their future in export flower production, given the additional expense and bother in maintaining the RMP.  

Rail picking up business from ‘green’ customers unhappy with surcharges

Magazine Stories January Issue 2009
Thursday, 28 January 2016
THE VOLATILITY of oil prices and the consequent fuel surcharges applied by integrators such as DHL, TNT, UPS and FedEx — in tandem with the economic slowdown — are causing a shift away from express and parcel delivery air freight toward road and more importantly, rail, writes Andrew Hudson.

Market analyst Datamonitor says it believes rail could eventually dominate in countries with comprehensive rail networks on both economic and environmental grounds.

In the three mature European Union (EU) markets of Germany, France and the UK, express operators already are increasing the use of the rail sector, especially for international deliveries.

Express operators such as Time:Matters (Germany), DHL (UK), Business Post (Same Day) UK and Swiss Post already are offering express services through the rail network to satisfy same day and next day domestic delivery requirements.

US operator FedEx has plans to team up with the French rail network as high speed TGV trains running at 300 kmph (the Eurocarex — Cargo Rail Express project) can prove to be both a viable solution for time definite deliveries and help reduce reliance on air networks for domestic and international deliveries within the EU.

This also is expected to streamline critical overnight express deliveries where noise levels due to night time deliveries in airports cause problems for residents in the surrounding airport areas.

But it’s not only rail. Road transport also is cost effective for packages in the intra-EU region and now accounts for an estimated 80 per cent of the total express market value in the three developed markets of Germany, the UK and France, although congestion charges in central London, Stockholm, Oslo and various other cities can make it more expensive than rail.

Express door-to-door delivery already utilises intermodal transportation for both domestic and international segments, however, in the medium to long term, Datamonitor says it expects a bigger shift toward rail transport than road and air.

Both express and railway companies, especially in the UK, have realised the opportunity for intermodal delivery through rail networks, it says.

This trend is being further fuelled by targeted express delivery services being offered by private rail operators in Europe. For example, EWS (the UK’s rail logistics operator) already provides multi-user services (night deliveries) through its rail network to companies such as DHL and Business Post.

On the water, too, money-saving opportunities exist, even in the just-in-time markets.

Developments in the ocean services sector now provide for day-definite services with date certainty for overseas trade and thus pose a potential threat to intercontinental air express, Datamonitor says.

Saudi makes it 26 for Cargo 2000

Magazine Stories January Issue 2009
Thursday, 28 January 2016

SAUDI Arabian Airlines has become the 26th major international airline to join Cargo 2000.

Fahad Ali Hammad, Saudi Arabian Airlines’ vice-president - Cargo Sales and Services said: “As a major player in the airfreight industry serving customers globally, our goal is to provide the maximum level of excellence and superior cargo and logistic services. The demands freight forwarders and logistics companies make on the airlines they use are getting bigger and setting a challenge for us all. It is very difficult for one airline to conform to each and every freight forwarder’s required standards. With Cargo 2000, there is a standard quality system designed to benefit both the airlines and their customers.

“With the implementation of simplified business processes, the end result is less time spent managing irregularities and a reduction of manual manpower work.

This will optimise cost efficiency and produce service improvements.” With a fleet of 139 modern Boeing, Airbus and McDonnell Douglas aircraft – including 747-200Fs and MD-11Fs - Saudi Arabian Airlines serves more than 57 international and 26 domestic destinations. Its direct cargo operations serve 11 international destinations from three mainline stations in Jeddah, Riyadh and Dammam. Some 65 per cent of the airline’s cargo traffic is carried on passenger services, with the remaining 35 per cent delivered by its all-cargo fleet.

Survey identifies link between airline cargo technologies and profitability

Magazine Stories January Issue 2009
Thursday, 28 January 2016
IN a recent Air Cargo Excellence Survey, many of the airlines that received high marks for cargo information technology also were among the world’s most profitable airlines, Mays adds.

The survey criteria included

• Information Technology: Tracking and tracing, Internet/electronic commerce capabilities.

• Value: Competitive rates commensurate with service levels, value-added programs.

• Customer Service: Claims handled expeditiously, problems solved in a prompt and courteous manner, professional and knowledgeable sales force and finally

• Performance: Fulfills promises and contractual agreements, dependable, accomplishes scheduled transit times.
In a separate complementary report, Gartner Group has forecast global IT investments in cargo logistics and related cargo service systems will have a compounded annual growth rate of five per cent year over year. Although this study was done before the current economic downturn, it is my firm belief that IT investments still need to be made with only slight variations.   

The key test for new technology investments includes items that can reduce cost and provide a quick return on investment (RoI); those investments which can improve service reliability; investments that can speed responsiveness to increasingly changing and demanding customer needs; and investments which provide greater security against terrorist threats, fraud, theft and pilferage.  I believe these criteria should be used to evaluate any airline’s technology investments moving forward in light of today’s global economic situation.  

In terms of RoI, all new IT investments must have a solid business case with clear, demonstrable cost savings to provide a return on investment within three years.  Operating excellence can be achieved by implementing new generation (higher reliability, scalable, open and flexible) technology to support the cargo business.

As our industry continues to suffer from high fuel cost and overcapacity, one sure way to survive is to become the most efficient by leveraging technology that can reduce cost.  Doing more with less and using real-time information to make solid business decisions will keep you ahead of the competition.  The business case has to be compelling, have real dollar savings and the endorsing owner has to stand behind and sign off on these benefits.  These investments - such as new generation cargo management solutions, RFID, and e-freight initiatives - can deliver lower operating costs.

Technology, service and security are the keys to airline savings and opportunities

Magazine Stories January Issue 2009
Thursday, 28 January 2016

AIRLINES need to focus on savings and opportunities through technology, better service and heightened security, write Larry Mays, group director Transportation & Logistics ADT National Accounts.

Global airfreight traffic levels historically have increased year over year going back as far as the early 1970s and generally speaking, there’s been a doubling of traffic every 10-11 years.  In light of the current economic uncertainty, ceos are challenged with finding ways to stay ahead of their competitors as well as grow profits. 
This is closely followed by the need to reduce costs through operational and customer service improvements.  In order to increase revenue growth opportunities, ceos must offer new and more innovative products and services targeted at specific market segments. 

In addition, they must be able to enter new markets and build brand loyalty based on reliability and predictability. 
One clear way to differentiate one’s service is by making it reliable. Consistently delivering service that meets customer expectations in a predictable manner is a sure-fire way of growing the top-line in a time-sensitive market. 

In a recent study, The International Logistics Quality Institute showed that 73 per cent of its respondents strongly agreed that time-definite products are the future of the industry.

RFID, bar code scanning, piece-level trace and track, in conjunction with integrated alliance partner operational practices, were crucial to meeting this objective.

Also, as markets and customers’ demands continue to change, the ability to rapidly deploy new services will allow a carrier to stay ahead of the competition. 

New products, extended partnerships and better customer information will help grow the top line.

Responding quickly to changes in the marketplace also can help build brand equity, which in turn builds customer loyalty. 

The best brands provide solutions that help their customers run their business though flexibility and innovation. In this ever-demanding global economy nothing stays the same for long and as customers’ requirements change, so must a service provider’s ability to adapt and respond quickly. We can no longer optimise around a set of inflexible work processes.

Finally, security is an ever-growing issue. There’s very strong pressure coming from Washington, USA to provide more security to stop terrorism choking global trade. The transportation and logistics industry suffers significant losses due to theft, fraud and mishandled and pilfered cargo. Annual losses are estimated anywhere between US$10 billion and US$20 billion, plus indirect losses, including lost business, investigation costs, security costs and insurance premium increases.

Across the logistics supply chain, these losses are estimated to range anywhere from US$30 billion to US$60 billion per year. Losses, compounded by increased government regulations due to terrorism, have all increased our need for additional security. The 9/11 Commission noted the terrorism risk is as great or greater in the maritime and surface transportation modes as it is with airlines.  We need to look at access control, video surveillance, GPS and RFID as ways to add a layered security system.  One solution will not be enough - there must be multiple layers of security.

Three-way merger won’t fly, says Iberia’s Conte

Magazine Stories January Issue 2009
Thursday, 28 January 2016

UK carrier British Airways’ ‘other’ merger, with Spanish-based Iberia, was under the spotlight this morning, Friday, after Iberia’s chief executive Fernando Conte said that despite Qantas initiating talks with BA in August, he only found out about the plans when BA ceo Willie Walsh phoned him an hour before they were made public earlier this week.

Speaking in London, Conte made it clear he was unhappy with the idea of adding Qantas to the BA-Iberia deal, saying a three-way tie up with Qantas would be "too complex".

Conte’s comments put pressure on all three airlines, and BA may need to decide which of the two proposed mergers is the more attractive.

Meanwhile, analysts already are questioning the BA-Qantas proposed deal, with Credit Suisse struggling to find benefits to the carriers. "In our opinion, a (Qantas) merger with BA provides relatively little cost and revenue benefits above those provided by the existing Joint Services Agreement," Suisse said in a story in the Age newspaper. Citi analysts said cost benefits would be less than three per cent, while ABN Amro said one to two per cent.

Another view is that it’s not the merger that’s important, but the way it’s structured as a dual listed company (DLC) and the structure’s impact on existing and potential shareholders, particularly foreign shareholders for Qantas, said Aircargo Asia-Pacific’s Jack Handley.

“DLCs work ‘by having a company link with a foreign company in a way that allows each to retain its individual identity, but with shareholders of each of the two separate companies able to make a claim on the combined earnings of the two companies as though they had undertaken a conventional merger.’ 

“The two companies ‘agree to share all the risks and rewards of the ownership of all their operating businesses in a fixed proportion, laid out in an ‘equalisation agreement’. Equalisation agreements are set up to ensure fair treatment of both companies’ shareholders in voting and cash flow rights. The contracts cover issues that determine the distribution of these legal and economic rights between the twin parents, including issues related to dividends, liquidation, and corporate governance’.

“The ‘equalisation agreement’ referred to above might have to be weighted in Qantas’s favour to level the playing field. If the DLC were to proceed on a strict 50:50 basis, Qantas’s shareholders arguably would be severely disadvantaged. Why?

“The Qantas group says its pre-tax 2008-09 earnings will be about A$500 million, but that could be twice as much as the 2008-2009 pre-tax earnings at BA. And BA’s figure is further complicated by its heavily underfunded pension schemes.

“BA’s defined benefit schemes (which guarantee the pension amounts to be paid to participating employees) were in deficit by A$4 billion at the beginning of this UK financial year (from April 2008). The economic melt-down since then will have made that worse.

“The pensions deficit would impact any merged group (and indeed, the pensions shortfall has already delayed the BA-Iberia proposed merger).

“Put simply, without ‘equalisation’, Qantas and BA shareholders alike in a DLC would have access to 50 per cent of any small BA dividend pot and half of Qantas’s larger dividend pot. Without a merger, Qantas shareholders get 100 per cent of any Qantas dividend. So the DLC is potentially good for BA shareholders, not good for Qantas’s.
“And the DLC equalisation agreement itself will need an army of legal and commercial geniuses at Qantas to make it fair to all parties, even in the short term.

“Also, any BA-QF merger using DLC could make any change to Qantas’s maximum foreign ownership (now tipped to rise to 49 per cent), unattractive to (other airline) investors in the ‘Roo, at least until British Airways’ financial position on its pension fund is resolved, its share price rises and the European finance markets recover enough to rebuild BA’s share of the premium market, currently showing signs of melt-down. Buying into Qantas now could mean sharing any QF dividends with BA shareholders and waiting for/hoping for a BA upturn.

“It wouldn’t surprise me if (BA’s) Willie Walsh is making an each-way bet: He may be hoping the Qantas proposal forces Iberia to make a quicker decision on its BA tie-up, either ‘yes’ or ‘no’.

“If it’s a ‘no’, Walsh still can take his chances with the competition regulators and/or Qantas’ negotiators on the proposed BA-Qantas DLC,” Handley said. “I don’t see he’s got anything to lose.”

TSA’s 100 per cent screening rule is seriously flawed, says industry

Magazine Stories January Issue 2009
Thursday, 28 January 2016

WITH a doomsday clock on the wall just outside his office, Ed Kelly, cargo general manager for the Transportation Security Administration (TSA) of the US Department of Homeland Security (DHS), is well aware of the rapidly approaching deadline in August 2010, when US legislation mandating 100 per cent piece-level screening of air cargo carried in passenger aircraft becomes law.

The airline and freight industries already have asked the US government for more time and to delay the legislation, but no-one believes that will happen, because the deadlines are congressionally-imposed and not flexible.

Kelly and almost everyone involved in air services to the US would like more time to minimise the impact of the new rule, which means every piece of freight either has to be scanned to TSA standards before takeoff from foreign ports or on arrival at the US entry port, whether that is its final destination or merely a trans-shipment point.

Unapproved cargo will be permitted to travel on freighter aircraft only.

The scanning equipment needed reportedly costs in excess of US$100,000 dollars per unit, has yet to be perfected and TSA and the US government have left the purchase cost burden with the industry.

Worse, industry commentators say the US Congress refuses to acknowledge the technology simply does not yet exist for guaranteed 100 per cent screening of cargo and even if it did, US Customs doesn’t currently have the manpower or equipment needed to review and analyse the scans in real time.

Assuming the scanning option goes ahead, the DHS has already publicly acknowledged problems with the pilot programs it has attempted.

In Pakistan there were problems getting the screening equipment to operate properly due to temperature fluctuations.

In the United Kingdom, scanning seriously impacted trans-shipment traffic flows.

In South Korea, truckers refused to use the equipment, citing health concerns and in Hong Kong, Hong Kong Customs said it couldn’t share the screening data results with the US.

Tom Wheelwright, senior vice president — Public Policy Asia Pacific for DHL Express says the biggest industry sector to be affected by the security screening will be express operators. " The express business will be most severely impacted by the new laws. Not just DHL but all express operators who collectively move millions of items each day," he said. 

"Customers of express delivery services have always demanded secure supply chains due to the critical nature and high value of their shipments," said Wheelwright. "As a result, the industry has been making significant investments in the security of premises and processes for many years, even before 9/11."

Recognising that authorities now see the need for much greater levels of control in response to the current security situation, he called for a ‘co-ordinated and balanced policy approach’.

Authorities also should not be too reliant on physical measures rather than ‘intelligence’ available from industry and other government agencies, he said, and highlighted the need for alignment in the security requirements of Customs, aviation security and transport. He called for a ‘whole of government approach’ which considers ICAO, the WCO SAFE framework and others.


"The nightmare scenario for the express delivery industry in terms of security policy would be a red lane/green lane system and the responsibility for the security compliance of customers," warned Wheelwright.

DHL already has invited TSA to do auditing checks on DHL's own security systems to see if any of its technology or experience can be used in trying to find a workable solution.

Despite it all, TSA’s Kelly believes he can meet his first objective -50 per cent screening by January 2009. Speaking at the TIACA World Cargo Forum in Kuala Lumpur, Malaysia, he said the chain of custody was the weakest link. TSA had developed solutions, but needed to test them, he said.

He used the Forum to seek the industry's help. " Collectively we have to come up with some form of compliance and hopefully we will have an answer by 2010," said Kelly. "We are working very closely with the freight forwarding industry to make it work."

He emphasised the efforts being taken to avoid causing bottlenecks and congestion at airports as a result of the required screening process. TSA will enable secure, audited and certified shipper and forwarder facilities to screen cargo earlier in the air cargo supply chain, notably through the rollout of its Certified Cargo Screening Program (CCSP). "The Administration’s policy for international inbound cargo," said Kelly, "includes harmonisation with foreign governments through open dialogue on the vulnerabilities of the international aviation system."

The size of the problem facing Kelly and his team of 55 transportation security experts was further emphasised by Captain Roshan Joshi, senior manager, corporate safety, security and quality, Singapore Airlines Cargo who joined Kelly on an industry panel discussing the problem.

" SIA Cargo averages 60 tonnes a day into Los Angeles International Airport. Under the new legislation, all this freight will have to be screened  — piece by piece," said Joshi.

"SIA Cargo will have no alternative other than to outsource this task. We are in the business as an air carrier, not a security expert."

Joshi did not elaborate on who will pay for this extra cargo screening service, but presumably the cost will hit both the airline and the customer. And with heightened competition on the North Pacific run, volatile fuel prices coupled with expensive full screening costs could jeopardise the viability of some airlines operating the route.

Joshi also used the platform to urge the TSA to provide a ranking for security services to enable foreign airlines such as SIA Cargo to use reputable and reliable security companies.

HACTL
Cathay Cargo
United

Government releases details of new automotive industry plan

Magazine Stories January Issue 2009
Thursday, 28 January 2016

THE AUSTRALIAN Federal Government has released details of a new A$6.2 billion plan intended to make the automotive industry more economically and environmentally sustainable by 2020.

The release of the Plan follows a number of reviews all of which addressed, in part, the operation of the Australian automotive industry.  Most specifically, the recent review undertaken by former Victorian Premier Steve Bracks included 42 recommendations, the majority of which have been included, in some form, in the Plan. 

Essential elements of the Plan

The Plan entitled “The New Car Plan for a Greener Future” includes the following basic elements.

• An Automotive Transformation Scheme (“ATS”) to replace the ACIS scheme.

• Some amendments to the ACIS program for 2010 to aid the transfer to the ATS.

• Funds to aid structural adjustment through consolidation in the component sector and labour market adjustment.

• Funds to help suppliers to improve capabilities in integration and national and global supply chains.

• An Enhanced Market Access Program.

• A new Automotive Innovation Council.

• An expansion to the LPG Vehicle Scheme.

Some additional detail on some of these aspects is set out below.

Tariff reductions and FTA

The Bracks review had recommended that the existing plan to reduce tariff levels on automotive inputs should remain in place.  That recommendation met with opposition by industry which had suggested, in part, that the planned tariff reduction should not take place.  However, the Plan makes it very clear that the existing scheduled tariff reductions will still take place in accordance with their scheduling.  Further, the Plan also makes it clear that Australia will continue to pursue markets for automotive exports through its Free Trade Agreement negotiations.  This will continue to open the Australian market to competition from overseas.

The ATS

The ATS has a number of elements which are summarised as follows.

• It replaces stage 3 of the current ACIS (previously scheduled to take place between 2011 to 2015).

• The ATS places more emphasis on research and development and green aspects to improve competitiveness and productivity especially in the supply chain.

• Funding is A$1.5 billion for the period 2011 to 2015 (increased from A$1 billion for ACIS).

• There is new capped assistance of $1 billion for the period from 2016 to 2020.

• Capped funding is 55 per cent available to vehicle producers and 45 per cent available to those in the supply chain.  All may claim a maximum of 15 per cent of their investment in plant and equipment.  However, the previous ACIS loading has been abolished.

• Those parties in the supply chain can claim 50 per cent of investment in approved research and development (up from 45 per cent) and the list of eligible activities has been streamlined.  However, there is no funding for recruitment and management expenditure.

• All parties seeking to claim the ATS will need to demonstrate progress towards environmental outcomes and a commitment to developing capabilities and skills in the workforce.

Importantly, from a day-to-day perspective, the ATS will operate by way of grant rather than by way of a duty credit.  This will have an important cash flow impact for those involved in the industry and place a premium in ensuring that applications for funding are made in advance and totally comply with the Government’s requirements.
Green Car Innovation Fund

The Green Car Innovation Fund (GCIF) has the following elements.

• It provides for A$1.3 billion over 10 years to vehicle producers, component makers and researchers.

• It will be allocated through a competitive selection process.

• Again, the focus is on research and development and commercialising technologies to reduce fuel consumption, emissions and weight.

• As a general proposition, $1 will be made available for every $3 contributed by industry but that percentage can vary.

• There will be a limit of funding made available to each recipient but enough will be made available to individual recipients to facilitate major projects.

• All parties and industry are eligible including those of the supply chain and those undertaking research and development (including international parties) as long as the work is done in Australia.

Again, the assistance is provided by way of grants.

The Automotive Industry Structural Adjustment Program

The Automotive Industry Structural Adjustment Program (AISAP) has the following elements.

• It recognises the need to consolidate the supply chain and that this may cause job losses.

• The AISAP provides A$116.3 million to facilitate adjustment in two ways.

• First, it will help with legal, relocation and merger costs.  The Plan says it is not intended to “prop up” business but only to support legitimate deals which “make the industry stronger”.  It will not cover all costs and it will be allocated at the discretion of the minister. 

• Secondly, the AISAP will provide labour market adjustment support.  This will assist those to secure employment who have been required to leave employment and provide training for those who are displaced.

Automotive Supply Chain  Development Program

This builds on other initiatives and provides A$20 million over four years to strengthen capabilities of those in the automotive supply chain.

Automotive Industry Innovation Council

This new Council will comprise representatives of the Federal Government, the Victorian and South Australian Governments, vehicle producers, component makers, unions and researchers.

The Automotive Market Access Program

This will provide funds to enable a “champion” to promote the automotive industry in China, India, Korea and the USA. 

LPG Vehicle Enhancement Scheme

This has immediate impact and raises the available rebate from A$1000 to A$2000 for those purchasing LPG vehicles.

Conclusion — more work to be done

While the Plan presents a significant additional investment by government, by no means will it provide the perfect answer to industry.  Further, industry will need to be extremely careful to ensure that it understands the detail of the Plan (when that detail is released) to ensure that its projects are consistent with the policies behind the Plan and accommodates all the necessary procedural requirements.  The transition from the ACIS scheme to the new ATS will need to be properly timed and costed given that there will no longer be duty credits available through ACIS and that funding will only be provided by grants.  This will have a potential cash flow impact on those importing goods to assist with their automotive industry activities.

We will provide more details as they become available.

INTERVIEW: Fritz Heinzmann - chairman AFIF & director corporate Schenker

Magazine Stories January Issue 2009
Thursday, 28 January 2016

We need to widen education opportunities in Australia if the industry is to be competitive

FEW people in the air cargo industry have notched up 40 years working for same company. Fritz Heinzmann is one of them. He has worked for Schenker since joining the company in 1968 in Stuttgart in his homeland of Germany where he completed his diploma in international forwarding.

Heinzmann, who joined the board of the Australian Federation of Freight Forwarders (AFIF) in 2002 and has been its chairman for the past four years, became Schenker’s Melbourne branch manager in 1974, a director of the company in 1982, managing director from 1995 to 2002, and chairman from 2002 to 2004. His current position with the company is director corporate.

Heinzmann has decades of active involvement in many facets of the logistics industry. He is a licensed Customs broker, was a councillor of the Australian German Chamber of Industry and Commerce, industry representative of government committees and board member of industry organisations, as well as being a director and chairman of AFIF.

His responsibility on the board of Schenker extends to legal issues and contracts, Customs aspects — and his favourite work involvement is project cargo.

AirCargo Asia-Pacific spoke to him about his dual role with AFIF and Schenker.

ACAP: What do you see as your main role as AFIF chairman?
To combine the interests of the various businesses operating in our industry and present them through a co-operative coherent industry association. These interests ranges from the subsidiaries of global organisations and large Australian companies to highly specialised smaller operators. A balanced interaction with air, sea and other carriers, stevedores, government departments and authorities, insurers and the maritime law profession is essential for viable industry representation.

Is the industry in good shape, despite the economic uncertainty around the world?
The industry was in exceptionally good shape until recently due predominantly through globalisation of business and exceptionally high export and import activity. It would be entirely unrealistic to suggest that the global economic uncertainty will not impact on the industry. In fact, our industry is disproportionately susceptible to the boom and bust cycle of the economy. Dependency is direct and if the current economic crisis deepens, lower volumes shipped around the world will result in a necessary downsizing.

How dependent is our industry in Australia on global economic factors. Where are the major risks coming from?
Before the onset of the financial crisis, we faced a direct risk in relation to a worldwide adjustment to higher transport costs. This risk, however, contained an opportunity for our industry to increase productivity, improve rationalisation of processes and promised an improvement through optimum transport utilisation. A more critical selection of carriage can, for example, deliver long distance air/sea or air/surface combinations. Although the current financial crisis has driven these alternatives to the back-burner, when things settle, we can expect them to re-emerge.

AFIF is obviously very involved in industry training and education. What do you see as the major priorities going forward?
The challenges ahead are in direct relation to the increased complexity and sophistication our industry is required to cater for and to provide. A bottom-up on-the-job education no longer suffices and formalisation of all available training and education in our industry has become essential. Our industry needs the complete range of education — from certificates for attainment of a specific competence to diploma level in higher education for the forwarding and logistics sector. Educational opportunities, which have been a given for generations in the European forwarding industry and adopted in North America, Asia and are now also provided in Asia and even in many developing countries, cannot remain at the current informal level in Australia. It is a fact that the Australian education system is an important export initiative and our industry has the challenge and opportunity to participate in this development.

What other goals would you like AFIF to achieve in 2009 - and perhaps beyond?
To embrace the wider concept of logistics, otherwise described as end-to-end supply chain management. Many AFIF members’ core businesses are based on this principle. We should be mindful that in the not so distant past, our industry was viewed as cargo agents and the concept of the forwarder as principal carrier was not a concept accepted overnight. We most definitely have achieved that goal. Likewise, this step will provide considerable intellectual and organisational challenges for co-operation and extension of our activities to using all means of transport.

Are there any major issues within the industry that you would like to see ironed out?
There is an ever-increasing trend for global organisations and large volume customers to shift business risk to the forwarding industry by demanding full value liability and even consequential and indirect loss recovery from the forwarder. This trend is in direct contradiction to existing transport law and convention, and some archaic liability regimes are still in existence for some carriers. Regulatory restraints apply in relation to the application of transport risk insurance - in apparent disregard to this worldwide development. Enhanced liability has become a fact of life to the global sector of our industry and an alignment of risk share in the Australian transport industry will not only become necessary but will become vital. This will be a challenge.

Talk of a merger between AFIF and the CBFCA is a topic that is often brought up. What stage are the two bodies at in regard to this process. What would some of the benefits be for the combined membership?
The historic existence of a separate International Forwarders Association and a Customs Brokers Association has in essence been rendered unnecessary by developments in our industry over the years. The large international forwarders are a significant segment of the Customs clearance industry and, likewise, the pure Customs broker without any forwarding business has become a highly specialised undertaking in a relatively small segment of industry. I said earlier that our industry needs to embrace the widest range of activity; therefore a merger between AFIF and the CBFCA is essential and ultimately inevitable. The benefits of a combined membership would be a single and coherent approach to industry issues and a broadening of our industry’s influence with other stakeholders in transport. Both organisations have come a long way to co-operate in vital issues such as education, industry representation with government, legal matters and on the world scene represent themselves as one body.

What were the important issues for AFIF members arising out of this year’s FIATA World Congress in Vancouver?
Whilst the potential effects on the forwarding industry of the worsening global economic situation was being deliberated on, cargo security was also high on the agenda, particularly so as the US moves seemingly inexorably towards 100 per cent mandatory screening of all cargo originating; arriving into or transiting through the US mainland on passenger planes by August 2010. In addition, the methodology utilised must be x-ray or other government approved electronic screening method. A risk-based approach combining a variety of technology and documentary processes — common in many countries, including Australia - has all but been ruled out by the US Congress. This remains, despite many protestations from industry and some within the US TSA itself. The WCO has also protested against this process, claiming it will delay shipment transit-times. The first stage of 50 per cent screening by February 2009 is worrying many within the TSA, as they say the TSA-validated equipment is, in some cases, not going to be installed in time to meet this deadline. Palletised and unitised cargo, which has not undergone the requisite screening, will need to be dismantled, screened and re-built. The US is looking to recognise the screening processes of another country, if suitable in a ‘mutual recognition’ program, the details of which are yet to be finalised. However, despite our stringent “RACA’ TSP air cargo security program, it appears that this will not currently achieve ‘recognition’ by the US. There were numerous other issues and members will be given access to information once the minutes of the various Institute, advisory bodies and working group meetings are made available.

NZ flower exports back in the air, but with RMP cost for growers

Magazine Stories January Issue 2009
Thursday, 28 January 2016

While New Zealand’s export flower trade, most of it handled as air cargo, is blooming once more, the solution for field-grown operators has come at a cost.

As outlined in earlier reports, New Zealand’s cut flower and foliage exports to the United States were suspended in mid-September following a USDA-APHIS (Department of Agriculture, Animal & Plant Health Inspection Service) interception of light brown apple moths in a consignment of New Zealand flowers.

Despite some doom-saying by individual growers, producer groups took a pro-active approach to the problem and worked with MAF Biosecurity New Zealand to find a solution.

This came with pleasing speed for cut flowers and foliage grown in hothouse and screen house environments.  These producers were checked comprehensively by MAF Biosecurity and subsequently gained USDA-APHIS clearance.

“We had excellent co-operation from the USDA, exporters and industry, getting a return to trade almost immediately for product grown in a closed environment, which was a very pleasing result,” said Peter Johnson, exports senior adviser for MAF Biosecurity.

But the Americans were, rightly, worried about the pesky moth - a danger to their own agricultural and horticultural sector - infiltrating flowers grown au naturel, such as peonies.

Urgent work was carried out on developing a USDA-approved risk management program (RMP) for outdoor growers wanting to resume trade to the US — a fervent desire for most, many of them faced with the real prospect of abandoning their crop rather than borrowing funds to pick it and sell at a loss on the domestic market.

Johnson said the project took about three weeks to put together.

“This was an extraordinary effort by all concerned in a very tight frame and the outcome is very pleasing,” he suggested.  “We were well aware time was of the essence as the product we were dealing with in this case is fragile and depends on a very precise and concise set of events which allow it to arrive in peak condition for sale.”

Johnson pointed out that “in these particular circumstances the trade suspension could have been catastrophic but while there are losses they are not as heavy as could be expected by a prolonged suspension in trade”.

Some New Zealand peony growers were upset at the additional costs of the RMP but AirCargo Asia-Pacific understands that all but a few small-scale growers have gone along with it. 

However, at least a couple of medium to large growers are said to be considering their future in export flower production, given the additional expense and bother in maintaining the RMP.  

Rail picking up business from ‘green’ customers unhappy with surcharges

Magazine Stories January Issue 2009
Thursday, 28 January 2016
THE VOLATILITY of oil prices and the consequent fuel surcharges applied by integrators such as DHL, TNT, UPS and FedEx — in tandem with the economic slowdown — are causing a shift away from express and parcel delivery air freight toward road and more importantly, rail, writes Andrew Hudson.

Market analyst Datamonitor says it believes rail could eventually dominate in countries with comprehensive rail networks on both economic and environmental grounds.

In the three mature European Union (EU) markets of Germany, France and the UK, express operators already are increasing the use of the rail sector, especially for international deliveries.

Express operators such as Time:Matters (Germany), DHL (UK), Business Post (Same Day) UK and Swiss Post already are offering express services through the rail network to satisfy same day and next day domestic delivery requirements.

US operator FedEx has plans to team up with the French rail network as high speed TGV trains running at 300 kmph (the Eurocarex — Cargo Rail Express project) can prove to be both a viable solution for time definite deliveries and help reduce reliance on air networks for domestic and international deliveries within the EU.

This also is expected to streamline critical overnight express deliveries where noise levels due to night time deliveries in airports cause problems for residents in the surrounding airport areas.

But it’s not only rail. Road transport also is cost effective for packages in the intra-EU region and now accounts for an estimated 80 per cent of the total express market value in the three developed markets of Germany, the UK and France, although congestion charges in central London, Stockholm, Oslo and various other cities can make it more expensive than rail.

Express door-to-door delivery already utilises intermodal transportation for both domestic and international segments, however, in the medium to long term, Datamonitor says it expects a bigger shift toward rail transport than road and air.

Both express and railway companies, especially in the UK, have realised the opportunity for intermodal delivery through rail networks, it says.

This trend is being further fuelled by targeted express delivery services being offered by private rail operators in Europe. For example, EWS (the UK’s rail logistics operator) already provides multi-user services (night deliveries) through its rail network to companies such as DHL and Business Post.

On the water, too, money-saving opportunities exist, even in the just-in-time markets.

Developments in the ocean services sector now provide for day-definite services with date certainty for overseas trade and thus pose a potential threat to intercontinental air express, Datamonitor says.

Saudi makes it 26 for Cargo 2000

Magazine Stories January Issue 2009
Thursday, 28 January 2016

SAUDI Arabian Airlines has become the 26th major international airline to join Cargo 2000.

Fahad Ali Hammad, Saudi Arabian Airlines’ vice-president - Cargo Sales and Services said: “As a major player in the airfreight industry serving customers globally, our goal is to provide the maximum level of excellence and superior cargo and logistic services. The demands freight forwarders and logistics companies make on the airlines they use are getting bigger and setting a challenge for us all. It is very difficult for one airline to conform to each and every freight forwarder’s required standards. With Cargo 2000, there is a standard quality system designed to benefit both the airlines and their customers.

“With the implementation of simplified business processes, the end result is less time spent managing irregularities and a reduction of manual manpower work.

This will optimise cost efficiency and produce service improvements.” With a fleet of 139 modern Boeing, Airbus and McDonnell Douglas aircraft – including 747-200Fs and MD-11Fs - Saudi Arabian Airlines serves more than 57 international and 26 domestic destinations. Its direct cargo operations serve 11 international destinations from three mainline stations in Jeddah, Riyadh and Dammam. Some 65 per cent of the airline’s cargo traffic is carried on passenger services, with the remaining 35 per cent delivered by its all-cargo fleet.

Survey identifies link between airline cargo technologies and profitability

Magazine Stories January Issue 2009
Thursday, 28 January 2016
IN a recent Air Cargo Excellence Survey, many of the airlines that received high marks for cargo information technology also were among the world’s most profitable airlines, Mays adds.

The survey criteria included

• Information Technology: Tracking and tracing, Internet/electronic commerce capabilities.

• Value: Competitive rates commensurate with service levels, value-added programs.

• Customer Service: Claims handled expeditiously, problems solved in a prompt and courteous manner, professional and knowledgeable sales force and finally

• Performance: Fulfills promises and contractual agreements, dependable, accomplishes scheduled transit times.
In a separate complementary report, Gartner Group has forecast global IT investments in cargo logistics and related cargo service systems will have a compounded annual growth rate of five per cent year over year. Although this study was done before the current economic downturn, it is my firm belief that IT investments still need to be made with only slight variations.   

The key test for new technology investments includes items that can reduce cost and provide a quick return on investment (RoI); those investments which can improve service reliability; investments that can speed responsiveness to increasingly changing and demanding customer needs; and investments which provide greater security against terrorist threats, fraud, theft and pilferage.  I believe these criteria should be used to evaluate any airline’s technology investments moving forward in light of today’s global economic situation.  

In terms of RoI, all new IT investments must have a solid business case with clear, demonstrable cost savings to provide a return on investment within three years.  Operating excellence can be achieved by implementing new generation (higher reliability, scalable, open and flexible) technology to support the cargo business.

As our industry continues to suffer from high fuel cost and overcapacity, one sure way to survive is to become the most efficient by leveraging technology that can reduce cost.  Doing more with less and using real-time information to make solid business decisions will keep you ahead of the competition.  The business case has to be compelling, have real dollar savings and the endorsing owner has to stand behind and sign off on these benefits.  These investments - such as new generation cargo management solutions, RFID, and e-freight initiatives - can deliver lower operating costs.

Technology, service and security are the keys to airline savings and opportunities

Magazine Stories January Issue 2009
Thursday, 28 January 2016

AIRLINES need to focus on savings and opportunities through technology, better service and heightened security, write Larry Mays, group director Transportation & Logistics ADT National Accounts.

Global airfreight traffic levels historically have increased year over year going back as far as the early 1970s and generally speaking, there’s been a doubling of traffic every 10-11 years.  In light of the current economic uncertainty, ceos are challenged with finding ways to stay ahead of their competitors as well as grow profits. 
This is closely followed by the need to reduce costs through operational and customer service improvements.  In order to increase revenue growth opportunities, ceos must offer new and more innovative products and services targeted at specific market segments. 

In addition, they must be able to enter new markets and build brand loyalty based on reliability and predictability. 
One clear way to differentiate one’s service is by making it reliable. Consistently delivering service that meets customer expectations in a predictable manner is a sure-fire way of growing the top-line in a time-sensitive market. 

In a recent study, The International Logistics Quality Institute showed that 73 per cent of its respondents strongly agreed that time-definite products are the future of the industry.

RFID, bar code scanning, piece-level trace and track, in conjunction with integrated alliance partner operational practices, were crucial to meeting this objective.

Also, as markets and customers’ demands continue to change, the ability to rapidly deploy new services will allow a carrier to stay ahead of the competition. 

New products, extended partnerships and better customer information will help grow the top line.

Responding quickly to changes in the marketplace also can help build brand equity, which in turn builds customer loyalty. 

The best brands provide solutions that help their customers run their business though flexibility and innovation. In this ever-demanding global economy nothing stays the same for long and as customers’ requirements change, so must a service provider’s ability to adapt and respond quickly. We can no longer optimise around a set of inflexible work processes.

Finally, security is an ever-growing issue. There’s very strong pressure coming from Washington, USA to provide more security to stop terrorism choking global trade. The transportation and logistics industry suffers significant losses due to theft, fraud and mishandled and pilfered cargo. Annual losses are estimated anywhere between US$10 billion and US$20 billion, plus indirect losses, including lost business, investigation costs, security costs and insurance premium increases.

Across the logistics supply chain, these losses are estimated to range anywhere from US$30 billion to US$60 billion per year. Losses, compounded by increased government regulations due to terrorism, have all increased our need for additional security. The 9/11 Commission noted the terrorism risk is as great or greater in the maritime and surface transportation modes as it is with airlines.  We need to look at access control, video surveillance, GPS and RFID as ways to add a layered security system.  One solution will not be enough - there must be multiple layers of security.

Three-way merger won’t fly, says Iberia’s Conte

Magazine Stories January Issue 2009
Thursday, 28 January 2016

UK carrier British Airways’ ‘other’ merger, with Spanish-based Iberia, was under the spotlight this morning, Friday, after Iberia’s chief executive Fernando Conte said that despite Qantas initiating talks with BA in August, he only found out about the plans when BA ceo Willie Walsh phoned him an hour before they were made public earlier this week.

Speaking in London, Conte made it clear he was unhappy with the idea of adding Qantas to the BA-Iberia deal, saying a three-way tie up with Qantas would be "too complex".

Conte’s comments put pressure on all three airlines, and BA may need to decide which of the two proposed mergers is the more attractive.

Meanwhile, analysts already are questioning the BA-Qantas proposed deal, with Credit Suisse struggling to find benefits to the carriers. "In our opinion, a (Qantas) merger with BA provides relatively little cost and revenue benefits above those provided by the existing Joint Services Agreement," Suisse said in a story in the Age newspaper. Citi analysts said cost benefits would be less than three per cent, while ABN Amro said one to two per cent.

Another view is that it’s not the merger that’s important, but the way it’s structured as a dual listed company (DLC) and the structure’s impact on existing and potential shareholders, particularly foreign shareholders for Qantas, said Aircargo Asia-Pacific’s Jack Handley.

“DLCs work ‘by having a company link with a foreign company in a way that allows each to retain its individual identity, but with shareholders of each of the two separate companies able to make a claim on the combined earnings of the two companies as though they had undertaken a conventional merger.’ 

“The two companies ‘agree to share all the risks and rewards of the ownership of all their operating businesses in a fixed proportion, laid out in an ‘equalisation agreement’. Equalisation agreements are set up to ensure fair treatment of both companies’ shareholders in voting and cash flow rights. The contracts cover issues that determine the distribution of these legal and economic rights between the twin parents, including issues related to dividends, liquidation, and corporate governance’.

“The ‘equalisation agreement’ referred to above might have to be weighted in Qantas’s favour to level the playing field. If the DLC were to proceed on a strict 50:50 basis, Qantas’s shareholders arguably would be severely disadvantaged. Why?

“The Qantas group says its pre-tax 2008-09 earnings will be about A$500 million, but that could be twice as much as the 2008-2009 pre-tax earnings at BA. And BA’s figure is further complicated by its heavily underfunded pension schemes.

“BA’s defined benefit schemes (which guarantee the pension amounts to be paid to participating employees) were in deficit by A$4 billion at the beginning of this UK financial year (from April 2008). The economic melt-down since then will have made that worse.

“The pensions deficit would impact any merged group (and indeed, the pensions shortfall has already delayed the BA-Iberia proposed merger).

“Put simply, without ‘equalisation’, Qantas and BA shareholders alike in a DLC would have access to 50 per cent of any small BA dividend pot and half of Qantas’s larger dividend pot. Without a merger, Qantas shareholders get 100 per cent of any Qantas dividend. So the DLC is potentially good for BA shareholders, not good for Qantas’s.
“And the DLC equalisation agreement itself will need an army of legal and commercial geniuses at Qantas to make it fair to all parties, even in the short term.

“Also, any BA-QF merger using DLC could make any change to Qantas’s maximum foreign ownership (now tipped to rise to 49 per cent), unattractive to (other airline) investors in the ‘Roo, at least until British Airways’ financial position on its pension fund is resolved, its share price rises and the European finance markets recover enough to rebuild BA’s share of the premium market, currently showing signs of melt-down. Buying into Qantas now could mean sharing any QF dividends with BA shareholders and waiting for/hoping for a BA upturn.

“It wouldn’t surprise me if (BA’s) Willie Walsh is making an each-way bet: He may be hoping the Qantas proposal forces Iberia to make a quicker decision on its BA tie-up, either ‘yes’ or ‘no’.

“If it’s a ‘no’, Walsh still can take his chances with the competition regulators and/or Qantas’ negotiators on the proposed BA-Qantas DLC,” Handley said. “I don’t see he’s got anything to lose.”

TSA’s 100 per cent screening rule is seriously flawed, says industry

Magazine Stories January Issue 2009
Thursday, 28 January 2016

WITH a doomsday clock on the wall just outside his office, Ed Kelly, cargo general manager for the Transportation Security Administration (TSA) of the US Department of Homeland Security (DHS), is well aware of the rapidly approaching deadline in August 2010, when US legislation mandating 100 per cent piece-level screening of air cargo carried in passenger aircraft becomes law.

The airline and freight industries already have asked the US government for more time and to delay the legislation, but no-one believes that will happen, because the deadlines are congressionally-imposed and not flexible.

Kelly and almost everyone involved in air services to the US would like more time to minimise the impact of the new rule, which means every piece of freight either has to be scanned to TSA standards before takeoff from foreign ports or on arrival at the US entry port, whether that is its final destination or merely a trans-shipment point.

Unapproved cargo will be permitted to travel on freighter aircraft only.

The scanning equipment needed reportedly costs in excess of US$100,000 dollars per unit, has yet to be perfected and TSA and the US government have left the purchase cost burden with the industry.

Worse, industry commentators say the US Congress refuses to acknowledge the technology simply does not yet exist for guaranteed 100 per cent screening of cargo and even if it did, US Customs doesn’t currently have the manpower or equipment needed to review and analyse the scans in real time.

Assuming the scanning option goes ahead, the DHS has already publicly acknowledged problems with the pilot programs it has attempted.

In Pakistan there were problems getting the screening equipment to operate properly due to temperature fluctuations.

In the United Kingdom, scanning seriously impacted trans-shipment traffic flows.

In South Korea, truckers refused to use the equipment, citing health concerns and in Hong Kong, Hong Kong Customs said it couldn’t share the screening data results with the US.

Tom Wheelwright, senior vice president — Public Policy Asia Pacific for DHL Express says the biggest industry sector to be affected by the security screening will be express operators. " The express business will be most severely impacted by the new laws. Not just DHL but all express operators who collectively move millions of items each day," he said. 

"Customers of express delivery services have always demanded secure supply chains due to the critical nature and high value of their shipments," said Wheelwright. "As a result, the industry has been making significant investments in the security of premises and processes for many years, even before 9/11."

Recognising that authorities now see the need for much greater levels of control in response to the current security situation, he called for a ‘co-ordinated and balanced policy approach’.

Authorities also should not be too reliant on physical measures rather than ‘intelligence’ available from industry and other government agencies, he said, and highlighted the need for alignment in the security requirements of Customs, aviation security and transport. He called for a ‘whole of government approach’ which considers ICAO, the WCO SAFE framework and others.


"The nightmare scenario for the express delivery industry in terms of security policy would be a red lane/green lane system and the responsibility for the security compliance of customers," warned Wheelwright.

DHL already has invited TSA to do auditing checks on DHL's own security systems to see if any of its technology or experience can be used in trying to find a workable solution.

Despite it all, TSA’s Kelly believes he can meet his first objective -50 per cent screening by January 2009. Speaking at the TIACA World Cargo Forum in Kuala Lumpur, Malaysia, he said the chain of custody was the weakest link. TSA had developed solutions, but needed to test them, he said.

He used the Forum to seek the industry's help. " Collectively we have to come up with some form of compliance and hopefully we will have an answer by 2010," said Kelly. "We are working very closely with the freight forwarding industry to make it work."

He emphasised the efforts being taken to avoid causing bottlenecks and congestion at airports as a result of the required screening process. TSA will enable secure, audited and certified shipper and forwarder facilities to screen cargo earlier in the air cargo supply chain, notably through the rollout of its Certified Cargo Screening Program (CCSP). "The Administration’s policy for international inbound cargo," said Kelly, "includes harmonisation with foreign governments through open dialogue on the vulnerabilities of the international aviation system."

The size of the problem facing Kelly and his team of 55 transportation security experts was further emphasised by Captain Roshan Joshi, senior manager, corporate safety, security and quality, Singapore Airlines Cargo who joined Kelly on an industry panel discussing the problem.

" SIA Cargo averages 60 tonnes a day into Los Angeles International Airport. Under the new legislation, all this freight will have to be screened  — piece by piece," said Joshi.

"SIA Cargo will have no alternative other than to outsource this task. We are in the business as an air carrier, not a security expert."

Joshi did not elaborate on who will pay for this extra cargo screening service, but presumably the cost will hit both the airline and the customer. And with heightened competition on the North Pacific run, volatile fuel prices coupled with expensive full screening costs could jeopardise the viability of some airlines operating the route.

Joshi also used the platform to urge the TSA to provide a ranking for security services to enable foreign airlines such as SIA Cargo to use reputable and reliable security companies.

HACTL
Cathay Cargo
HACTL
Cathay Cargo